This
prospectus relates to periodic offers and sales of up to 28,425,000
shares of our common stock by the selling security holders,
including 13,962,500 shares which are presently outstanding and
14,462,500 shares which are issuable upon the possible exercise of
outstanding warrants with an exercise price of $0.65 per share. We
are registering the applicable shares of our common stock to
provide the selling security holders with freely tradable
securities. The registration of the shares of our common stock
covered by this prospectus does not necessarily mean that any
shares of our common stock will be sold by any of the selling
security holders, and we cannot predict when or in what amounts any
of the selling security holders may sell any of our shares of
common stock offered by this prospectus. The prices at which the
selling security holders may sell the shares of our common stock
will be determined by prevailing market prices or at prices that
may be obtained in negotiated transactions.
We
are not selling any shares of our common stock under this
prospectus and will not receive any proceeds from any sale or
disposition by the selling security holders of the shares of our
common stock covered by this prospectus. However, we will receive
proceeds in connection with the applicable exercise price of the
warrants to purchase shares of our common stock, which, if
exercised in cash with respect to all of the 14,462,500 shares of
common stock offered hereby, would result in gross proceeds to us
of approximately $9.4 million, but under certain circumstances such
warrants may be exercised via cashless exercise. In addition, we
will pay all fees and expenses incident to the registration of the
resale of shares of our common stock under this prospectus. The
selling security holders from time to time may offer and sell the
shares of our common stock held by them directly or through one or
more underwriters, broker-dealers or agents on terms to be
determined at the time of sale, as described in more detail in this
prospectus under “Plan of Distribution” beginning on
page 21. No shares of our common stock may be sold without delivery
of this prospectus describing the method and terms of the offering
of such shares.
Our
common stock is quoted on the OTCQB Tier of the OTC Markets under
the symbol "BMTM." On April 16, 2019 the last reported sale price
of our common stock was $2.00 per share.
We
are an “emerging growth company” as that term is used
in the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”) and, as such, have elected to comply with certain
reduced public company reporting requirements. See
“Prospectus Summary—Implications of Being an Emerging
Growth Company.”
____________________
Investing in our common stock
involves a high degree of risk. Before making any investment
decision, you should carefully review and consider all the
information in this prospectus. See "Risk Factors" beginning on
page 5 of this prospectus to read about the risks of investing in
our common stock.
____________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
You
should rely only on the information that we have provided or
incorporated by reference in this prospectus, any applicable
prospectus supplement and any related free writing prospectus that
we may authorize to be provided to you. We have not authorized
anyone to provide you with different information. No dealer,
salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus, any
applicable prospectus supplement or any related free writing
prospectus that we may authorize to be provided to you. You must
not rely on any unauthorized information or representation. This
prospectus is an offer to sell only the securities offered hereby,
but only under circumstances and in jurisdictions where it is
lawful to do so. You should assume that the information in this
prospectus, any applicable prospectus supplement or any related
free writing prospectus, is accurate only as of the date on the
front of the document, and that any information we have
incorporated by reference is accurate only as of the date of the
document incorporated by reference, regardless of the time of
delivery of this prospectus, any applicable prospectus supplement
or any related free writing prospectus, or any sale of a security
registered under the registration statement of which this
prospectus is a part.
This
prospectus contains summaries of certain provisions contained in
some of the documents described herein, but reference is made to
the actual documents for complete information. All of the summaries
are qualified in their entirety by the actual documents. Copies of
some of the documents referred to herein have been filed, will be
filed or will be incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and you
may obtain copies of those documents as described below under the
heading "Where You Can Find Additional Information."
When
used in this prospectus, the terms "Bright Mountain,""we,""us,"
or "our" refers to Bright Mountain Media, Inc., a Florida
corporation, and our subsidiaries. In addition, "2019" refers to
the year ending December 31, 2019, “2018” refers to the
year ended 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
prospectus.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This
prospectus includes forward-looking statements that relate to
future events or our future financial performance and involve known
and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance or achievements
to differ materially from any future results, levels of activity,
performance or achievements expressed or implied by these
forward-looking statements. Words such as, but not limited to,
"believe,""expect,""anticipate,""estimate,""intend,""plan,""targets,""likely,""aim,""will,""would,""could," and similar
expressions or phrases identify forward-looking statements. We have
based these forward-looking statements largely on our current
expectations and future events and financial trends that we believe
may affect our financial condition, results of operation, business
strategy and financial needs. Forward-looking statements include,
but are not limited to, statements about:
●
our
history of losses, our declining gross profit margins, our ability
to raise additional capital and continue as a going
concern;
●
our
ability to fully develop the Bright Mountain Media Ad Exchange
Network and services platform;
●
a
failure to successfully transition to primarily advertising based
revenue model;
●
the
continued appeal of Internet advertising;
●
our
ability to manage and expand our relationships with
publishers;
●
our
dependence on revenues from a limited number of
customers;
●
the
impact of seasonal fluctuations on our revenues;
●
acquisitions
of new businesses and our ability to integrate those businesses
into our operations;
●
online
security breaches;
●
failure
to effectively promote our brand and attract
advertisers;
●
our
ability to protect our content;
●
our
ability to protect our intellectual property rights;
●
the
success of our technology development efforts;
●
additional
competition resulting from our business expansion
strategy;
●
our
dependence on revenues from a limited number of
customers;
●
our
ability to detect advertising fraud;
●
liability
related to content which appears on our websites;
●
regulatory
risks and compliance with privacy laws;
2
●
dependence
on executive officers and certain key employees and
consultants;
●
our
ability to hire qualified personnel;
●
possible
problems with our network infrastructure;
●
ongoing
material weaknesses in our disclosure controls and internal control
over financial reporting;
●
the
impact on available working capital resulting from the payment of
cash dividends to our affiliates;
●
dilution
to existing shareholders upon the conversion of outstanding
preferred stock and convertible notes and/or the exercise of
outstanding options and warrants, including warrants with cashless
exercise rights;
●
the
illiquid nature of our common stock;
●
risks
associated with securities litigation;
●
provisions
of our charter and Florida law which may have anti-takeover
effects;
●
the
impact of diversion of management’s time as we pursue the
litigation against the former owners of one of the entities we
acquired; and
●
the
impact on the market price of our common stock from sales by the
selling security holders.
You
should read thoroughly this prospectus and the documents that we
refer to herein with the understanding that our actual future
results may be materially different from and/or worse than what we
expect. We qualify all of our forward-looking statements by these
cautionary statements including those made in Risk Factors
appearing elsewhere in this prospectus. Other sections of this
prospectus include additional factors which could adversely impact
our business and financial performance. New risk factors emerge
from time to time and it is not possible for our management to
predict all risk factors, nor can we assess the impact of all
factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
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 prospectus, and you should not rely on these statements
without also considering the risks and uncertainties associated
with these statements and our business.
PROSPECTUS SUMMARY
This summary does not contain all of the information that should be
considered before investing in our common stock. Investors should
read the entire prospectus carefully, including the more detailed
information regarding our business, the risks of purchasing our
common stock discussed in this prospectus under "Risk Factors"
beginning on page 5 of this prospectus and our financial statements
and the accompanying notes beginning on page F-1 of this
prospectus.
About us
Historically
we have operated as a digital media holding company for online
assets primarily targeted to the military and public safety
sectors. In addition to our corporate website, we own and/or manage
25 websites which are customized to provide our niche users,
including active, reserve and retired military, law enforcement,
first responders and other public safety employees with products,
information and news that we believe may be of interest to them. We
also own an ad network which was acquired in September 2017. We
have placed a particular emphasis on providing quality content on
our websites to drive traffic increases. Our websites feature
timely, proprietary and aggregated content covering current events
and a variety of additional subjects targeted to the specific
demographics of the individual website. Our business strategy
requires us to continue to provide this quality content to our
niche markets and to grow our business, operations and revenues
both organically and through acquisitions as we expand our business
past the original niche markets into mainstream digital
audiences.
We
have invested in our infrastructure and acquisitions and placed an
emphasis on providing quality content on our websites necessary to
drive traffic to our websites. With the exit from our E-Commerce
businesses effective December 31, 2018 as described below, we
believe that we have advanced our transition to becoming a digital
media company. We believe that with this action, our business,
results of operations and financial condition will be positively
impacted in the long term.
We
reported revenues of $1,735,649 and $1,104,017 for 2018 and 2017,
respectively, and net losses, including net losses from
discontinued operations, of $5,224,064 and $2,994,096,
respectively. The reports by our independent registered public
accounting firms on our audited consolidated financial statements
for 2018 and 2017 appearing later in this prospectus contain
qualifications regarding our ability to continue as a going
concern.
3
Discontinued Operations
Historically
we generated revenues from two segments, our advertising segment
and our product sales segment. Revenues from the product sales
segment included 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. During 2018 we began
to de-emphasize our product sales segment as we placed more
emphasis on our advertising segment. Effective December 31, 2018,
we discontinued the operations of our product sales segment. The
decision to exit all components of our product sales segment have
resulted in these businesses being accounted for as discontinued
operations in our audited consolidated financial statements
appearing later in this prospectus. We recorded losses, net of
income taxes, of $1,092,750 and $424,391 in 2018 and 2017,
respectively, for the discontinued operations. Please see Note 5 to
the notes to our consolidated financial statements appearing later
in this prospectus for additional disclosures related to the
reclassification of prior period amounts related to discontinued
operations to conform to the current period financial statement
presentation.
Implications of
Being an Emerging Growth Company
We
qualify as an “emerging growth company” as defined in
the JOBS Act. As an emerging growth company, we intend to take
advantage of specified reduced disclosure and other requirements
that are otherwise applicable generally to public companies. These
provisions include:
●
allowance to
provide only two years of audited financial statements in addition
to any required unaudited interim financial statements with
correspondingly reduced Management’s Discussion and Analysis
of Financial Condition and Results of Operations
disclosures;
●
reduced disclosure
about our executive compensation arrangements;
●
no non-binding
advisory votes on executive compensation or golden parachute
arrangements; and
●
exemption from
auditor attestation requirements in the assessment of our internal
control over financial reporting.
We may
take advantage of these provisions for up to five years or such
earlier time that we are no longer an emerging growth company. We
would cease to be an emerging growth company on the date that is
the earliest of: (i) the last day of the fiscal year in which we
have total annual gross revenues of $1.07 billion or more; (ii) the
last day of our fiscal year following the fifth anniversary of the
date of the completion of our initial public offering; (iii) the
dateon which we have issued more than $1.0 billion in
nonconvertible debt during the previous three years; or (iv) the
date on which we are deemed to be a large accelerated filer under
the rules of the SEC. We have taken advantage of reduced reporting
requirements in this prospectus. Accordingly, the information
contained herein may be different than the information you receive
from other public companies in which you have beneficial
ownership.
Corporate information
Our
principal executive offices are located at 6400 Congress Avenue,
Suite 2050, Boca Raton, FL33487, our telephone number is (561)
998-2440 and our corporate website address is
www.brightmountainmedia.com. Our fiscal year end is December
31.
SUMMARY OF THE OFFERING
This
prospectus covers the resale of a total of 28,425,000 shares of our
common stock by the selling security holders which includes
13,962,500 shares that are presently outstanding and 14,462,500
shares that are issuable upon the possible exercise of warrants
with an exercise price of $0.65 per share. These securities were
issued in connection with private offerings we conducted between
September 2018 and January 2019. The terms of these private
offerings are described in detail in our Current Reports on Form
8-K as filed with the SEC on October 4, 2018, December 4, 2018 and
January 1, 2019. See “Where You Can Find Additional
Information” appearing later in this prospectus.
We
will not receive any proceeds from the resale of our shares by the
selling security holders. To the extent the warrants are exercised
on a cash basis, we will receive the exercise price of the
warrants. We will pay all of the fees and expenses associated with
registration of the shares covered by this prospectus.
Common
stock offered by the selling security holders:
28,425,500 shares, including 13,962,500 shares which are presently
outstanding and 14,462,500 shares issuable upon the exercise of
outstanding warrants with an exercise price of $0.65 per
share.
Common
stock to be outstanding after the offering:
78,711,364 shares, assuming the issuance of 14,462,500 shares upon
the exercise on a cash basis of warrants at an exercise price of
$0.65per share, the resale of which is covered by this prospectus,
but giving no effect to the possible issuance of shares upon the
exercise of options or the exercises of any outstanding options or
other warrants.
OTCQB
Symbol:
BMTM
Risk factors:
Investing in our securities involves a high degree of risk. As an
investor you should be able to bear a complete loss of your
investment. You should carefully consider the information set forth
in the section of this prospectus entitled "Risk
Factors."
4
SELECTED FINANCIAL DATA
The following summary of our selected unaudited
condensed consolidated financial information for 2018 and 2017 and
has been derived from, and should be read in conjunction with, our
audited financial statements included elsewhere in this
prospectus.
An investment in our common stock involves a significant degree of
risk. You should not invest in our common stock unless you can
afford to lose your entire investment. You should consider
carefully the following risk factors and other information in this
prospectus before deciding to invest in our common stock. The risks
described below highlight potential events, trends or other
circumstances that could adversely affect our business, financial
condition, results of operations, cash flows, liquidity or access
to sources of financing, and consequently, the market value of our
common stock. These risks could cause our future results to differ
materially from historical results and from guidance we may provide
regarding our expectations of future financial performance. The
risks described below are not an exhaustive list of all the risks
we face. There may be others that we have not identified or that we
have deemed to be immaterial. All forward-looking statements made
by us or on our behalf are qualified by the risks described
below.
Risks Related to our Business
WE HAVE A HISTORY
OF LOSSES.
We incurred net losses of $5,224,064 and
$2,994,096, respectively, for 2018 and 2017, which includes losses
of $1,092,750 and $424,391, respectively, for discontinued
operations. At December 31, 2018 we had an accumulated deficit of
$17,042,966. While our revenues increased 57.2% for 2018 from 2017,
our gross profit margin declined from 39.2% in 2017 to 20.6% in
2018. In addition, in 2018 our selling, general and administrative
expenses, or “SG&A”, increased 34.6% in 2018
from 2017. We anticipate that our SG&A will continue to
increase in 2019 and beyond, and we may continue to incur losses in
future periods until such time, if ever, as we are successful in
significantly increasing our revenues and gross profit to a level
to fund our operating expenses. There are no assurances that we
will be able to significantly increase our revenues and gross
profit to a level which supports profitable operations and provides
sufficient funds to pay our operating expenses and other
obligations as they become due.
5
WE ARE DEPENDENT UPON SALES OF EQUITY SECURITIES AND LOANS FROM OUR
CHIEF EXECUTIVE OFFICER TO PROVIDE OPERATING CAPITAL.
We
do not generate sufficient gross profit to pay our operating
expenses and we reported losses from continuing operations of
$4,131,314 and $2,569,705 in 2018 and 2017, respectively.
Historically we have been dependent upon the purchase of equity
securities or convertible notes by Mr. Kip Speyer, our Chief
Executive Officer, to provide operating capital. During 2018 and
2017 he invested $530,000 and $1,760,000, respectively, in our
company. During 2018 and 2017 we paid him $281,882 and $171,254,
respectively, in dividend and interest payments on these
investments. In addition, between January 2018 and January 2019 we
raised $6,000,000 through the sale of our equity securities in
private placements. After payment of the cash commissions to
Spartan Capital Securities LLC ("Spartan Capital"), a broker dealer
and member of FINRA who served as placement agent in the offerings,
we used $1,400,000 of the net proceeds to pay Spartan Capital a
non-accountable expense allowance, various consulting and advisory
fees and are using the balance for working capital, including to
fund our operating loss. While we expect to seek to raise
additional working capital through the sale of our securities in
private or public transactions, we are not a party to any binding
agreements and there are no assurances we will be able to raise any
additional third party capital. Mr. Speyer is also under no
obligation to continue to lend us money or purchase equity
securities from us. If we are not able to raise sufficient
additional working capital as needed, absent a significant increase
in our revenues we may be unable to grow our company.
OUR ECONOMIC
PERFORMANCE HAS RAISED SUBSTANTIAL DOUBTS AS TO OUR ABILITY TO
CONTINUE AS A GOING CONCERN.
Our
consolidated financial statements have been prepared assuming we
will continue as a going concern. We have experienced substantial
and recurring losses from operations, which losses have caused an
accumulated deficit of $17,042,966 at December 31, 2018. These
factors, among others, raise substantial doubt about our ability to
continue as a going concern. Our consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
IF WE FAIL TO DETECT ADVERTISING FRAUD OR OTHER ACTIONS THAT IMPACT
OUR ADVERTISING CAMPAIGN PERFORMANCE, WE COULD HARM OUR REPUTATION
WITH ADVERTISERS OR AGENCIES, WHICH WOULD CAUSE OUR REVENUE AND
BUSINESS TO SUFFER.
Once
established, the Bright Mountain Media Ad Network Business will
rely on our ability to deliver successful and effective advertising
campaigns. Some of those campaigns may experience fraudulent and
other invalid impressions, clicks or conversions that advertisers
may perceive as undesirable, such as non-human traffic generated by
machines that are designed to simulate human users and artificially
inflate user traffic on websites. These activities could overstate
the performance of any given advertising campaign and could harm
our reputation. It may be difficult for us to detect fraudulent or
malicious activity on websites where we do not own content and rely
in part on our customers to control such activity. If we fail to
detect or prevent fraudulent or other malicious activity, the
affected advertisers may experience or perceive a reduced return on
their investment and our reputation may be harmed. High levels of
fraudulent or malicious activity could lead to dissatisfaction with
our solutions, refusals to pay, refund or future credit demands or
withdrawal of future business.
IF ADVERTISING ON THE INTERNET LOSES ITS APPEAL, OUR REVENUE COULD
DECLINE.
Our
business model may not continue to be effective in the future for a
number of reasons, including:
●
a
decline in the rates that we can charge for advertising and
promotional activities;
●
our
inability to create applications for our customers;
●
Internet
advertisements and promotions are, by their nature, limited in
content relative to other media;
●
companies
may be reluctant or slow to adopt online advertising and
promotional activities that replace, limit or compete with their
existing direct marketing efforts;
●
companies
may prefer other forms of Internet advertising and promotions that
we do not offer;
●
the
quality or placement of transactions, including the risk of
non-screened, non-human inventory and traffic, could cause a loss
in customers or revenue; and
●
regulatory
actions may negatively impact our business practices.
If
the number of companies who purchase online advertising and
promotional services from us does not grow, we may experience
difficulty in attracting publishers, and our revenue could
decline.
6
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY EXPAND AND
MANAGE OUR RELATIONSHIPS WITH OUR PUBLISHERS.
Outside
of our owned and operated websites, we are dependent upon our
publishing partners to provide the media which we sell. We depend
on these publishers to make their respective media inventories
available to us to use in connection with our campaigns that we
manage, create or market. Our growth depends, in part, on our
ability to expand and maintain our publisher relationships within
our network and to have access to new sources of media inventory
such as new partner websites and Facebook pages that offer
attractive demographics, innovative and quality content and growing
Web user traffic volume. Our ability to attract new publishers to
our networks and to retain Web publishers currently in our networks
will depend on various factors, some of which are beyond our
control. These factors include, but are not limited to, our ability
to introduce new and innovative products and services, our pricing
policies, and the cost-efficiency to Web publishers of outsourcing
their advertising sales. In addition, the number of competing
intermediaries that purchase media inventory from Web publishers
continues to increase. In the event we are not able to maintain
effective relationships with our publishers, our ability to
distribute our advertising campaigns will be greatly hindered which
will reduce the value of our services and adversely impact our
results of operations in future periods.
WE ARE DEPENDENT ON REVENUES FROM A LIMITED NUMBER OF
CUSTOMERS.
For
2018 revenues from two customers accounted for approximately 22.6%
of our revenues and approximately 33% of our accounts receivable at
December 31, 2018. The loss of either of these customers could have
material adverse impact on our results of operations in future
periods.
WE ARE SUBJECT TO SEASONAL FLUCTUATIONS IN OUR REVENUES IN FUTURE
PERIODS.
Typically
advertising technology companies report a material portion of their
revenues during the fourth calendar quarter as a result of holiday
related ad spend. Because of seasonal fluctuations, there can be no
assurance that the results of any particular quarter will be
indicative of results for the full year or for future
years.
THE ACQUISITION OF NEW BUSINESSES IS COSTLY AND THESE ACQUISITIONS
MAY NOT ENHANCE OUR FINANCIAL CONDITION.
A
significant element of our growth strategy has been to acquire
companies which complement our business. The process to undertake a
potential acquisition can be time-consuming and costly. We have and
continue to expect to expend significant resources to undertake
business, financial and legal due diligence on our potential
acquisition targets and there is no guarantee that we will acquire
the company after completing due diligence. The process of
identifying and consummating an acquisition could result in the use
of substantial amounts of cash and exposure to undisclosed or
potential liabilities of acquired companies. In some instances, we
may be required to provide historic audited financial statements
for up to two years for acquisition targets in compliance with the
rules and regulations of the SEC. The necessity to provide these
audited financial statements will increase the costs to us of
consummating an acquisition or, if it is determined that the target
company cannot obtain the requisite audited financials, we may be
unable to pursue an acquisition which might otherwise be accretive
to our business. In addition, even if we are successful in
acquiring additional companies, there are no assurances that the
operations of these businesses will enhance our future financial
condition. To the extent that a business we acquire does not meet
the performance criteria used to establish a purchase price, some
or all of the goodwill related to that acquisition could be charged
against our future earnings, if any.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.
User
confidence in our websites depends on maintaining strong security
features. While we are unaware of any security breaches to date,
experienced programmers or “hackers” could penetrate
sectors of our systems. Because a hacker who is able to penetrate
network security could misappropriate proprietary information or
cause interruptions in our services, we may have to expend
significant capital and resources to protect against or to
alleviate problems caused by hackers. Additionally, we may not have
a timely remedy against a hacker who is able to penetrate our
network security. Such security breaches could materially affect
our operations, damage our reputation and expose us to risk of loss
or litigation. In addition, the transmission of computer viruses
resulting from hackers or otherwise could expose us to significant
liability. Our insurance policies may not be adequate to reimburse
us for losses caused by security breaches. We also face risks
associated with security breaches affecting third parties with whom
we have relationships.
7
WE MUST PROMOTE THE BRIGHT MOUNTAIN BRAND TO ATTRACT AND RETAIN
USERS, ADVERTISERS AND STRATEGIC PARTNERS.
The
success of the Bright Mountain brand depends largely on our ability
to provide high quality content which is of interest to our users.
If our users do not perceive our existing content to be of high
quality, or if we introduce new content or enter into new business
ventures that are not favorably perceived by users, we may not be
successful in promoting and maintaining the Bright Mountain brand.
Any change in the focus of our operations creates a risk of
diluting our brand, confusing users and decreasing the value of our
website traffic base to advertisers. If we are unable to maintain
or grow the Bright Mountain brand, our business would be severely
harmed.
WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR CONTENT OR TO
DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT
SUCCESSFUL WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE
REQUIRED TO PAY SIGNIFICANT FEES.
Our
success and ability to compete are dependent on our proprietary
content. We rely exclusively on copyright law to protect our
content. While we actively take steps to protect our proprietary
rights, these steps may not be adequate to prevent the infringement
or misappropriation of our content, which could severely harm our
business. In addition to content written by our employees, we also
acquire content from various freelance providers and other
third-party content providers. While we attempt to ensure that such
content may be freely used by us, other parties may assert claims
of infringement against us relating to such content. We may need to
obtain licenses from others to refine, develop, market and deliver
new content or services. We may not be able to obtain any such
licenses on commercially reasonable terms or at all or rights
granted pursuant to any licenses may not be valid and
enforceable.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR CLAIMS BY
OTHERS THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS COULD
SUBSTANTIALLY HARM OUR BUSINESS.
Our
website domain names are crucial to our business. However, as with
phone numbers, we do not have and cannot acquire any property
rights in an Internet address. The regulation of domain names in
the United States and in other countries is also subject to change.
Regulatory bodies could establish additional top-level domains,
appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we might not be
able to maintain our domain names or obtain comparable domain
names, which could harm our business. We also rely on a combination
of trade secret laws and restrictions on disclosure to protect our
intellectual property rights. Our success depends on the protection
of the proprietary aspects of our technology as well as our ability
to operate without infringing on the proprietary rights of others.
Despite these measures, any of our intellectual property rights
could be challenged, invalidated, circumvented or misappropriated.
Others may independently discover our trade secrets and proprietary
information, and in such cases we could not assert any trade secret
rights against such parties. Costly and time-consuming litigation
could be necessary to enforce and determine the scope of our
intellectual property rights. Therefore, in certain jurisdictions,
we may be unable to protect our technology and designs adequately
against unauthorized third party use, which could adversely affect
our ability to compete.
DEVELOPING AND IMPLEMENTING NEW AND UPDATED APPLICATIONS, FEATURES
AND SERVICES FOR OUR WEBSITES MAY BE MORE DIFFICULT THAN EXPECTED,
MAY TAKE LONGER AND COST MORE THAN EXPECTED AND MAY NOT RESULT IN
SUFFICIENT INCREASES IN REVENUE TO JUSTIFY THE COSTS.
Attracting
and retaining users of our websites requires us to continue to
provide quality, targeted content and to continue to develop new
and updated applications, features and services for our websites.
If we are unable to do so on a timely basis or if we are unable to
implement new applications, features and services without
disruption to our existing ones, our ability to continue to expand
our website traffic will be in jeopardy. The costs of development
of these enhancements may negatively impact our ability to achieve
profitability. There can be no assurance that the revenue
opportunities from expanded website content, or updated
technologies, applications, features or services will justify the
amounts ultimately spent by us.
OUR TECHNOLOGY DEVELOPMENT EFFORTS MAY NOT BE SUCCESSFUL IN
IMPROVING THE FUNCTIONALITY OF OUR NETWORK, WHICH COULD RESULT IN
REDUCED TRAFFIC ON OUR WEBSITES.
If
our websites do not work as intended, or if we are unable to
upgrade the functionality of our websites as needed to keep up with
the rapid evolution of technology for content delivery, our
websites may not operate properly, which could harm our business.
Additionally, software product design, development and enhancement
involve creativity, expense and the use of new development tools
and learning processes. Delays in software development processes
are common, as are project failures, and either factor could harm
our business.
8
OUR ABILITY TO DELIVER OUR CONTENT DEPENDS UPON THE QUALITY,
AVAILABILITY, POLICIES AND PRICES OF CERTAIN THIRD-PARTY SERVICE
PROVIDERS.
We
rely on third parties to provide website hosting services. In
certain instances, we rely on a single service provider for some of
these services. In the event the provider were to terminate our
relationship or stop providing these services, our ability to
operate our websites could be impaired. Our ability to address or
mitigate these risks may be limited. The failure of all or part of
our website hosting services could result in a loss of access to
our websites which would harm our results of
operations.
WE MAY BE HELD LIABLE FOR CONTENT, BLOGS OR THIRD PARTY LINKS ON
OUR WEBSITE OR CONTENT DISTRIBUTED TO THIRD PARTIES.
As
a publisher and distributor of content over the Internet, including
blogs which appear on our websites and links to third-party
websites that may be accessible through our websites, or content
that includes links or references to a third-party’s website,
we face potential liability for defamation, negligence, copyright,
patent or trademark infringement and other claims based on the
nature, content or ownership of the material that is published on
or distributed from our websites. These types of claims have been
brought, sometimes successfully, against online services, websites
and print publications in the past. Other claims may be based on
errors or false or misleading information provided on linked
websites, including information deemed to constitute professional
advice such as legal, medical, financial or investment advice.
Other claims may be based on links to sexually explicit websites.
Although we carry general liability insurance, our insurance may
not be adequate to indemnify us for all liabilities imposed. Any
liability that is not covered by our insurance or is in excess of
our insurance coverage could severely harm our financial condition
and business. Implementing measures to reduce our exposure to these
forms of liability may require us to spend substantial resources
and limit the attractiveness of our websites to users.
OUR MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR
ACQUISITIONS AND TO MANAGE OUR GROWTH AND WE MAY BE UNABLE TO FULLY
REALIZE ANY ANTICIPATED BENEFITS OF THESE
ACQUISITIONS.
We
are subject to various risks associated with our growth strategy,
including the risk that we will be unable to identify and recruit
suitable acquisition candidates in the future or to integrate and
manage the acquired companies. Acquired companies’ histories,
the geographical location, business models and business cultures
will be different from ours in many respects. Successful
integration of these acquisitions is subject to a number of
challenges, including:
●
the
diversion of management time and resources and the potential
disruption of our ongoing business;
●
difficulties
in maintaining uniform standards, controls, procedures and
policies;
●
unexpected
costs and time associated with upgrading both the internal
accounting systems as well as educating each of their staff as to
the proper methods of collecting and recording financial
data;
●
potential
unknown liabilities associated with acquired
businesses;
●
the
difficulty of retaining key alliances on attractive terms with
partners and suppliers; and
●
the
difficulty of retaining and recruiting key personnel and
maintaining employee morale.
There
can be no assurance that our efforts to integrate the operations of
any acquired assets or companies will be successful, that we can
manage our growth or that the anticipated benefits of these
proposed acquisitions will be fully realized.
WE DEPEND ON THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER AND OUR
VICE PRESIDENT - DIGITAL. THE LOSS OF EITHER OF THEIR SERVICES
COULD HARM OUR ABILITY TO OPERATE OUR BUSINESS IN FUTURE
PERIODS.
Our
success largely depends on the efforts, reputation and abilities of
W. Kip Speyer, our Chief Executive Officer, and Todd F. Speyer, our
Vice President - Digital. While we are a party to an employment
agreement with Mr. Kip Speyer and do not expect to lose his
services in the foreseeable future, the loss of the services of Mr.
Kip Speyer could materially harm our business and operations
in future periods. We are not a party to an employment agreement
with Mr. Todd Speyer, his son. While we do not expect to lose the
services of Mr. Todd Speyer in the foreseeable future, if he should
choose to leave our company our business and operations could be
harmed until such time as we were able to engage a suitable
replacement for him.
9
WE MUST HIRE, INTEGRATE AND/OR RETAIN QUALIFIED PERSONNEL TO
SUPPORT OUR EXPECTED BUSINESS EXPANSION.
Our
success also depends on our ability to attract, train and retain
qualified personnel. In addition, because our users must perceive
the content of our websites as having been created by credible and
notable sources, our success also depends on the name recognition
and reputation of our editorial staff. In addition, we need to hire
an experienced Chief Financial Officer and expand our accounting
department to add additional accounting personnel who are
experienced in U.S. generally accepted accounting principles (GAAP)
and periodic reporting obligations of public companies such as
ours. Competition for qualified personnel is intense and we may
experience difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. If we fail to attract
and retain qualified personnel, our business will suffer and we may
be unable to timely meet our reporting obligations under Federal
securities laws.
WE DELIVER ADVERTISEMENTS TO USERS FROM THIRD-PARTY AD NETWORKS
WHICH EXPOSES OUR USERS TO CONTENT AND FUNCTIONALITY OVER WHICH WE
DO NOT HAVE ULTIMATE CONTROL.
We
display pay-per-click, banner, cost per acquisition
“CPM”, direct, and other forms of advertisements to
users that come from third-party ad networks. We do not control the
content and functionality of such third-party advertisements and,
while we provide guidelines as to what types of advertisements are
acceptable, there can be no assurance that such advertisements will
not contain content or functionality that is harmful to users. Our
inability to monitor and control what types of advertisements get
displayed to users could have a material adverse effect on our
business, financial condition and results of
operations.
OUR SERVICES MAY BE INTERRUPTED IF WE EXPERIENCE PROBLEMS WITH OUR
NETWORK INFRASTRUCTURE.
The
performance of our network infrastructure is critical to our
business and reputation. Because our services are delivered solely
through the Internet, our network infrastructure could be disrupted
by a number of factors, including, but not limited to:
●
unexpected
increases in usage of our services;
●
computer
viruses and other security issues;
●
interruption
or other loss of connectivity provided by third-party Internet
service providers;
●
natural
disasters or other catastrophic events; and
●
server
failures or other hardware problems.
If
our services were to be interrupted, it could cause loss of users,
customers and business partners, which could have a material
adverse.
OUR SYSTEMS MAY FAIL DUE TO NATURAL DISASTERS, TELECOMMUNICATIONS
FAILURES AND OTHER EVENTS, ANY OF WHICH WOULD LIMIT USER
TRAFFIC.
Our
websites are hosted by third party providers. Any disruption of the
computing platform at these third party providers could result in a
service outage. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins, supplier failure to meet
commitments, and similar events could damage these systems and
cause interruptions in the hosting of our websites. Computer
viruses, electronic break-ins or other similar disruptive problems
could cause users to stop visiting our website and could cause
advertisers to terminate any agreements with us. In addition, we
could lose advertising revenues during these interruptions and user
satisfaction could be negatively impacted if the service is slow or
unavailable. If any of these circumstances occurred, our business
could be harmed. Our insurance policies may not adequately
compensate us for losses that may occur due to any failures of or
interruptions in our systems. We do not presently have a formal
disaster recovery plan.
Our
websites must accommodate high volumes of traffic and deliver
frequently updated information. While we have not experienced any
systems failures to date, it is possible that we may experience
systems failures in the future and that such failures could harm
our business. In addition, our users depend on Internet service
providers, online service providers and other website operators for
access to our websites. Many of these providers and operators have
experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures
unrelated to our systems. Any of these system failures could harm
our business.
10
PRIVACY CONCERNS COULD IMPAIR OUR BUSINESS.
We
have a policy against using personally identifiable information
obtained from users of our websites without the user’s
permission. In the past, the Federal Trade Commission has
investigated companies that have used personally identifiable
information without permission or in violation of a stated privacy
policy. If we use personal information without permission or in
violation of our policy, we may face potential liability for
invasion of privacy for compiling and providing information to our
corporate customers and electronic commerce merchants. In addition,
legislative or regulatory requirements may heighten these concerns
if businesses must notify Internet users that the data may be used
by marketing entities to direct product promotion and advertising
to the user. Other countries and political entities, such as the
European Union, have adopted such legislation or regulatory
requirements. The United States may adopt similar legislation or
regulatory requirements in the future. If consumer privacy concerns
are not adequately addressed, our business, financial condition and
results of operations could be materially harmed.
WE ARE SUBJECT TO A NUMBER OF REGULATORY RISKS. ANY FAILURE
TO COMPLY WITH THE VARIOUS REGULATIONS COULD ADVERSELY IMPACT OUR
BUSINESS.
We
are subject to a number of domestic and, to the extent our
operations are conducted outside the U.S., foreign laws and
regulations that affect companies conducting business on the
Internet and through other electronic means, many of which are
still evolving and could be interpreted in ways that could harm our
business. U.S. and foreign regulations and laws potentially
affecting our business are evolving frequently. We currently have
not developed our internal compliance program nor do we have
policies in place to monitor compliance. Instead, we rely on the
policies of our publishing partners. If we are unable to identify
all regulations to which our business is subject and implement
effective means of compliance, we could be subject to enforcement
actions, lawsuits and penalties, including but not limited to fines
and other monetary liability or injunction that could prevent us
from operating our business or certain aspects of our business. In
addition, compliance with the regulations to which we are subject
now or in the future may require changes to our products or
services, restrict or impose additional costs upon the conduct of
our business or cause users to abandon material aspects of our
services. Any such action could have a material adverse effect on
our business, results of operations and financial
condition.
LITIGATION IS BOTH COSTLY AND TIME CONSUMING AND THERE IS NO
CERTAINTY OF A FAVORABLE RESULT.
We
are presently involved in litigation which is described later in
this prospectus. This litigation is both costly and time consuming
and has resulted in the diversion of management time and resources.
While we believe that all or a portion of our costs are covered by
insurance, there are no assurances that they are covered nor are
there assurances that we will prevail in the
litigation.
Risk related to the ownership of our securities
WE HAVE MATERIAL WEAKNESSES IN OUR DISCLOSURE CONTROLS AND OUR
INTERNAL CONTROL OVER FINANCIAL REPORTING. IF WE FAIL TO REMEDIATE
ANY MATERIAL WEAKNESSES OR IF WE FAIL TO ESTABLISH AND MAINTAIN
EFFECTIVE CONTROL OVER FINANCIAL REPORTING, OUR ABILITY TO
ACCURATELY AND TIMELY REPORT OUR FINANCIAL RESULTS COULD BE
ADVERSELY AFFECTED.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP. A
material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement
of annual or interim financial statements will not be prevented or
detected on a timely basis. Historically we have reported material
weaknesses in our disclosure controls and internal control over
financial reporting. These material weaknesses resulted in our
failure to timely file our Quarterly Report on Form 10-Q for the
period ended September 30, 2018. As required by the rules and
regulations of the SEC, our management assessed the effectiveness
of our internal control over financial reporting as of December 31,2018. Based on this assessment, and as described in our Annual
Report on Form 10-K for the year ended December 31, 2018 as filed
with the SEC on April 12, 2019, our management concluded that as of
December 31, 2018, our internal control over financial reporting
was not effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally
accepted accounting principles as a result of material weaknesses.
These continuing material weaknesses in our internal control over
financial reporting also resulted in a material weakness in our
disclosure controls. While we have added a second certified public
accountant to our finance department, our failure to remediate the
material weaknesses or the identification of additional material
weaknesses in the future could adversely affect our ability to
report financial information, including our filing of quarterly or
annual reports with the SEC on a timely and accurate basis.
Moreover, our failure to remediate the material weaknesses
identified above or the identification of additional material
weaknesses could prohibit us from producing timely and accurate
financial statements, which may adversely affect the market price
of shares of our common stock.
11
THE AMOUNT OF WORKING CAPITAL WE HAVE AVAILABLE COULD BE ADVERSELY
IMPACTED BY THE AMOUNT OF CASH DIVIDENDS WE PAY
AFFILATES.
At
April 15, 2019 we have outstanding two series of preferred stock
which pays cash dividends which are owned by Mr. W. Kip Speyer, our
CEO, and Mr. Richard Rogers, a member of our board of directors.
During 2018 we paid cash dividends of $111,940 to these affiliates.
These dividend amounts are in addition to the $189,355 of interest
payments we made to Mr. Speyer under the terms of convertible
promissory notes which were exchanged for one of the series of
outstanding preferred stock in November 2018. The payment of these
cash dividends and interest payments reduces the amount of capital
we have available to devote to the growth of our
company.
WE HAVE OUTSTANDING PREFERRED STOCK, CONVERTIBLE NOTES, OPTIONS AND
WARRANTS TO PURCHASE APPROXIMATELY 43% OF OUR OUTSTANDING COMMON
STOCK AT APRIL 15, 2019. IF WE ISSUE SECURITIES IN ACQUSITIONS, OUR
SHAREHOLDERS WILL BE FURTHER DILUTED.
At
April 15, 2019 we had 64,248,864 shares of our common stock
outstanding together with outstanding preferred stock, convertible
notes, options and warrants to purchase an aggregate of 27,531,017
shares of common stock. The automatic conversion of the various
series of preferred stock and the possible exercise of the warrants
and/or options on a cash basis will increase by approximately 43%
the number of shares of our outstanding common stock, which will
have a dilutive effect on our existing shareholders.
CERTAIN OF OUR OUTSTANDING WARRANTS CONTAIN CASHLESS EXERCISE
PROVISIONS WHICH MEANS WE WILL NOT RECEIVE ANY CASH PROCEEDS UPON
THEIR EXERCISE.
At
April 15, 2019 we had common stock warrants outstanding to purchase
an aggregate of 18,460,000 shares of our common stock with an
exercise price ranging from $0.65 to $0.75 per share, of which
1,500,000 warrants exercisable at $0.65 per share which are held by
Spartan Capital are exercisable on a cashless basis. This means
that the holder, rather than paying the exercise price in cash, may
surrender a number of warrants equal to the exercise price of the
warrants being exercised. It is possible that the warrant holders
will use the cashless exercise feature. In that event, it will
deprive us of approximately $975,000 of additional capital which
might otherwise be obtained if the warrants were exercised on a
cash basis.
In
addition, in the past we have issued shares of our common stock as
consideration in acquisitions and we expect we may do so in the
future. These issuances will further have a further dilutive effect
on our shareholders.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS AND FLORIDA LAW MAY HAVE
ANTI-TAKEOVER EFFECTS THAT COULD DISCOURAGE AN ACQUISITION OF US BY
OTHERS, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS AND MAY PREVENT ATTEMPTS BY OUR SHAREHOLDERS TO
REPLACE OR REMOVE OUR CURRENT MANAGEMENT.
Provisions
in our amended and restated articles of incorporation and amended
and restated bylaws, as well as provisions of Florida law, could
make it more difficult for a third party to acquire us or increase
the cost of acquiring us, even if doing so would benefit our
shareholders, or remove our current management. These include
provisions that:
●
permit
our board of directors to issue up to 20,000,000 shares of
preferred stock, with any rights, preferences and privileges as
they may designate;
●
provide
that all vacancies on our board of directors, including as a result
of newly created directorships, may, except as otherwise required
by law, be filled by the affirmative vote of a majority of
directors then in office, even if less than a quorum;
●
provide
that shareholders seeking to present proposals before a meeting of
shareholders or to nominate candidates for election as directors at
a meeting of shareholders must provide advance notice in writing,
and also satisfy requirements as to the form and content of a
shareholder’s notice;
●
not
provide for cumulative voting rights, thereby allowing the holders
of a majority of the shares of common stock entitled to vote in any
election of directors to elect all of the directors standing for
election; and
●
provide
that special meetings of our shareholders may be called only by the
board of directors or by the holders of at least 40% of our
securities entitled to notice of and to vote at such
meetings.
These
provisions may frustrate or prevent any attempts by our
shareholders to replace or remove our current management by making
it more difficult for shareholders to replace members of our board
of directors, who are responsible for appointing the members of our
management. Section 607.0902 of the Florida Business Corporation
Act provides provisions which may discourage, delay or prevent
someone from acquiring us or merging with us whether or not it is
desired by or beneficial to our shareholders. As permitted under
Florida law, we have elected not to be governed by this statute.
Any provision of our amended and restated articles of
incorporation, amended and restated bylaws or Florida law that has
the effect of delaying or deterring a change in control could limit
the opportunity for our shareholders to receive a premium for their
shares of common stock or warrants, and could also affect the price
that some investors are willing to pay for our shares of common
stock or warrants.
12
OUR COMPANY HAS A CONCENTRATION OF STOCK OWNERSHIP AND CONTROL,
WHICH MAY HAVE THE EFFECT OF DELAYING, PREVENTING, OR DETERRING A
CHANGE OF CONTROL.
Our
common stock ownership is highly concentrated. As of April 15,2019, Mr. W. Kip Speyer, our Chief Executive Officer and
Chairman of the Board, together with members of our board of
directors and a principal shareholder, beneficially owns
approximately 59.9% of our total outstanding shares of common
stock. As a result of the concentrated ownership of the stock,
Mr. Speyer and our Board may be able to control all matters
requiring shareholder approval, including the election of directors
and approval of mergers and other significant corporate
transactions. This concentration of ownership may have the effect
of delaying, preventing or deterring a change in control of our
company. It could also deprive our shareholders of an opportunity
to receive a premium for their shares as part of a sale of our
company and it may affect the market price of our common
stock.
WE DO NOT KNOW WHETHER AN ACTIVE, LIQUID AND ORDERLY TRADING MARKET
WILL DEVELOP FOR OUR COMMON STOCK AND AS A RESULT IT MAY BE
DIFFICULT FOR YOU TO SELL YOUR SHARES OF OUR COMMON
STOCK.
Our
common stock is quoted on the OTCQB Tier of the OTC Markets and is
thinly traded. An active trading market in our common stock may
never develop or, if developed, sustained. The lack of an active
market may impair your ability to sell your shares at the time you
wish to sell them or at a price that you consider reasonable. The
lack of an active market may also reduce the fair market value of
your shares. Further, an inactive market may also impair our
ability to raise capital by selling shares of our common stock and
may impair our ability to enter into business combinations with
other companies by using our shares of common stock as
consideration. The market price of our common stock may be
volatile, and you could lose all or part of your
investment.
IF THE SELLING SECURITY HOLDERS ALL ELECT TO SELL THEIR SHARES OF
OUR COMMON STOCK AT THE SAME TIME, THE MARKET PRICE OF OUR SHARES
MAY DECREASE.
It
is possible that the selling security holders will offer all of the
shares for sale. Further, because it is possible that a significant
number of shares could be sold at the same time hereunder, the
sales, or the possibility thereof, may have a depressive effect on
the market price of our common stock.
USE OF PROCEEDS
We
will not receive any proceeds from the sale of the shares of our
common stock previously issued and issuable upon exercise of the
warrants to purchase shares of our common stock by the selling
security holders from time to time pursuant to this prospectus. The
proceeds from the offering are solely for the account of the
selling security holders. See “Selling Security
Holders.”
We
will, however, receive proceeds from any cash exercise of the
warrants. If the warrants were exercised in cash with respect to
all of the 14,462,500 shares of common stock offered hereby, we
would receive gross proceeds of approximately $9.4 million. We
cannot predict when or if the warrants will be exercised, and it is
possible that the warrants may expire and never be
exercised.
Any
net proceeds received by us from the exercise of the warrants will
be used for working capital and general corporate purposes. This
represents our best estimate of the manner in which we will use any
net proceeds we receive from this offering based on the status of
our business, but we have not reserved or allocated amounts for
specific purposes and we cannot specify with certainty how or when
we would use any net proceeds. We will have broad discretion in the
application of any net proceeds we receive from this offering, and
we could use any such proceeds for purposes other than those
currently contemplated. Until the funds are used, we intend to
invest any net proceeds from this offering in interest-bearing
money market or other accounts.
SELLING SECURITY HOLDERS
The
following presents information about the selling security holders.
The selling security holders may sell up to 28,425,500 shares of
our common stock, including 13,962,500 shares which are presently
outstanding and up to 14,462,500 shares issuable upon the exercise
of outstanding warrants with an exercise price of $0.65 per share.
These securities were sold to the selling security holders in
private placements or issued as compensation for certain placement
agent and investment banking and advisory services as described
below. Under the terms of the warrants, a selling security holder
may not exercise the warrants to the extent such conversion or
exercise would cause such selling security holder, together with
its affiliates, to beneficially own a number of shares of our
common stock which would exceed 4.99% of our then outstanding
shares of our common stock following such exercise. This limitation
may be increased to 9.99% at the holder’s option upon 61 days
notice to us. This term is customarily referred to as a
“blocker.” The number of shares in the first column in
the table below does not reflect this limitation.
13
When
we refer to the selling security holders in this prospectus, we
mean those persons listed in the table below, as well as the
permitted transferees, pledgees, donees, assignees, successors and
others who later come to hold any of the selling security
holders’ interests other than through a public
sale.
The
selling security holders may from time to time offer and sell
pursuant to this prospectus any or all of the shares of common
stock set forth in the following table. There is no requirement for
the selling security holders to sell their shares, and we do not
know when, or if, or in what amount the selling security holders
may offer the shares of common stock for sale pursuant to this
prospectus.
The
selling security holders identified below may have sold,
transferred or otherwise disposed of some or all of their shares
since the date on which the information in the following table is
presented in transactions exempt from or not subject to the
registration requirements of the Securities Act. Information
concerning the selling security holders may change from time to
time and, if necessary, we will supplement this prospectus
accordingly. We are unable to confirm whether the selling security
holders will in fact sell any or all of their shares of common
stock.
To
our knowledge and except as noted below, none of the selling
security holders has, or within the past three years has had, any
material relationships with us or any of our affiliates. Each
selling security holder who is also an affiliate of a broker
dealer, as noted below, has represented that: (1) the selling
security holder purchased in the ordinary course of business; and
(2) at the time of purchase of the securities being registered for
resale, the selling security holder had no agreements or
understandings, directly or indirectly, with any person to
distribute the securities.
14
Name
of selling security holder
No. of shares beneficially owned
(1)
No. of shares being registered (1)
No. of
shares owned after the offering
% owned
after the offering
John
V. Aksak
500,000
500,000
0
-
Judson
A. Church
500,000
500,000
0
-
Brian
T. Chapman
125,000
125,000
0
-
Brian
Campbell
125,000
125,000
0
-
Daniel E. Pettit Revocable Trust
(2)
500,000
500,000
0
-
John
DeWar
4,500,000
4,500,000
0
-
Andrew A. Handwerker (3)
9,560,388
500,000
9,060,388
14.1%
Davis Living Trust (4)
175,000
175,000
0
-
Donald
Pearson
250,000
250,000
0
-
Peter
Ginkel
50,000
50,000
0
-
Donald
Manthe
50,000
50,000
0
-
David
Vogel
325,000
325,000
0
-
E.
Russell Black
25,000
25,000
0
-
Christine
Gayron and Brian Gayron, JTWROS
50,000
50,000
0
-
15
Robert
Susie
250,000
250,000
0
-
H.
Edward Dobroski
1,250,000
1,250,000
0
-
David
Werdiger
125,000
125,000
0
-
Ashar
Qureshi
225,000
225,000
0
-
Allen
Stoye
375,000
375,000
0
-
Ronald
Lyon
500,000
500,000
0
-
Perry
Harris
100,000
100,000
0
-
Ricard
Shaller
75,000
75,000
0
-
Herman
Thoms
125,000
125,000
0
-
Thomas
Pinger
50,000
50,000
0
-
Howard
Fishman SEP IRA
75,000
75,000
0
-
Maureen
Handwerker
162,000
150,000
12,000
≤1%
David
Jacobs
50,000
50,000
0
-
Dean
Porch
150,000
150,000
0
-
Barton
Niemeyer and Patricia Niemeyer, JTWROS
100,000
100,000
0
-
Fred
Schiffler
375,000
375,000
0
-
Robert
Hill
50,000
50,000
0
-
Arnold
Morse
50,000
50,000
0
-
1st Out Bail Bonds (5)
50,000
50,000
0
-
Thomas
Gioseffi
50,000
50,000
0
-
Jay
Burgardt
700,000
700,000
0
-
Kenneth
Knudsen
150,000
150,000
0
-
Ingron
Tynes
625,000
625,000
0
-
Marcia
Steele
525,000
525,000
0
-
Thomas
Bardertscher
100,000
100,000
0
-
Jonathan
C. Beeler
250,000
250,000
0
-
Robert
Bernardo
50,000
50,000
0
-
Robert
J. Bernardo
50,000
50,000
0
-
Tim
Boffey
250,000
250,000
0
-
Sam
Borgia and Anna Rose Borgia, JTWROS
375,000
375,000
0
-
Glyn
Carter
50,000
50,000
0
-
Collegiate Tutoring Inc. (6)
75,000
75,000
0
-
Robert
T. Crane
250,000
250,000
0
-
Jeffrey
Creskoff
50,000
50,000
0
-
Thomas
C. Deloach
50,000
50,000
0
-
Jerry
Grove
577,500
577,500
0
-
James
Guilford and Amy W. Guilford, JTWROS
125,000
125,000
0
-
Scot
E. Hall
75,000
75,000
0
-
Gerald
Harmon
625,000
625,000
0
-
Larry
Hauskins
250,000
250,000
0
-
W.
Steven Heise
50,000
50,000
0
-
Roger
Kriete
125,000
125,000
0
-
16
Eric
Moritz
625,000
625,000
0
-
Alan
Robinovitz
125,000
125,000
0
-
Paul
Roderick
50,000
50,000
0
-
Curtis
Ross
400,000
400,000
0
-
Stacey
Zander
1,150,000
1,150,000
0
-
Guilio
Bernardi and Ana Bernardi, JTWROS
250,000
250,000
0
-
John
A. Miller
250,000
250,000
0
-
Harold
R. Osborne
62,500
62,500
0
-
Terry
M. Seiders
50,000
50,000
0
-
Harbans
Lal
100,000
100,000
0
-
Phillip
Woods
50,000
50,000
0
-
Carl
A. Yacapraro and Mildred E. Yacapraro, JTWROS
300,000
300,000
0
-
Larry
G. Adkins
800,000
800,000
0
-
John
R. Nardone
135,000
135,000
0
-
Scott
Roe
125,000
125,000
0
-
Jeffrey
Erickson
125,000
125,000
0
-
Louis
K.R. Beene
250,000
250,000
0
-
Hampton Growth Resources, LLC (7)
125,000
125,000
0
-
Johnson Revocable Trust (8)
100,000
100,000
0
-
Eddie A. Fischer Irrevocable Trust 2005
(9)
1,000,000
1,000,000
0
-
218-17 LLC (10)
150,000
150,000
0
-
David
W. Forti and Jennifer Forti, JTWROS
50,000
50,000
0
-
Stephen
Shaper
250,000
250,000
0
-
Stanley
M. Simmons and Lisa L. Simmons, JTWROS
300,000
300,000
0
-
Fred
E. Weidner and Burdena Weidner, JTWROS
125,000
125,000
0
-
Donald
Morgenroth
250,000
250,000
0
-
Alan
E. Baker and Desiree D. Baker, JTWROS
250,000
250,000
0
-
Randall
Lowry
250,000
250,000
0
-
Craig
Houston
100,000
100,000
0
-
Timothy
Richard
250,000
250,000
0
-
John
Ronge
50,000
50,000
0
-
Shuari Investments PTY Ltd. (11)
125,000
125,000
0
-
Dale
Schumann
225,000
225,000
0
-
Forrest
Manheimer
50,000
50,000
0
-
Robert
Geller
50,000
50,000
0
-
Thomas
Cannon
50,000
50,000
0
-
Jason
Goldblatt
50,000
50,000
0
-
Wendell
Locke
50,000
50,000
0
-
Spartan
Capital Securities, LLC
2,500,000
0
-
28,425,500
(1)
includes
shares of our common stock issuable upon the exercise of
warrants.
(2)
Daniel
E. Pettit and Rachel E. Pettit, as Trustees, each have voting and
dispositive control over securities held of record by the
trust.
(3)
The
number of shares beneficially owned by Mr. Handwerker includes
5,169,650 shares of our common stock which are held by his wife,
but excludes an aggregate of 750,000 shares of our common stock
issuable upon the exercise of warrants held by Mr. Handwerker or
his spouse which contain the “blocker” term described
above.
(4)
Leonard
E. Davis or Norma H. Davis, as Trustees, each voting and
dispositive control over securities held of record by the
trust.
(5)
Robert
Linares, as President, has voting and dispositive control over
securities held of record by 1st Out Bail Bonds.
(6)
Robert
Ertner, as President, has voting and dispositive control over
securities held of record by Collegiate Tutoring, Inc.
(7)
Andrew
W. Haag, as Managing Member, has voting and dispositive control
over securities held of record by Hampton Growth Resources,
LLC.
(8)
Todd
Johnson, as Trustee, has voting and dispositive control over
securities held of record by the trust.
(9)
Eddie
A. Fischer, as Trustee, has voting and dispositive control over
securities held of record by the trust.
(10)
Gregory
P. Hayden, as Managing Member, has voting and dispositive control
over securities held of record by, 218-17 LLC.
(11)
David
Werdinger, in his position as Director, has voting and dispositive
control over securities held of record by Shuari Investments PTY
Ltd.
17
Except
for Spartan Capital, none of the selling security holders are
broker-dealers or affiliates of broker-dealers. None of the selling
security holders has, or within the past three years has had, any
position, office or other material relationship with us or any of
our predecessors or affiliates, other than as described previously
in this section. Spartan Capital received 1,000,000 shares of our
common stock as partial compensation for its services under the
terms of a consulting agreement, and warrants to purchase an
aggregate of 1,500,000 shares of our common stock as partial
compensation for its services as placement agent, both as described
below.
The private placements
Following
is a description, in chronological order, of transactions between
us and the selling security holders related to the common stock
held by such selling security holders and shares of common stock
underlying warrants held by such selling security holders, the
resales of which are being registered by the registration statement
of which this prospectus is a part.
2018 private placement
Between
January 2018 and November 2018, we sold 12,000,000 units of our
securities to 83 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. The units were sold at a purchase price of $0.40 per
unit resulting in gross proceeds to us of $4,800,000. Each unit
consisted of one share of our common stock and one five year common
stock purchase warrant to purchase one share of our common stock at
an exercise price of $0.65 per share.
Spartan
Capital acted as exclusive placement agent for us in this offering.
As compensation for its services, we paid Spartan Capital an
aggregate cash commission of $480,000 and issued it five year
placement agent warrants exercisable at $0.65 per share to purchase
an aggregate of 1,200,000 shares of our common stock. 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 reimbursed Spartan Capital $15,000 for its
out of pocket expenses. After payment of the commissions and
reimbursement of out of pocket expenses to Spartan Capital, we used
an additional $1,160,000 for the payment of consulting and advisory
fees to Spartan Capital under the terms of the agreements described
below and are using the balance for working capital.
We
indemnified Spartan Capital and its controlling persons to the
fullest extent permitted by law against certain liabilities that
may be incurred in connection with this offering, including certain
civil liabilities under the Securities Act and, where such
indemnification is not available, to contribute to the payments
Spartan Capital may be required to make with respect to such
liabilities, except in such circumstances where the liabilities
occurred as a result of the gross negligence or willful misconduct
of an indemnified party. In addition, for the 36 months from the
final closing of this private placement, we granted Spartan Capital
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
terms of the warrants included in the units sold in this offering
include:
Exercise Price:
The exercise price per whole share of common stock purchasable upon
exercise of the warrants is $0.65 per share. The exercise price is
subject to appropriate adjustment in the event of certain stock
dividends and distributions, stock splits, stock combinations,
reclassifications or similar events affecting our common stock and
also upon any distributions of assets, including cash, stock or
other property to our shareholders;
Exercisability:
The warrants are exercisable at any time after their original
issuance and at any time up to the date that is five years after
their original issuance. If we failed to timely file the resale
registration statement registering the resale of the shares of
common stock issuable upon exercise of the warrant or at any time
thereafter during the exercise period if there is not an effective
registration statement registering such shares, or the prospectus
contained therein is not available for the issuance of the such
shares to the holder for a period of at least 60 days following the
delivery of a suspension notice as described in the warrant, then
the warrants may also be exercised, in whole or in part, at such
time by means of a “cashless exercise”. No fractional
shares of our common stock will be issued in connection with the
exercise of a warrant. In lieu of fractional shares, we will round
up the shares to be issued to the holder to the next whole
share;
Call Right:
Providing that there is an effective registration statement
registering the shares of our common stock issuable upon exercise
of the warrants, during the exercise period, upon 30 days prior
written notice to the holder following the date on which the last
sale price of our common stock equals or exceeds $1.50 per share
for 10 consecutive trading days, as may be adjusted for stock
splits, stock dividends and similar corporate events, if the
average daily trading volume of our common stock is not less than
30,000 shares during such 10 consecutive trading day period, we
have the right to call any or all of the warrants at a call price
of $0.01 per underlying share;
18
Exercise Limitation:
A holder will not have the right to exercise any portion of the
warrant if the holder together with its affiliates would
beneficially own in excess of 4.99% of the number of shares of our
common stock outstanding immediately after giving effect to the
exercise, as such percentage ownership is determined in accordance
with the terms of the warrants. However, any holder may increase or
decrease such percentage to any other percentage not in excess of
9.99% upon at least 61 days’ prior notice from the holder to
us;
Transferability:
Subject to applicable laws, the warrants may be offered for sale,
sold, transferred or assigned without our consent;
Fundamental Transactions:
In the event of a fundamental transaction, as described in the
warrants and generally including any reorganization,
recapitalization or reclassification of our common stock, any
consolidation or merger of Bright Mountain with or into any
corporation (other than a consolidation or merger with another
corporation in which we are the acquiring and the surviving
corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of the
warrant), or in case of any sale of all or substantially all of our
assets, the holders of the warrants will be entitled to receive
upon exercise of the warrants the kind and amount of securities,
cash or other property that the holders would have received had
they exercised the warrants immediately prior to such fundamental
transaction; and
Rights as a Shareholder:
The holder of a warrant does not have the rights or privileges of a
holder of our common stock, including any voting rights, until the
holder exercises the warrant.
We
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 warrants. In addition, we agreed to file a
resale registration statement within 120 days following the final
closing of this offering covering the shares of our common stock
issuable upon the exercise of the warrants included in the units.
This prospectus is part of that registration statement. Because we
failed to timely file this resale registration statement, from the
filing deadline of March 29, 2019 through the filing date of the
registration statement, then within five business days of the end
of month we are obligated to 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. We agreed to keep
the registration statement of which this prospectus is a part
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 warrants. We are obligated
to pay all costs associated with the registration statement, other
than selling expenses of the holders. 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.
2019 private placement
Between
December 2018 and January 2019, we sold 3,000,000 units of our
securities to 21 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 and Regulation S of the Securities Act. The units were
sold at a purchase price of $0.40 per unit resulting in gross
proceeds to us of $1,200,000. These units, including the warrants,
were identical to the units sold in our 2018 private placement. We
granted the purchasers of units in this offering the same
registration rights as we granted the purchasers in the 2018
private placement as described above.
Spartan
Capital also acted as exclusive placement agent for us in this
offering. We paid Spartan Capital a cash commission of $120,000, a
cash non-accountable expense allowance of $40,000 and issued it
five year placement agent warrants to purchase an aggregate of
300,000 shares of our common stock at an exercise price of $0.65
per share as compensation for its services. The placement agent
warrants issued in this offering were identical to those issued to
Spartan Capital in our 2018 private placement. We also indemnified
Spartan Capital and its controlling persons to the fullest extent
permitted by law against certain liabilities that may be incurred
in connection with this offering, including certain civil
liabilities under the Securities Act and, where such
indemnification is not available, to contribute to the payments
Spartan Capital may be required to make with respect to such
liabilities, except in such circumstances where the liabilities
occurred as a result of the gross negligence or willful misconduct
of an indemnified party. We granted Spartan Capital certain rights
of first refusal if decide to undertake a future private or public
offering of securities or if we decide to engage an investment
banking firm within 36 months from the closing date of the
offering. These rights are in addition to similar rights granted to
Spartan Capital in connection with the 2018 private
placement.
19
We
used $200,000 of the proceeds from this offering for the payment of
the fees due Spartan Capital under the terms of the Uplisting
Advisory and Consulting Agreement described below, and are using
the balance of $840,000 for general working capital.
Agreements with Spartan Capital
On
September 6, 2017 we 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 the 2018 private placement described above. On
September 28, 2018 the Consulting Agreement became effective. Under
the terms of the Consulting Agreement, we engaged Spartan Capital
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, identifying
suitable personnel for management and board of directors positions,
developing corporate structure and finance strategies, assisting us
with strategic introductions, assisting management with enhancing
corporate and shareholder value, and introducing our company to
potential investors. As compensation for these services, on the
effective date of the agreement we paid Spartan Capital $500,000
and issued it 1,000,000 shares of our common stock valued at
$750,000. The Consulting Agreement also provides that we will
reimburse Spartan Capital for reasonable out-of-pocket expenses,
which we must approve in advance. The Consulting Agreement contains
customary confidentiality and indemnification provisions. We agreed
to register the shares issued to Spartan Capital under the terms of
this agreement for public resale.
On
September 6, 2017 we also entered into a five year M&A Advisory
Agreement with Spartan Capital which also became effective on
September 28, 2018. 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.
We have also agreed to reimburse Spartan Capital for pre-approved
out-of-pocket expenses. The agreement contains customary
confidentiality and indemnification provisions.
On
October 31, 2018, we entered into a Finder’s Agreement with
Spartan Capital, which became effective on November 30, 2018, which
provides that, in consideration for Spartan Capital introducing
Kubient, Inc. to us, as well as other services, Spartan Capital was
paid a non-refundable fee of $160,000. 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 it 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, or an “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 us, 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
us.
On
December 11, 2018 we entered into an Uplisting Advisory and
Consulting Agreement with Spartan Capital pursuant to which Spartan
Capital will provide (i) advice and input with respect to
strategies to accomplish an uplisting of our common stock to the
Nasdaq Capital Market or NYSE American LLC or another national
securities exchange, and the implementation of such strategies and
making introductions to facilitate the uplisting, (ii) advice and
input with respect to special situation and restructuring services,
including debtor and creditor advisory services, and (iii)
sell-side advisory services with respect to the sale and
disposition of non-core businesses and assets, including
facilitating due diligence and identifying potential buyers and
strategic partners and positioning these businesses and assets to
maximize value. We paid Spartan Capital a fee of $200,000 for it
services under this agreement which is for a 12 month term
beginning on the closing date of the 2019 private placement
described above. The agreement also provides that we will reimburse
Spartan Capital for reasonable out-of-pocket expenses, which we
must approve in advance. The Uplisting Advisory and Consulting
Agreement contains customary confidentiality and indemnification
provisions.
20
PLAN OF DISTRIBUTION
Each
selling stockholder of the shares of common stock and any of their
pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of common stock included in
the registration statement of which this prospectus is a part, on
any stock exchange, market or trading facility on which the shares
of common stock are traded or in private transactions. These sales
may be in one or more transactions at fixed prices, at prevailing
market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. The selling
stockholders may sell such shares directly or through one or more
underwriters, broker-dealers or agents. If the shares of common
stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or
commissions or agent’s commissions.
A
selling security holder may use any one or more of the following
methods when selling securities:
●
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
●
in
the over-the-counter market;
●
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
●
through
the writing or settlement of options, whether such options are
listed on an options exchange or otherwise;
●
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
●
block
trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction
●
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its account;
●
an
exchange distribution in accordance with the rules of the
applicable exchange;
●
privately
negotiated transactions;
●
short
sales made after the date the registration statement of which this
prospectus forms a part is declared effective by the
SEC;
●
broker-dealers
may agree with a selling security holder to sell a specified number
of such shares at a stipulated price per share;
●
a
combination of any such methods of sale; and
●
any
other method permitted pursuant to applicable law.
The
selling security holders may also resell all or a portion of the
shares of common stock under Rule 144 under the Securities Act or
any other exemption from registration, if available, rather than
under this prospectus.
Broker-dealers
engaged by the selling security holders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if
any broker-dealer acts as agent for the purchaser of our common
stock, from the purchaser) in amounts to be negotiated, but, except
as set forth in a supplement to this prospectus, in the case of an
agency transaction not in excess of a customary brokerage
commission in compliance with FINRA Rule 2121.
In
connection with the sale of the shares of common stock or interests
therein, the selling security holders may enter into hedging
transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the shares of common
stock in the course of hedging the positions they assume. The
selling security holders may also sell common stock short and
deliver these shares of common stock to close out their short
positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these shares of common stock. The selling
security holders may also enter into option or other transactions
with broker-dealers or other financial institutions or create one
or more derivative securities which require the delivery to such
broker-dealer or other financial institutions of shares of common
stock offered by this prospectus, which shares of common stock such
broker-dealer or other financial institution may resell pursuant to
this prospectus (as supplemented or amended to reflect such
transaction).
The
selling security holders may pledge or grant a security interest in
some or all of the warrants or shares of common stock owned by them
and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the
shares of common stock from time to time pursuant to this
prospectus or other applicable provision of the Securities Act,
amending, if necessary, the list of selling security holders to
include the pledgee, transferee or other successors in interest as
selling security holders under this prospectus. The selling
security holders also may transfer and donate the shares of common
stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
21
The
selling security holders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be
“underwriters” within the meaning of the Securities Act
in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be
deemed to be underwriting commissions or discounts under the
Securities Act. Each selling security holder has informed us that
it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the shares of
common stock and that there is no underwriter or coordinating
broker acting in connection with the proposed sale of the shares of
common stock offered hereby by the selling security
holder.
The
common stock offered hereby will be sold only through registered or
licensed brokers or dealers if required under applicable state
securities laws. In addition, in some states the shares of common
stock may not be sold unless such shares have been registered or
qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), any person
engaged in the distribution of the shares of common stock offered
hereby may not simultaneously engage in market making activities
with respect to the shares of common stock for the applicable
restricted period, as defined by Regulation M, prior to the
commencement of the distribution. In addition, the selling security
holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation
M, which may limit the timing of purchases and sales of the shares
of common stock by the selling security holders or any other
person.
We
are required to pay certain fees and expenses incurred by us
incident to the registration of the shares of common stock. We will
pay all expenses of the registration of the shares of common stock,
estimated to be approximately $62,000 in total, including, without
limitation, SEC filing fees and expenses of compliance with state
securities or “blue sky” laws; provided, however, that
a selling security holder will pay all underwriting discounts and
selling commissions, if any.
Once
sold under the registration statement, of which this prospectus
forms a part, the shares of common stock will be freely tradable in
the hands of persons other than our affiliates.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Our
common stock is quoted on the OTCQB under the symbol
“BMTM”. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.
As
of April 15, 2019, there were 64,248,864 shares of our common stock
outstanding and approximately 203 holders of record of our common
stock. However, we believe that there are more beneficial holders
of our common stock as many beneficial holders hold their stock in
“street name.”
Dividend Policy
We
have never paid cash dividends on our common stock. Payment of
dividends will be within the sole discretion of our board of
directors and will depend, among other factors, upon our earnings,
capital requirements and our operating and financial condition. In
addition, under Florida law, we may declare and pay dividends on
our capital stock either out of our surplus, as defined in the
relevant Florida statutes, or if there is no such surplus, out of
our net profits for the year in which the dividend is declared
and/or the preceding year. If, however, the capital of our company
computed in accordance with the relevant Florida statutes, has been
diminished by depreciation in the value of our property, or by
losses, or otherwise, to an amount less than the aggregate amount
of the capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets, we
are prohibited from declaring and paying out of such net profits
any dividends upon any shares of our capital stock until the
deficiency in the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the
distribution of assets shall have been repaired.
Securities Authorized for Issuance under Equity Compensation
Plans
The
following table sets forth securities authorized for issuance under
any equity compensation plans approved by our shareholders as well
as any equity compensation plans not approved by our shareholders
as of December 31, 2018.
22
Plan
category
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (a)
Weighted
average
exercise price
of outstanding
options, warrants
and rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
Plans
approved by our shareholders:
2011
Stock Option Plan
720,000
0.14
9,000
2013
Stock Option Plan
351,000
0.28
132,000
2015
Stock Option Plan
956,000
0.68
375,000
Plans
not approved by shareholders:
-
-
-
Our stock option plans
We
currently have three stock option plans: our 2011 Stock Option
Plan, our 2013 Stock Option Plan and our 2015 Stock Option
Plan.
On April 20, 2011, our board of directors and
majority shareholder adopted the 2011 Stock Option Plan and
reserved for issuance an aggregate of 900,000 shares of our common
stock for awards under the plan. On April 1, 2013, our board of directors and
majority shareholder adopted our 2013 Stock Option Plan and
reserved for issuance an aggregate of 900,000 shares of common
stock under the plan. On May 22, 2015, our board of directors
authorized our 2015 Stock Option Plan, which was ratified by our
shareholders on June 17, 2015. We have reserved for issuance an
aggregate of 1,000,000 shares of common stock under the 2015 Stock
Option Plan. The maximum aggregate number of shares of our common
stock that will be subject to grants made under the 2015 Stock
Option Plan to any individual during any calendar year is 100,000
shares.
The
purpose of the plans 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. The Compensation
Committee of our board of directors administers each plan. Other
than the number of shares reserved for issuance under each of these
plans, the terms of the plans are identical. Under each plan we are
authorized to issue incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended,
and non-qualified stock options. The material terms of each option
granted pursuant to any plan will contain the following
terms:
●
that
the purchase price of each share purchasable under an incentive
option shall be determined by the Compensation Committee at the
time of grant;
●
the
term of each option shall be fixed by the Compensation Committee,
but no option shall be exercisable more than 10 years after the
date such option is granted; and
●
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 terms of
the plan, as may be determined by the Compensation Committee and
specified in the grant instrument.
Each
plan also contains a change of control provision that provides upon
a “Change of Control” where our company is not the
surviving corporation (or survives only as a subsidiary of another
corporation), unless the Compensation Committee determines
otherwise, all outstanding options that are not exercised shall be
assumed by, or replaced with comparable options or rights by the
surviving corporation (or a parent of the surviving corporation),
and other outstanding grants shall be converted to similar grants
of the surviving corporation (or a parent of the surviving
corporation). In the event of a Change of Control, the Compensation
Committee may, but shall not be obligated to, take any of the
following actions with respect to any or all outstanding
grants:
●
determine
that outstanding options shall automatically accelerate and become
fully exercisable; or
●
require
that grantees surrender their outstanding options in exchange for a
payment by us, in cash or securities as determined by the
Compensation Committee, in an amount equal to the amount by which
the then fair market value of our common stock subject to the
grantee’s unexercised options exceeds the exercise price of
the options; or
●
after
giving grantees an opportunity to exercise their outstanding
options, terminate any or all unexercised options at such time as
the Compensation Committee deems appropriate.
23
Any
surrender, termination or settlement will take place as of the date
of the Change of Control or such other date as the Compensation
Committee specifies. The Committee shall have no obligation to take
any of the foregoing actions, and, in the absence of any such
actions, outstanding grants shall continue in effect according to
their terms. For the purpose of the plans, “Change of
Control” means:
●
Any “person” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) becomes a
“beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of our company
representing more than 50% of the voting power of our then
outstanding securities; provided that a Change of Control will not be deemed to
occur as a result of a transaction in which our company becomes a
subsidiary of another corporation and in which our shareholders,
immediately prior to the transaction, will beneficially own,
immediately after the transaction, shares entitling our
shareholders to more than 50% of all votes to which all
shareholders of the parent corporation would be entitled in the
election of directors (without consideration of the rights of any
class of stock to elect directors by a separate class vote);
or
●
Our
shareholders (or, if shareholder approval is not required, the
board approves) an agreement providing for (i) the merger or
consolidation of our company with another corporation where our
shareholders, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or
consolidation, shares entitling our shareholders to more than 50%
of all votes to which all shareholders of the surviving corporation
would be entitled in the election of directors (without
consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii) the sale or other
disposition of all or substantially all of our assets, or (iii) a
liquidation or dissolution of our company; or
●
Any
person has commenced a tender offer or exchange offer for 30% or
more of the voting power of our then outstanding
shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
STATEMENTS
AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of
operations for the years ended December 31, 2018 and 2017 should be
read in conjunction with the audited consolidated financial
statements and the notes to those statements that are included
elsewhere in this prospectus. Our discussion includes
forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of
events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors,
including those set forth under the Risk Factors, Cautionary Notice
Regarding Forward-Looking Statements and Business sections in this
prospectus. We use words such as "anticipate,""estimate,""plan,""project,""continuing,""ongoing,""expect,""believe,""intend,""may,""will,""should,""could," and similar expressions to
identify forward-looking statements.
Overview
Historically
we have operated as a digital media holding company for online
assets primarily targeted to the military and public safety
sectors. In addition to our corporate website, we own and/or manage
25 websites which are customized to provide our niche users,
including active, reserve and retired military, law enforcement,
first responders and other public safety employees with products,
information and news that we believe may be of interest to them. We
also own an ad network which was acquired in September
2017.
We
have placed a particular emphasis on providing quality content on
our websites to drive traffic increases. Our websites feature
timely, proprietary and aggregated content covering current events
and a variety of additional subjects targeted to the specific
demographics of the individual website. Our business strategy
requires us to continue to provide this quality content to our
niche markets and to grow our business, operations and revenues
both organically and through acquisitions as we expand our business
past the original niche markets into mainstream digital
audiences.
A
key component of our growth is the expansion in our ad network
business. Our ad network creates revenue from other
publisher’s content, as well as our own, in the form of a
revenue share based on ad impressions we deliver. For this reason,
the managerial focus will be in increasing our total impressions
delivered to grow our total advertising revenue. Last year, we
delivered approximately 2.2 billion advertising impressions. These
impressions include both our targeted demographics and the larger
general demographics from our ad network.
24
During
2018 we have grown our business through sales efforts
including:
●
establishing
favorable contract terms with many key advertising demand
parties;
●
supply
relationships with approximately 200 digital
publishers;
●
over
50 real time bidding (“RTB”) clients;
●
proprietary
software to collect and report results for publisher
clients;
●
ability
and software to quickly and efficiently detect fraudulent traffic;
and
●
highly
scalable sales and ad operations functions.
We
believe that the exit from all of our E-commerce businesses at
December 31, 2018 will allow us to concentrate all of our resources
to our best and fastest growing business opportunities. While we
are presently accessing third party RTB platforms, we are currently
working on the development of our own proprietary RTB platform,
display and video ad serving software, and header bidding
technology, as we move to vertically integrate higher margin
software products into our ad network business model. The platform,
which is in the pre-Alpha stage, is being developed for us by
AdsRemedy, a third party consulting firm that provides support
services to us.
Going Concern
For
the year ended December 31, 2018, we reported a net loss from
continuing operations of $4,131,314, a loss of $1,092,750 related
to discontinued operations, net cash used in operating activities
of $3,970,013 and we had an accumulated deficit of $17,042,966 at
December 31, 2018. The reports of our independent registered public
accounting firms on our audited consolidated financial statements
at December 31, 2018 and 2017 and for the years then ended contain
explanatory paragraphs regarding substantial doubt of our ability
to continue as a going concern based upon our net losses, cash used
in operations and accumulated deficit. These factors, among others,
raise substantial doubt about our ability to continue as a going
concern. Our audited consolidated financial statements appearing
elsewhere in this prospectus do not include any adjustments that
might result from the outcome of this uncertainty. There are no
assurances we will be successful in our efforts to significantly
increase our revenues or report profitable operations or to
continue as a going concern, in which event investors would lose
their entire investment in our company.
Advertising
revenues increased approximately 57.2% in 2018 over 2017. The
increase in our revenues in 2018 is primarily attributable to the
impact of a full year of operation of our ad network which we
acquired in the fourth quarter of 2017. With our operational focus
on this one operating segment of our business we expect that our
revenues will increase in 2019, although there can be no
assurances.
25
Cost of Sales
Cost
of sales as a percentage of revenues increased approximately 18.5%,
from approximately 61% in 2017 to approximately 79% in 2018. During
2018 we offered publishers favorable payouts in an effort to
attract more publishers to our ad network as we expanded its
operations, which resulted in the decrease in our gross profit
margins. As we continue to expand our ad network during 2019 we
will seek to increase our gross margins to the 2017 level. However,
as we operate in a highly competitive industry, there are no
assurances our efforts will be successful.
Selling, General and Administrative (“SG&A”)
Expenses
SG&A
expenses increased by approximately $898,031 for 2018 compared to
2017. Our selling, general and administrative expenses were 201% of
our total revenues for 2018 as compared to 235% for 2017. The
increase in our SG&A expenses reflects increases in both cash
and non-cash expenses in the 2018 period. During 2018, the
increases in our cash SG&A expenses were primarily attributable
to increases in payroll expense, travel and entertainment,
professional fees, and website and other expenses. The approximate
$79,941 increase in our payroll costs in 2018 reflects our
increased staffing to support the expected growth of our company
and the addition of staffing in our accounting department to
improve our accounting and reporting processes. Our travel and
entertainment expense increased approximately $29,816 in 2018 which
represents costs to attend various trade shows and increased travel
related to our capital raising efforts. Professional fees increased
approximately $502,539 in 2018 from 2017 which is primarily related
to legal fees associated with ongoing litigation and increased
audit and review fees. During 2018 our website expenses, which
includes ad network site development, maintenance and hosting
costs, increased approximately $32,557 and our other expenses,
which includes wire transfer fees for payments by vendors,
increased approximately $63,864, both of which reflect a full year
of operations of Daily Engage Media following our acquisition of
that entity in September 2017. Non-cash increases in SG&A in
2018 are primarily attributable to the amortization of $277,500 of
the $1,360,000 of cash consulting and advisory fees we paid Spartan
Capital as described earlier in this prospectus, as well an
approximate $321,623 increase in our provision for bad debt expense
to account for the possibility we will not collect certain accounts
receivable and to reflect the past due nature of a loan we made to
Kubient, Inc.
SG&A
expenses are expected to continue to increase in a controlled
manner as we execute our planned growth strategy of increasing
website visits both organically and through targeted acquisitions
and providing the needed administrative support and the hiring of
an experienced Chief Financial Officer for the increased level of
activities. We are unable at this time, however, to predict the
amount of the expected increase.
Total other income (expense)
Total
other income (expense) primarily reflects interest expense
associated with our borrowings under a non-convertible and several
convertible notes. Our Chief Executive Officer loaned us an
additional $1,460,000 during 2017 under a series of 6% to 12%
convertible notes bringing the total notes payable to him at
November 7, 2018 to $2,035,000. On November 8, 2018 we entered into
a note exchange agreement with Mr. Speyer pursuant to which he
exchanged these convertible promissory notes for three sub-series
of a new series of convertible preferred stock in a transaction
which is described later in this prospectus under “Certain
Relationships and Related Transactions.” This transaction
resulted in a $579,233 loss on the exchange of convertible notes.
Interest under these notes prior to the exchange transaction
totaled $370,963, inclusive of $196,375 amortization of the related
debt discount for 2018 and $323,112, inclusive of $168,613 in
amortization of the related debt discount for 2017.
In
addition, we recorded interest of $35,971 and $51,389 for 2018 and
2017, respectively on a $500,000 note payable issued in November
2016 to us to an unrelated third party. This note was satisfied on
December 26, 2018.
Discontinued Operations
During
the 2018 and 2017 we recorded a loss from discontinued operations
$1,092,750 and $424,391, respectively. The loss is attributable to
our product sales segment which was discontinued effective December31, 2018. The discontinuation of this segment was a strategic
decision by our management which we believe permits us to focus our
operational efforts on the advertising segment. During 2018 we
recognized $326,000 of impairment losses compared to $61,000 for
the 2017 period.
26
Preferred stock dividends
We
paid stock dividends on one series of our preferred stock which was
held by an unrelated third party, and cash dividends on two
additional series of our preferred stock which are held by
affiliates. The increase in preferred stock dividends in 2018 from
2017 primarily reflects the exchange of the convertible notes
payable to equity by Mr. Speyer as described later in this
prospectus. Under the series of preferred issued to him in the
exchange we pay him cash dividends which are identical to the
interest rate he previously received on the convertible notes, and
the shares of preferred will automatically convert into shares of
our common stock on the dates and at the same conversion rates as
the convertible notes.
Liquidity and capital resources
Liquidity
is the ability of a company to generate sufficient cash to satisfy
its needs for cash. As of December 31, 2018, we had a balance of
cash and cash equivalents of $1,042,457 and working capital of
$881,949 as compared to cash and cash equivalents of $101,231 and
negative working capital of $395,315 at December 31, 2017. Our
current assets increased 43% at December 31, 2018 from December 31,2017 which reflects the substantial increase in our cash balance
and increases in our prepaid expenses primarily attributable to the
consulting and advisory agreements with Spartan Capital, offset by
decreases in accounts receivable as well as the impact on the
decrease in assets held for sale for discontinued operations and
current assets related to those discontinued
operations.
Our
current liabilities decreased 25% at December 31, 2018 from
December 31, 2017 which primarily reflects a 27% decrease in
accounts payable and a 70% decrease in the current portion of
long-term debt reflecting the exchange of convertible notes payable
for preferred stock by our Chief Executive Officer, offset by
increases in accrued expenses related to legal fees and the
recordation of a previously undisclosed liability of $197,500 at
Daily Engage Media prior to the closing of the acquisition, as well
as a reduction in current liabilities associated with our
discontinued operations.
During
2018 we raised net proceeds of $5.1 million through the sale of our
securities in private placements, as well as an additional $450,000
through the sale of preferred stock to our Chief Executive Officer
and $80,000 through the issuance of convertible promissory notes to
him. During 2019 we have raised an additional $888,950 in net
proceeds through the sale of our securities. After payment of
$1,360,000 to Spartan Capital as cash compensation under the terms
of various consulting and advisory agreements, we used
approximately $570,000 to repay debt to unrelated third parties,
and of the net proceeds for $3.8 million to fund our operating
losses during 2018, and are using the additional proceeds for
working capital as well as for a loan to an unrelated third party
which matures in April 2019.
We
have also entered into various loan transactions with unrelated
third parties, including:
●
in September
2018 we entered into a
non-binding letter of intent with Kubient, Inc. to
acquire Kubient, Inc. The
closing of the transaction was subject to a number of conditions
precedent, including satisfactory due diligence on our part and the
execution of definitive agreements. Thereafter, in
October 2018 we lent Kubient, Inc.
$75,000 under the terms of an unsecured 6% note 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. was consummated on or prior to the
maturity date, the outstanding principal of the note would be
forgiven by us and the purchase price contemplated by the
non-binding letter of intent reduced. We subsequently determined
not to proceed with the proposed transaction. The note is now in
default; and
●
on
April 25, 2019, we entered into an amended non-binding letter of
intent with Inform, Inc. pursuant to which we may acquire Inform,
Inc. in an all stock transaction. The amended non-binding letter of
intent replaced in its entirety the February 2019 non-binding
letter of intent previously entered into by the parties. Between
February 2019 and April 2019, we lent Inform, Inc. an aggregate of
$544,500 under the terms of 6% promissory notes which initially
matured on April 30, 2019. As collateral for the repayment of the
notes, the chief executive officer of Inform, Inc. has pledged his
shares in Inform, Inc. under the terms of a security agreement. On
April 25, 2019, in connection with the amended non-binding letter
of intent, we extended the due date of these notes to June 30,2019. We utilized a portion of the proceeds from the sale of our
securities as described earlier in this section for this loan. As
our due diligence on Inform, Inc. continues and we cannot predict
at this time if we will proceed with this transaction, investors
should not place undue reliance on the amended non-binding letter
of intent .
Our
operations do not provide sufficient cash to pay our cash operating
expenses and we have historically been dependent upon loans and
equity purchases from Mr. Speyer to provide sufficient funds for
our operations. During 2018 we were also materially dependent upon
the capital raised in the private placements. If we are unable to
increase our revenues to a level which provides sufficient funds to
pay our operating expenses without relying upon loans and equity
purchases from related parties or third party investment capital,
our ability to continue to as a going concern are in jeopardy. We
expect that we will need to raise an additional $ 2,000,000 in
capital during 2019 for use in our operations. We also expect to
continue to seek to raise capital from private sources during 2019,
however we are not a party to any agreement or understanding for
firm commitments for this capital. Any delay in raising sufficient
funds will delay the continued implementation of our business
strategy and could adversely impact our ability to significantly
increase our revenues in future periods. In addition, if we are
unable to raise the necessary additional working capital, absent a
significant increase in our revenues, of which there is no
assurance, we will be unable to continue to grow our company and
may be forced to reduce certain operating expenses in an effort to
conserve our working capital.
27
Cash flows
Net
cash used in operating activities totaled $3,970,013 and $1,725,749
for 2018 and 2017, respectively. During 2018, we used cash
primarily to fund our net loss of $5,224,064 for the period as well
as increases in prepaid expenses and expansion plans. Cash used
during 2017 was used primarily to fund our net loss of $2,994,096
during the period.
Net
cash provided by investing activities totaled $13,970 in 2018 as
compared to net cash used in investing activities of $224,429 for
2017. Cash used included the purchase of fixed assets in 2018 and
2017 of $15,183 and $329 and cash used in the acquisition of Daily
Engage Media, net of $207,801 during 2017. We sold equipment and
received $15,182 in cash during 2018.
Net
cash provided by financing activities totaled $4,919,312 and
$1,885,251 during 2018 and 2017, respectively. In both periods,
cash was provided from the sale of our securities, net of
repayments of debt obligations and the payable of cash dividends on
our Series E and F convertible preferred stock to related
parties.
Non-GAAP Measures
We
report adjusted earnings before income taxes, depreciation and
amortization (“EBITDA”) from continuing operations as a
supplemental measure to GAAP. This measure is one of the primary
metrics by which we evaluate the performance of our business, on
which our internal budgets are based. We believe that investors
have access to, and we are obligated to provide, the same set of
tools that we use in analyzing our results. This non-GAAP measure
should be considered in addition to results prepared in accordance
with GAAP, but should not be considered a substitute for or
superior to GAAP results. We endeavor to compensate for the
limitations of the non-GAAP measure presented by providing the
comparable GAAP measure with equal or greater prominence and
description of the reconciling items, including quantifying such
items to derive the non-GAAP measure. We encourage investors to
examine the reconciling adjustments between the GAAP and non-GAAP
measure.
Our
adjusted EBITDA from continuing operations is defined as operating
income/loss excluding:
●
non-cash
stock option compensation expense;
●
non-cash
loss on note exchange transaction with our Chief Executive
Officer;
●
depreciation;
●
acquisition-related
items consisting of amortization expense and impairment
expense;
●
interest;
and
●
amortization
on debt discount.
We
believe this measure is useful for analysts and investors as this
measure allows a more meaningful year-to-year comparison of our
performance. Moreover, our management uses this measure internally
to evaluate the performance of our business as a whole. The above
items are excluded from adjusted EBITDA measure because these items
are non-cash in nature, and we believe that by excluding these
items, adjusted EBITDA corresponds more closely to the cash
operating income/loss generated from our business. Adjusted EBITDA
has certain limitations in that it does not take into account the
impact to our statement of operations of certain
expenses
The
following is an unaudited reconciliation of net (loss) from
continuing operations to adjusted EBITDA for the periods
presented:
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of
revenue and expenses during the reported periods. The more critical
accounting estimates include estimates related to revenue
recognition, valuation of inventory, intangible assets, and equity
based transactions. We also have other key accounting policies,
which involve the use of estimates, judgments and assumptions that
are significant to understanding our results, which are described
in Note 3 to our audited consolidated financial statements
appearing elsewhere in this prospectus.
Recent accounting pronouncements
The
recent accounting standards that have been issued or proposed by
the Financial Accounting Standards Board (FASB) or other
standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the
financial statements upon adoption. These recent accounting
pronouncements are described in Note 3 to our notes to consolidated
financial statements appearing later in this
prospectus.
Off balance sheet arrangements
As
of the date of this prospectus, we do not have any off-balance
sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are
material to investors. The term "off-balance sheet arrangement"
generally means any transaction, agreement or other contractual
arrangement to which an entity unconsolidated with us is a party,
under which we have any obligation arising under a guarantee
contract, derivative instrument or variable interest or a retained
or contingent interest in assets transferred to such entity or
similar arrangement that serves as credit, liquidity or market risk
support for such assets.
BUSINESS
Historically
we have operated as a digital media holding company for online for
online assets primarily targeted to the military and public safety
sectors. In addition to our corporate website, we own and/or manage
25 websites which are customized to provide our niche users,
including active, reserve and retired military, law enforcement,
first responders and other public safety employees with products,
information and news that we believe may be of interest to them. We
also own an ad network which was acquired in September 2017. We
have placed a particular emphasis on providing quality content on
our websites to drive traffic increases. Our websites feature
timely, proprietary and aggregated content covering current events
and a variety of additional subjects targeted to the specific
demographics of the individual website. Our business strategy
requires us to continue to provide this quality content to our
niche markets and to grow our business, operations and revenues
both organically and through acquisitions as we expand our business
past the original niche markets into mainstream digital
audiences.
We
have invested in our infrastructure and acquisitions and placed an
emphasis on providing quality content on our websites necessary to
drive traffic to our websites. With the exit from our E-Commerce
businesses effective December 31, 2018, we believe that we have
advanced our transition to becoming a digital media company. We
believe that with this action, our business, results of operations
and financial condition will be positively impacted in the long
term.
Our
advertising network matches advertisers with publishers. It offers
video, display, mobile and native ads, providing focused promotion
for advertisers of products and services while helping websites
monetize their visitor traffic. Our advertising exchange platform
is being developed to be a trading desk for publishers and
advertisers where they will be able to log-in and choose from
various features. Publishers will be able to select a variety of
advertising units for their video, mobile, display and native
advertisements and also have the ability to create their own unique
advertising formats. Advertisers will be able to choose where their
advertisements will be seen using our filters or by connection
directly with the publisher through our platform.
29
We
have grown our business through sales efforts
including:
●
establishing
favorable contract terms with many key advertising demand
parties;
●
supply
relationships with approximately 200 digital
publishers;
●
over
50 RTB clients;
●
proprietary
software to collect and report results for publisher
clients;
●
ability
and software to quickly and efficiently detect fraudulent traffic;
and
●
highly
scalable sales and ad operations functions.
Bright Mountain Media Ad Network Business
While
we are currently accessing third party RTB platforms, we are
currently working on the development of our own proprietary RTB
platform, display and video ad serving software, and header bidding
technology, as we move to vertically integrate higher margin
software products into our ad network business model. The platform,
which is the pre-Alpha stage, is being developed for us by
AdsRemedy, a third party consulting firm that provides support
services to us.
Our
new platform is expected to have a significant impact on our
revenues and its capabilities will include:
●
server
integration with several ad exchanges, making for extremely quick
ad deployments;
●
leading
targeting technology, allowing advertisers to pinpoint their
marketing efforts to reach various demographics across mobile,
tablet, and desktop;
●
capable
of handling any ad format, including video, display, and native
ads;
●
ad
serving and self-service features; and
●
ability
for advertisers and publishers to conduct private
deals.
We
believe that the exit from the E-Commerce business will have the
following benefits during 2019 and beyond:
●
allow
us to concentrate all our efforts on the Ad Network, advertising
technology, and advertising software business; and
●
change
the digital market for young male audiences and advertisers by
being the first vertically integrated publisher/ad network in our
demographic.
Our Strategy
The
exit from all of our E-commerce businesses at December 31, 2018
allows us to concentrate all of our resources to our best and
fastest growing business opportunities.
Our
business strategy focuses on two primary elements:
●
first, the organic growth of our existing Ad Network
and owned and operated websites.
●
second, the very selective acquisition of related
businesses in our space that are complimentary to our growth
strategy.
To
implement this strategy, we intend to:
●
accelerate
the organic growth of Bright Mountain Media through the addition of
internally developed software products that will vertically
integrate our business model through our own ad serving, header
bidding and owned RTB platform which will increase sales and gross
profit margins; and
●
leverage
our Management and Acquisition Agreement with Spartan Capital
described earlier in this prospectus to help locate and introduce
companies in our space that will compliment our acquisition
business strategy.
We
also partner on six additional websites, havokjournal.com,
Article107News.com, 24HourCampFire.com, Retail Salute,
ChicagoFireWire.com, and yuuut.com, under revenue sharing
arrangements.
Discontinued Operations
Historically
we generated revenues from two segments, our advertising segment
and our product sales segment. Revenues from the product sales
segment included 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. During 2018 we began
to de-emphasize our product sales segment as we placed more
emphasis on our advertising segment. Management, prior to December31, 2018, with the appropriate level of authority, determined to
discontinue the operations of Black Helmet and Bright Watches
effective December 31, 2018.
The
decision to exit all components of our product sales segment have
resulted in these businesses being accounted for as discontinued
operations. We recorded a loss, net of income taxes, of $1,092,750
in 2018 for the discontinued operations.
Subsequent
to December 31, 2018, we are aggressively marketing the remaining
Bright Watches’ inventory in an effort to liquidate such
inventory as quickly as possible. In addition, in March 2018 we
sold the assets which were used in our Black Helmet apparel
E-Commerce business to an unaffiliated third party for $175,000, of
which $20,000 was paid at closing and the balance is payable under
the terms of a promissory note in the principal amount of $155,000
and bearing interest at 15% per annum. The note is secured by a
guarantee of the principal of the purchaser.
Intellectual Property
We
currently rely on a combination of trade secret laws and
restrictions on disclosure to protect our intellectual property
rights. Our success depends on the protection of the proprietary
aspects of our technology as well as our ability to operate without
infringing on the proprietary rights of others. We also enter into
proprietary information and confidentiality agreements with our
employees, consultants and commercial partners and control access
to, and distribution of, our software documentation and other
proprietary information. We own various service marks and
trademarks, which are registered with the United States Patent and
Trademark Office including the following:
Our
top technical priority is the fast and reliable delivery of pages
and ads to our users. Our systems are designed to handle traffic
and network growth. We rely on multiple tiers of
redundancy/failover and third-party content delivery network to
achieve our goal of 24 hours, seven-days-a-week Website uptime.
Regular automated backups protect the integrity of our data. Our
servers are continuously monitored by numerous third-party and
open-source monitoring and alerting tools.
Competition
The
Internet and industries that operate through it are intensely
competitive. We compete with other companies that have
significantly greater financial, technical, marketing, and
distribution resources. Our competitors include Verizon Media,
AppNexus, The Maven, and Praetorian Digital.
Most
of our competitors have significantly greater financial, technical,
marketing and distribution resources as well as greater experience
in the industry than we have. There are no assurances we will ever
be able to effectively compete in our marketplace. Our websites may
not be competitive with other technologies and/or our websites may
be displaced by newer technology. If this happens, our sales and
revenues will likely decline. In addition, our current and
potential competitors may establish cooperative relationships with
larger companies, to gain access to greater development or
marketing resources. Competition may result in price reductions,
reduced gross margins and loss of market share.
31
Government regulation
Interest-based
advertising, or the use of data to draw inferences about a
user’s interests and deliver relevant advertising to that
user, has come under increasing scrutiny by legislative,
regulatory, and self-regulatory bodies in the United States and
abroad that focus on consumer protection or data privacy. In
particular, this scrutiny has focused on the use of cookies and
other technology to collect or aggregate information about Internet
users’ online browsing activity. Because we, and our clients,
rely upon large volumes of such data collected primarily through
cookies, it is essential that we monitor developments in this area
domestically and globally, and engage in responsible privacy
practices, including providing consumers with notice of the
types of data we collect and how we use that data to provide our
services.
We
provide this notice through our privacy policy, which can be found
on our website at http://www.BrightMountainMedia.com. As stated in
our privacy policy, our technology platform does not collect
information, such as name, address, or phone number, that can be
used directly to identify a real person, and we take steps not to
collect and store such personally identifiable information from any
source. Instead, we rely on IP addresses, geo-location information,
and persistent identifiers about Internet users and do not attempt
to associate this data with other data that can be used to identify
real people. This type of information is considered personal data
in some jurisdictions or otherwise may be the subject of future
legislation or regulation. The definition of personal data varies
by country, and continues to evolve in ways that may require us to
adapt our practices to avoid violating laws or regulations related
to the collection, storage, and use of consumer data. For example,
some European countries consider IP addresses or unique device
identifiers to be personal data subject to heightened legal and
regulatory requirements. As a result, our technology platform and
business practices must be assessed regularly in each country in
which we do business.
There
are also a number of specific laws and regulations governing the
collection and use of certain types of consumer data relevant to
our business. For example, the Children’s Online Privacy
Protection Act ("COPPA"), imposes restrictions on the collection
and use of data about users of child-directed websites. To comply
with COPPA, we have taken various steps to implement a system
that:
●
flags
seller-identified child-directed sites to buyers;
●
limits
advertisers’ ability to serve interest-based
advertisements;
●
helps
limit the types of information that our advertisers have access to
when placing advertisements on child-directed sites;
and
●
limits
the data that we collect and use on such child-directed
sites.
The
use and transfer of personal data in European Union-member states
is currently governed under the EU Data Protection Directive, which
generally prohibits the transfer of personal data of EU subjects
outside of the EU, unless the party exporting the data from the EU
implements a compliance mechanism designed to ensure that the
receiving party will adequately protect such data. We have relied
on alternative compliance measures, which are complex, which may be
subject to legal challenge, and which directly subject us to
regulatory enforcement by data protection authorities located in
the European Union. By relying on these alternative compliance
measures, we risk becoming the subject of regulatory investigations
in any of the individual jurisdictions in which we operate. Each
such investigation could cost us significant time and resources,
and could potentially result in fines, criminal prosecution, or
other penalties. Further, some of these alternative compliance
measures are facing legal challenges, which, if successful, could
invalidate the alternative compliance measures that we currently
rely on. It may take us significant time, resources, and effort to
restructure our business and/or rely on another legally sufficient
compliance measure. In addition, the European Union has finalized
the General Data Protection Regulation ("GDPR"), which will become
effective in May 2018. The GDPR sets out higher potential
liabilities for certain data protection violations, as well as a
greater compliance burden for us in the course of delivering our
solution in Europe; among other requirements, the GDPR obligates
companies that process large amounts of personal data about EU
residents to implement a number of formal processes and policies
reviewing and documenting the privacy implications of the
development, acquisition, or use of all new products, technologies,
or types of data. Further, the European Union is expected to
replace the EU Cookie Directive governing the use of technologies
to collect consumer information with the ePrivacy Regulation. The
ePrivacy Regulation propose burdensome requirements around
obtaining consent, and impose fines for violations that are
materially higher than those imposed under the Cookie
Directive.
The
UK's decision to leave the European Union may add cost and
complexity to our compliance efforts. If UK and EU privacy and data
protection laws and regulations diverge, we will be required to
implement alternative EU compliance measures and adapt separately
to any new UK requirements.
32
Additionally,
our compliance with our privacy policy and our general consumer
privacy practices are also subject to review by the Federal Trade
Commission, which may bring enforcement actions to challenge
allegedly unfair and deceptive trade practices, including the
violation of privacy policies and representations therein. Certain
State Attorneys General may also bring enforcement actions based on
comparable state laws or federal laws that permit state-level
enforcement. Outside of the United States, our privacy and data
practices are subject to regulation by data protection authorities
and other regulators in the countries in which we do
business.
Beyond
laws and regulations, we are also members of self-regulatory bodies
that impose additional requirements related to the collection, use,
and disclosure of consumer data, including the Internet Advertising
Bureau ("IAB"), the Digital Advertising Alliance, the Network
Advertising Initiative, and the Europe Interactive Digital
Advertising Alliance. Under the requirements of these
self-regulatory bodies, in addition to other compliance
obligations, we provide consumers with notice via our privacy
policy about our use of cookies and other technologies to collect
consumer data, and of our collection and use of consumer data to
deliver interest-based advertisements. We also allow consumers to
opt-out from the use of data we collect for purposes of
interest-based advertising through a mechanism on our website,
linked through our privacy policy as well as through portals
maintained by some of these self-regulatory bodies. Some of these
self-regulatory bodies have the ability to discipline members or
participants, which could result in fines, penalties, and/or public
censure (which could in turn cause reputational harm).
Additionally, some of these self-regulatory bodies might refer
violations of their requirements to the Federal Trade Commission or
other regulatory bodies.
Properties
C:
We
lease our corporate offices at 6400 Congress Avenue, Suite 2050,
Boca Raton, Florida33487 under a long-term non-cancellable lease
agreement expiring on October 31, 2021. The lease terms require
base rent payments of approximately $7,260 per month for the first
twelve months commencing in September 2018, with a 3% escalation
each year. Rent is all-inclusive and includes electricity, heat,
air-conditioning, and water.
We
lease retail space at 4900 Linton Boulevard, Bay 17A, Delray Beach,
FL33445 under two long-term, non-cancellable lease agreements,
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. This retail space was used by our product sales
segment. We have discontinued all e-commerce and retail operations
and have made a settlement with the landlord to buyout the lease
with a lump sum payment of $55,870 less the security
deposit.
In
January 2017, we 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,
expiring January 31, 2022. This lease provides for 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. Simultaneously, we 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. This additional lease has also been terminated in
connection with the settlement set forth above.
We
leased a warehouse facility in Orlando, Florida consisting of
approximately 2,667 square feet. The lease commenced in April 2016,
expiring at March 31, 2019 with an initial base rental rate of
$1,641 per month, and escalating at approximately 3% per year
thereafter. This lease was not renewed because the operations
located in Orlando are part of the discontinued operations at
December 31, 2018.
Legal proceedings
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.
33
In
connection with the matters which lead to our termination for cause
of former officers of our Daily Engage Media subsidiary, in July
2018 we filed a Verified Complaint for injunctive relief and
damages against Messrs. Harry Pagoulatos and George 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: l 8-cv-11357-ES-SCM)
against our company and our Chief Executive Officer, seeking
compensatory and punitive damages and attorneys' fees, among other
items, and alleging, among other items, fraud and breach of
contract. We vehemently deny all allegations in the complaint and
believe them to be without merit. We filed a Motion to Dismiss this
case for a multitude of reasons including, but not restricted to,
failure to state a cause of action and jurisdictional and venue
arguments as theacquisition and employment agreements provides that
any dispute should be heard in either the state or local courts of
Palm Beach County, Florida. This Motion to Dismiss has been pending
and ripe for a decision since October 2018. At the appropriate
juncture, we also intend to serve a Rule 11 Motion for Sanctions
based upon the fact that the Complaint contains frivolous arguments
or arguments with no evidentiary support.
Employees
At
April 15, 2019 we had thirteen full-time and one part-time
employees. We also utilize the services of eleven independent
contractors who provide content, operational and website
services.
We
were organized as a Florida corporation in 2010 under the name
Speyer Investment Advisors, Inc. In 2012 we changed our name to
Speyer Investment Research, Inc. In 2014, as we began building our
brand we changed our name to Bright Mountain Holdings, Inc. and in
2015 we changed our name to Bright Mountain Acquisition Corporation
and then to Bright Mountain Media, Inc. as we began implementing
our strategy to transform into a digital media
company.
Additional
information concerning the terms of material business combinations
can be found in Note 1 and Note 4 of the notes to our audited
consolidated financial statements appearing later in this
prospectus.
MANAGEMENT, EXECUTIVE COMPENSATION AND DIRECTOR
COMPENSATION
Below
are the names and certain information regarding our executive
officers and directors.
Name
Age
Positions
W. Kip Speyer
70
Chief Executive Officer, President and Chairman of the Board,
principal financial and accounting officer
Todd F. Speyer
37
Vice President, Digital; Director
Richard Rogers
63
Director
Todd Davenport
68
Director
Charles H. Lichtman
63
Director
W. Kip
Speyer has been our CEO,
President and Chairman of the Board since May 2010 and has been
serving as our principal financial and accounting officer on an
interim basis. From 2005 to 2009 Mr. Speyer served as a
director, the president and chief executive officer of Speyer Door
and Window, LLC, which was sold to Haddon Windows, LLC (SecuraSeal,
LLC, AccuWeld Corporation) in December 2009. From October 2002 to
May 2005 Mr. Speyer had been a private investor.
Mr. Speyer was president and chief executive officer of
Intelligent Systems Software, Inc. from October 2000 through June
2002, whereby Mr. Speyer became chief executive officer of
ICAD, Inc. (ICAD: NASDAQ) which was a combination of ISSI and
Howtek, Inc. (HOWT:NASDAQ). Mr. Speyer was the president and
chief executive officer of Galileo Corporation (GAEO: NASDAQ) from
1998 to 1999. Galileo Corporation changed its name to NetOptix
(OPTX: NASDAQ) and was merged with Corning Corporation (GLW: NYSE)
in a stock purchase in May 2000. From 1996 to 1998 Mr. Speyer
was the president of Leisegang Medical Group, three medical device
companies owned by Galileo Corporation. Prior to joining Galileo
Corporation, Mr. Speyer founded Leisegang Medical, Inc. and
served as its president and chief executive officer from 1986 to
1996. Leisegang Medical, Inc. was a company specializing in medical
devices for women’s health. Mr. Speyer is a graduate of
Northeastern University, Boston, Massachusetts, where he earned a
Bachelor of Science Degree in Business Administration in 1972.
Mr. W. Kip Speyer is active in many local charities and is the
father of Mr. Todd F. Speyer, our Vice President, Digital and
a director. Mr. Speyer’s experience as the Chief
Executive Officer and/or Chairman of the Board of Directors of
other public companies were factors considered by our board of
directors in concluding that he should be serving as a director of
our company.
34
Todd F.
Speyer has been a member of the
board of directors and an employee of our company since January
2011, currently serving as our Vice President, Digital.
Mr. Speyer is responsible for the content and operations of
our owned websites. For over the previous five and one-half years,
he has been responsible for the integration of all website organic
growth and acquisitions, including content, design and visitor
traffic. Previously, Mr. Speyer was our Director of Business
Development, helping locate acquisitions and shaping the website
portfolio. Mr. Speyer graduated from Florida State University
in 2004 with a Bachelor of Arts Degree in English Literature.
Mr. Todd F. Speyer is the son of Mr. W. Kip Speyer,
our CEO, President and Chairman. Mr. Speyer’s website
development experience as well as his marketing experience were
factors considered by our board of directors in concluding that he
should be serving as a director of our company.
Richard
Rogers has been a member of our board of directors since
July 2013. For more than the past five years, Mr. Rogers has
been the president and chief executive officer of On Course
Insurance, Inc., which provides custom insurance analysis to create
the appropriate customer solution for its clients. As an
independent agency, On Course Insurance represents multiple
insurance carriers. Mr. Rogers has been in the insurance
industry since 1985. Mr. Rogers is a graduate of West Chester
University and earned his Bachelor of Science Degree in pre-law in
1978. Mr. Rogers' business experience, with a concentration in
a regulated industry, was the factor considered by our board of
directors in concluding that he should be serving as a director of
our company.
Todd F.
Davenport has been a director
since February 2012. Mr. Davenport is an accomplished
executive with significant domestic and international marketing,
sales and general managerial experience. He most recently served as
President and CEO of Oxira Medical, Inc., Boca Raton, FL from 2008
to 2012. Oxira Medical, Inc., formerly known as Breeze Medical,
Inc., was a pre-commercialization stage company targeting the
development of catheter-based medical products to be used in the
treatment of coronary arteries. Mr. Davenport was recruited by
the Board of Cardio Optics, Inc. to be its President and CEO, where
he worked from 2005 to 2007. Prior to that he was President, CEO
and co-founder of Viacor, Inc. from 2000 to 2004. During this time
he was the co-inventor of eight issued U.S. patents. Mr. Davenport
graduated from Kent State University with a Bachelor of Science in
Journalism. Mr. Davenport's marketing, sales and executive
experience were factors considered by our board of directors in
concluding that he should be serving as a director of our
company.
Charles H.
Lichtman has been a member of
our board of directors since October 2014. Mr. Lichtman is an
attorney practicing law since 1980, licensed in Illinois and
Florida. He is a founding partner of Berger Singerman LLP since
2001. Mr. Lichtman has been honored as a two time Lawyer of the
Year by Best Lawyers in America, and noted by them for his
excellence every year since 2009 in the categories of Complex
Business Litigation, Securities Litigation, Bankruptcy Litigation
and Commercial Litigation. He has also been recognized by Chambers
International and received other legal awards from various entities
and periodicals. Mr. Lichtman's professional experience as an
attorney was the factor considered by our board of directors in
concluding that he should be serving as a director of our
company.
There
are no family relationships between any of the executive officers
and directors other than as set forth above. Each director is
elected at our annual meeting of shareholders and holds office
until the next annual meeting of shareholders, or until his
successor is elected and qualified. If any director resigns, dies
or is otherwise unable to serve out his or her term, or if the
board increases the number of directors, the board may fill any
vacancy by a vote of a majority of the directors then in office,
although less than a quorum exists. A director elected to fill a
vacancy shall serve for the unexpired term of his or her
predecessor. Vacancies occurring by reason of the removal of
directors without cause may only be filled by vote of the
shareholders.
Summary Compensation Table
The
following table summarizes all compensation recorded by us in the
past two years for:
●
our
principal executive officer or other individual serving in a
similar capacity;
●
our
two most highly compensated executive officers other than our
principal executive officer who were serving as executive officers
at December 31, 2018; and
●
up
to two additional individuals for whom disclosure would have been
required but for the fact that the individual was not serving as an
executive officer at December 31, 2018.
For
definitional purposes, these individuals are sometimes referred to
as the “named executive officers.” The amounts included
in the “Option Awards” column represent the aggregate
grant date fair value of the stock options, computed in accordance
with ASC Topic 718. The assumptions made in the valuations of the
option awards are included in Note 14 of the notes to our
consolidated financial statements appear elsewhere in this
prospectus.
35
Name and principal position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
No equity
incentive
plan
compensation
($)
Non-qualified
deferred
compensation
earnings
($)
All other
compensation
($)
Total
($)
W.
Kip Speyer,
2018
165,000
41,250
—
—
—
—
2,400
208,650
Chief
Executive Officer
2017
165,000
—
1,200
—
—
—
—
166,250
Todd
Speyer
2018
100,650
—
—
—
—
—
—
100,650
Vice
President, digital
2017
97,000
—
1,200
—
—
—
—
98,200
The
amount of compensation paid to Mr. Speyer excludes $281,882 and
$165,662 in interest and dividend payments for 2018 and 2017,
respectively.
Outstanding equity awards at fiscal year-end
The
following table provides information concerning unexercised stock
options, stock that has not vested and equity incentive plan awards
for each named executive officer outstanding as of December 31,2018, together with unexercised stock options, stock that has not
vested and equity incentive plan awards for each of our other
executive officers outstanding as of December 31,2018:
OPTION AWARDS
STOCK AWARDS
Name
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested(#)
Market
Value
of Shares or
Units of
Stock
That Have
Not Vested
($)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units
or Other
Rights that
Have Not
Vested
(#)
Equity
Incentive
Plan
Awards:
Market or
Payout
Value
of Unearned
Shares,
Units
or Other
Rights That
Have Not
Vested
(#)
W.
Kip Speyer
—
—
—
—
—
—
—
—
—
Todd
Speyer
180,000
0
0
0.14
1/3/21
0
0
0
0
75,000
25,000
0
0.65
10/27/25
0
0
0
0
Employment agreement with W. Kip Speyer
We
have entered into an Executive Employment Agreement with W. Kip
Speyer, our Chief Executive Officer, with an effective date of June1, 2014. Under the terms of this agreement, he is serving as
Chairman of the Board, Chief Executive Officer and President of our
company. On April 1, 2017, we entered into an amendment to his
employment agreement which extended the term for an additional
three years, set his base compensation at $165,000 per annum and
provided the ability to earn a performance bonus beginning for 2017
based upon annual revenues above $3,000,000 per year and the EBITDA
goals as follows: (i) for annual revenues of $3,000,000 to
$3,500,000, a bonus of 25% of his then base salary; (ii) for annual
revenues of $3,500,001 to $4,000,000 and a minimum EBITDA of
$100,000, a bonus of 40% of his then base salary; (iii) for annual
revenues of $4,000,0001 to $4,500,000 and a minimum EBITDA of
$150,000, a bonus of 65% of his then base salary; and (iv) for
annual revenues of $4,500,001 or greater and a minimum EBITDA of
$175,000, a bonus of 80% of this then base salary.
The
agreement with Mr. Speyer will terminate upon his death or
disability. In the event of a termination upon his death, we are
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. We are also
entitled to terminate the agreement either with or without case,
and he is entitled to voluntarily terminate the agreement upon one
year’s notice to us. In the event of a termination by us for
cause, as defined in the agreement, or voluntarily by Mr. Speyer,
we are obligated to pay him the base salary through the date of
termination. In the event we terminate the agreement without cause,
we are obligated to give him one years’ notice of our 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 we
materially breach any term of the agreement or if a successor to
our company fails to assume our obligations under Mr.
Speyer’s employment agreement. In that event, he will be
entitled to the same compensation as if we terminated the agreement
without cause. The employment agreement contains customary
non-compete and confidentiality provisions. We have also agreed to
indemnify Mr. Speyer pursuant to the provisions of our amended
and restated articles of incorporation and amended and restated
by-laws.
36
Director compensation
In
August 2016 our board of directors adopted a compensation policy
for our independent directors under which directors will receive an
option grant for each board meeting, of an option to purchase 2,500
shares for meetings attended in person or an option to purchase
2,000 shares for meetings attended telephonically. All option
grants will be made at fair market value. Committee members do not
receive any additional compensation for committee
membership.
The
following table provides information concerning the compensation
paid to our independent directors for their services as members of
our board of directors for 2018. The information in the following
table excludes any reimbursement of out-of-pocket travel and
lodging expenses which we may have paid:
Director Compensation
Name
Fees
earned or
paid in
cash ($)
Stock
awards
($)
Option
awards
($)
Non-equity
incentive plan
compensation ($)
Nonqualified deferred
compensation
earnings
($)
All other
Compensation($)
Total ($)
Richard
Rogers
4,500
—
—
—
—
—
4,500
Todd
Davenport
5,000
—
—
—
—
—
5,000
Charles
Lichtman
2,500
—
—
—
—
—
2,500
CORPORATE GOVERNANCE AND BOARD MATTERS
Leadership structure, independence of directors and risk
oversight
Mr. W.
Kip Speyer serves as both our Chief Executive Officer and Chairman
of our board of directors. Messrs. Rogers, Davenport and Lichtman
are considered independent directors within the meaning of the NYSE
American Company Guide, but none are considered a
“lead” independent director.
Risk
is inherent with every business, and how well a business manages
risk can ultimately determine its success. We face a number of
risks, including credit risk, interest rate risk, liquidity risk,
operational risk, strategic risk and reputation risk. Management is
responsible for the day-to-day management of risks we face, while
the board, as a whole and through its committees, has
responsibility for the oversight of risk management. In its risk
oversight role, the board of directors has the responsibility to
satisfy itself that the risk management process designed and
implemented by management are adequate and functioning as designed.
To do this, the chairman of the board meets regularly with
management to discuss strategy and the risks facing our company.
Senior management attends the board meetings and is available to
address any questions or concerns raised by the board on risk
management and any other matters. The chairman of the board and
independent members of the board work together to provide strong,
independent oversight of our company’s management and affairs
through its standing committees and, when necessary, special
meetings of independent directors.
Committees of our board of directors
In
May 2015 our board of directors established a standing Audit
Committee and a standing Compensation Committee. In August, 2016
our board of directors established a standing Corporate Governance
and Nominating Committee. Each committee has a written charter. The
charters are available on our website at
www.brightmountainmedia.com. All committee members are required to
be independent directors. Information concerning the current
membership and function of each committee is as
follows:
37
Director
Audit
Committee
Compensation
Committee
Corporate
Governance and
Nominating
Committee
Charles
H. Lichtman
✓
✓
Todd
Davenport
✓
✓
✓
Richard
Rogers
✓
Audit Committee
The
Audit Committee assists the board in fulfilling its oversight
responsibility relating to:
●
the
integrity of our financial statements;
●
our
compliance with legal and regulatory requirements; and
●
the
qualifications and independence of our independent registered
public accountants.
The
Audit Committee is composed of three directors, each of whom has
been determined by the board of directors to be independent within
the meaning of the NYSE American Company Guide. None of the members
of the Audit Committee are qualified as an “audit committee
financial expert” as defined by the SEC. The Audit Committee
met four times during 2018.
Compensation Committee
The
Compensation Committee assists the board in:
●
determining,
in executive session at which our Chief Executive Officer is not
present, the compensation for our CEO or President, if such person
is acting as the CEO;
●
discharging
its responsibilities for approving and evaluating our officer
compensation plans, policies and programs;
●
reviewing
and recommending to the board regarding compensation to be provided
to our employees and directors; and
●
administering
our stock compensation plans.
The
Compensation Committee is charged with ensuring that our
compensation programs are competitive, designed to attract and
retain highly qualified directors, officers and employees,
encourage high performance, promote accountability and assure that
employee interests are aligned with the interests of our
shareholders. The Compensation Committee is composed of two
directors, both of whom have been determined by the board of
directors to be independent within the meaning of the NYSE American
Company Guide. The Compensation Committee did not meet in
2018.
Corporate Governance and Nominating Committee
The
Corporate Governance and Nominating Committee:
●
assists
the board in selecting nominees for election to the
Board;
●
monitors
the composition of the board;
●
develops
and recommends to the board, and annually reviews, a set of
effective corporate governance policies and procedures applicable
to our company; and
●
regularly
reviews the overall corporate governance of the Corporation and
recommends improvements to the board as necessary.
The purpose of the Corporate Governance and
Nominating Committee is to assess the performance of the board and
to make recommendations to the board from time to time, or whenever
it shall be called upon to do so, regarding nominees for the board
and to ensure our compliance with appropriate corporate governance
policies and procedures. The Corporate Governance and Nominating
Committee is composed of two directors, both of whom have been
determined by the board of directors to be independent within the
meaning of the NYSE American Company Guide.The Corporate Governance
and Nominating Committee did not meet in 2018.
38
Shareholder nominations
Shareholders
who would like to propose a candidate may do so by submitting the
candidate’s name, resume and biographical information to the
attention of our Corporate Secretary. All proposals for nomination
received by the Corporate Secretary will be presented to the
Corporate Governance and Nominating Committee for appropriate
consideration. It is the policy of the Corporate Governance and
Nominating Committee to consider director candidates recommended by
shareholders who appear to be qualified to serve on our board of
directors. The Corporate Governance and Nominating Committee may
choose not to consider an unsolicited recommendation if no vacancy
exists on the board of directors and the committee does not
perceive a need to increase the size of the board of directors. In
order to avoid the unnecessary use of the Corporate Governance and
Nominating Committee’s resources, the committee will consider
only those director candidates recommended in accordance with the
procedures set forth below. To submit a recommendation of a
director candidate to the Corporate Governance and Nominating
Committee, a shareholder should submit the following information in
writing, addressed to the Corporate Secretary of Bright Mountain at
our main office:
●
the
name and address of the person recommended as a director
candidate;
●
all
information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Exchange Act;
●
the
written consent of the person being recommended as a director
candidate to be named in the proxy statement as a nominee and to
serve as a director if elected;
●
as to the person making the recommendation, the
name and address, as they appear on our books, of such person, and
number of shares of our common stock owned by such person;
provided,
however, that if the person is
not a registered holder of our common stock, the person should
submit his or her name and address along with a current written
statement from the record holder of the shares that reflects the
recommending person’s beneficial ownership of our common
stock; and
●
a
statement disclosing whether the person making the recommendation
is acting with or on behalf of any other person and, if applicable,
the identity of such person.
Code of Ethics and Conduct
We
have adopted a Code of Ethics and Conduct which applies to our
board of directors, our executive officers and our employees. The
Code of Ethics and Conduct outlines the broad principles of ethical
business conduct we adopted, covering subject areas such
as:
●
conflicts
of interest;
●
corporate
opportunities;
●
public
disclosure reporting;
●
confidentiality;
●
protection
of company assets;
●
health
and safety;
●
conflicts
of interest; and
●
compliance
with applicable laws.
A
copy of our Code of Ethics and Conduct is available without charge,
to any person desiring a copy, by written request to us at our
principal offices at 6400 Congress Avenue, Suite 2050, Boca Raton,
Florida33487.
Limitation on liability
The
Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of Florida corporations.
Our amended and restated articles of incorporation and our amended
and restated bylaws provide that we will indemnify our directors
and officers to the fullest extent permitted by the Florida
Business Corporation Act.
The
provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director,
and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain
available under Florida law. In addition, each director will
continue to be subject to liability for:
39
●
violations
of criminal laws, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful;
●
deriving
an improper personal benefit from a transaction;
●
voting
for or assenting to an unlawful distribution; and
●
willful
misconduct or conscious disregard for our best interests in a
proceeding by or in the right of a shareholder.
The
statute does not affect a director’s responsibilities under
any other law, such as the federal securities laws. The effect of
the foregoing is to require our company to indemnify our officers
and directors for any claim arising against such persons in their
official capacities if such person acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Insofar
as the limitation of, or indemnification for, liabilities arising
under the Securities Act may be permitted to directors, officers,
or persons controlling us pursuant to the foregoing, or otherwise,
we have been advised that, in the opinion of the Securities and
Exchange Commission, such limitation or indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
At
April 15, 2019, we had 64,248,864 shares of our common stock issued
and outstanding. The following table sets forth information
regarding the beneficial ownership of our common stock as of that
date by:
●
each
person known by us to be the beneficial owner of more than 5% of
our common stock;
●
each
of our directors;
●
each
of our named executive officers;
●
our
named executive officers and directors as a group; and
●
assuming
the exercise on a cash basis of the warrants to purchase 14,462,500
shares of our common stock which are covered by this
prospectus.
Unless
specified below, the business address of each shareholder is c/o
6400 Congress Avenue, Suite 2050, Boca Raton, FL33487. The
percentages in the table have been calculated on the basis of
treating as outstanding for a particular person, all shares of our
common stock outstanding on that date and all shares of our common
stock issuable to that holder in the event of exercise of
outstanding options, warrants, rights or conversion privileges
owned by that person at that date which are exercisable within 60
days of that date. Except as otherwise indicated, the persons
listed below have sole voting and investment power with respect to
all shares of our common stock owned by them, except to the extent
that power may be shared with a spouse.
Name
of Beneficial Owner
Amount
and Nature of Beneficial Ownership
% of
Class Before the Offering
% of
Class After the Offering
W. Kip Speyer (1)
29,324,602
41.2%
34.2%
Todd F. Speyer (2)
796,500
1.2%
1.0%
Richard Rogers (3)
637,000
1.0%
0.8%
Todd Davenport (4
126,500
0.2%
0.2%
Charles H. Lichtman (5)
1,407,537
2.2%
1.8%
All directors and executive officers as a group
(five persons) (1)(2)(3)(4)(5)
32,292,139
45.0%
37.4%
Andrew A. Handwerker (6)
9,560,388
14.9%
12.2%
———————
(1)
The
number of shares of common stock beneficially owned by Mr. Speyer
includes (i) 2,375,000 shares issuable upon the conversion of
shares of our 10% Series E convertible preferred stock, (ii)
2,177,233 shares of our common stock issuable upon the conversion
of shares of our 12% Series F-1 Convertible Preferred Stock, (iii)
1,408,867 shares of common stock issuable upon the conversion of
shares of our 6% Series F-2 Convertible Preferred Stock, (iv)
757,917 shares of our common stock issuable upon the conversion of
shares of our 10% Series F-3 Convertible Preferred Stock, and (v)
200,000 shares of our common stock issuable upon the conversion of
convertible promissory notes in the aggregate principal amount of
$80,000 which have a conversion price of $0.40 per
share.
(2)
The
number of shares of common stock beneficially owned by
Mr. Speyer includes 255,000 shares underlying vested stock
options.
(3)
The
number of shares of common stock beneficially owned by
Mr. Rogers includes 125,000 shares issuable upon the
conversion of shares of our 10% Series E convertible preferred
stock and 88,000 shares underlying vested stock
options.
(4)
The
number of shares of common stock beneficially owned by
Mr. Davenport includes 90,500 shares underlying vested stock
options.
(5)
The
number of shares beneficially owned by Mr. Lichtman includes
101,000 shares underlying vested stock options.
(6)
The
number of shares beneficially owned by Mr. Handwerker
includes:
●
5,169,500
shares held jointly with his wife; and
●
4,390,888
shares held individually.
Mr. Handwerker’s
address is 4399 Pine Tree Drive, Boynton Beach, FL33436. The
number of shares beneficially owned by Mr. Handwerker excludes
750,000 shares underlying common stock purchase warrants. Under the
terms of the warrants, Mr. Handwerker may not exercise the warrants
to the extent such conversion or exercise would cause him, together
with his affiliates, to beneficially own a number of shares of our
common stock which would exceed 4.99% of our then outstanding
shares of our common stock following such exercise. This limitation
may be increased to 9.99% at Mr. Handwerker’s option upon 61
days notice to us.
40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Preferred stock purchases
During
2017, Mr. W. Kip Speyer, our Chairman and Chief Executive Officer,
purchased an aggregate of 1,250,000 shares of our 10% Series E
Convertible Preferred Stock at a purchase price of $0.40 per share.
We used the proceeds from these sales for working
capital.
During
2017, Mr. Richard Rogers, a member of our board of directors,
purchased an aggregate of 125,000 shares of our 10% Series E
Convertible Preferred Stock at a purchase price of $0.40 per share.
We used the proceeds from this sale for working
capital.
During
2018, Mr. Speyer purchased an aggregate of 1,125,500 shares of our
10% Series E Convertible Preferred Stock at a purchase price of
$0.40 per share. We used the proceeds from these sales for working
capital.
In
2018 and 2017 we paid cash dividends on these outstanding shares of
our 10% Series E Convertible Preferred Stock and the three
sub-series of our Series F Convertible Preferred Stock described
below of $83,232 and $29,707, and $11,303 to Mr. Speyer and Mr.
Rogers, respectively.
Note Exchange Agreement
From
time to time Mr. Speyer lent us funds for working capital under the
terms of various convertible promissory notes. On November 7, 2018
we entered into a Note Exchange Agreement with Mr. Speyer pursuant
to which we exchanged:
●
$1,075,000
principal amount and accrued but unpaid interest due Mr. Speyer
under 12% Convertible Promissory Notes maturing between September26, 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 757,917 shares of our newly created
Series F-3 Convertible Preferred Stock in full satisfaction of
those notes.
Convertible notes
During
November 2018, we issued and sold Mr. Speyer two five year
unsecured convertible notes in the aggregate principal amount of
$80,000. These notes, which are convertible at the option of the
holder at any time at a conversion price of $0.40 per share, will
automatically convert into shares of our common stock on the fifth
anniversary of the date of issuance. We used the proceeds from
these notes for working capital.
DESCRIPTION OF SECURITIES
Our
authorized capital is 324,000,000 shares of common stock, par value
$0.01 per share, and 20,000,000 shares of blank check preferred
stock, par value $0.01 per share. We have designated 2,000,000
shares of the preferred stock as 10% Series A convertible preferred
stock, 2,500,000 shares of the preferred stock as 10% Series E
convertible preferred stock and an aggregate of 4,344,017 shares in
the various sub-series of Series F preferred stock described
below.
Common stock
Holders
of common stock are entitled to one vote for each share on all
matters submitted to a shareholder vote. Holders of common stock do
not have cumulative voting rights. Holders of common stock are
entitled to share in all dividends that the board of directors, in
its discretion, declares from legally available funds. In the event
of our liquidation, dissolution or winding up, subject to the
preferences of any shares of our preferred stock which may then be
outstanding, each outstanding share entitles its holder to
participate in all assets that remain after payment of liabilities
and after providing for each class of stock, if any, having
preference over the common stock.
41
Holders
of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the
common stock. The rights of the holders of common stock are subject
to any rights that may be fixed for holders of preferred stock,
when and if any preferred stock is authorized and issued. All
outstanding shares of common stock are duly authorized, validly
issued, fully paid and non-assessable.
At
April 15, 2019 there were 64,248,864 shares of our common stock
issued and outstanding.
Preferred stock
10% Series A convertible preferred stock
The
designations, rights and preferences of the 10% Series A
convertible preferred stock includes:
●
the
shares have no voting rights, except as may be provided by Florida
law;
●
the
stock has a stated value of $0.50 per share and ranks senior to all
other classes of our securities;
●
in
the event of a liquidation or winding up of our company, the
holders of the 10% Series A convertible preferred are entitled to a
liquidation preference equal to a return of the capital
invested;
●
the
shares will be entitled to a 10% dividend, payable in shares of our
common stock, at the rate of one share of common stock for each 10
shares of 10% Series A convertible preferred stock, payable
annually on the 10th business day of January;
●
the
shares of 10% Series A convertible preferred stock are convertible
into shares of our common stock on a one for one basis at the
option of the holder, subject to automatic conversion by us upon
either the five year anniversary of the date of issuance or in the
event of a change of control of our company as defined in the
designations. The conversion formula is subject to proportional
adjustment in the event of stock splits, stock dividends and
similar corporate events; and
●
the
shares are redeemable at our option upon 20 days’ notice for
an amount equal to the amount of capital invested.
On
April 15, 2019 there were no shares of our 10% Series A convertible
preferred stock outstanding.
10% Series E convertible preferred stock
●
the
shares have no voting rights, except as may be provided by Florida
law;
●
the
stock has a stated value of $0.50 per share and ranks senior to all
other classes of our securities, except for our 10% Series A
convertible preferred stock;
●
in
the event of a liquidation or winding up of our company, the
holders of the 10% Series E convertible preferred stock are
entitled to a liquidation preference equal to a return of the
capital invested;
●
the
shares pay a 10% cash dividend, payable monthly as may be permitted
under Florida law out of funds legally available
therefor;
●
the
shares of 10% Series E convertible preferred stock are convertible
into shares of our common stock on a one for one basis at the
option of the holder, subject to automatic conversion by us upon
either the five year anniversary of the date of issuance or in the
event of a change of control of our company as defined in the
designations. The conversion formula is subject to proportional
adjustment in the event of stock splits, stock dividends and
similar corporate events; and
●
the
shares are redeemable at our option upon 20 days’ notice for
an amount equal to the amount of capital invested.
On
April 15, 2019 we had 2,500,000 shares of our 10% Series E
convertible preferred stock outstanding, which such shares are
owned by our Chief Executive Officer and a member of our board of
directors.
Series F convertible preferred stock
The
Series F convertible preferred stock has three series, including
the 12% Series F-1 convertible preferred stock, or “Series
F-1,” consisting of 2,177,233 shares, 6% Series F-2
convertible preferred stock, or “Series F-2,”
consisting of 1,408,867 shares, and 10% Series F-3 convertible
preferred stock, or “Series F-3,” consisting of 757,917
shares. 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.
42
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 August30, 2022. Additional terms of the designations, rights and
preferences of the Series F-1, Series F-2 and Series F-3
include:
●
the
shares have no voting rights, except as may be provided under
Florida law;
●
the
shares pay cash dividends subject to the provisions of Florida law
at the dividend rates set forth above, payable monthly in
arrears;
●
the
shares are convertible at any time at the option of the holder into
shares of our common stock on a 1:1 basis. The conversion ratio is
proportionally adjusted in the event of stock splits,
recapitalization or similar corporate events. Any shares not
previously converted will automatically convert into shares of our
common stock on the dates set forth above;
●
the
shares rank junior to our 10% Series A Convertible Preferred Stock
and our 10% Series E Convertible Preferred Stock;
●
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; and
●
the
shares are not redeemable by us.
On
April 15, 2019 all shares of Series F-1, Series F-2 and Series F-3
are outstanding and are owned by our Chief Executive
Officer.
Warrants
A
description of the terms of our outstanding warrants to purchase
14,462,500 shares appears earlier in this prospectus under
“Selling Security Holders.”
Between
January and April 2019 we issued warrants to purchase an additional
1,960,000 shares of our common stock in various financing
transactions with exercise prices ranging from $0.65 to $0.75 per
share. The terms of these warrants are substantially identical to
the terms of our other outstanding warrants.
Transfer agent
The
transfer agent and registrar for our common stock is VStock
Transfer, LLC, 18 Lafayette Place, Woodmere, NY11598.
SHARES AVAILABLE FOR FUTURE SALE
As
of April 15, 2019, we had 64,248,864 shares of common stock
outstanding, not including shares issuable upon the exercise of
outstanding warrants, stock options and other convertible
securities. All shares sold in this offering will be freely
tradable without restriction or further registration under the
Securities Act, unless they are purchased by our
“affiliates,” as that term is defined in Rule 144
promulgated under the Securities Act.
The
outstanding shares of our common stock not included in this
prospectus will be available for sale in the public market as
follows:
Public Float
Of
our outstanding shares, 34,274,010 shares are beneficially owned by
our executive officers, directors and affiliates. The remaining
29,974,854 shares constitute our public float which, based on the
last sale price of our common stock reported on the OTCQB on April16, 2019, equaled approximately $59,950,000.
Rule 144
In
general, under Rule 144, as currently in effect, a person who has
beneficially owned shares of our common stock for at least six
months, including the holding period of prior owners other than
affiliates, is entitled to sell his or her shares without any
volume limitations; an affiliate, however, can sell such number of
shares within any three-month period as does not exceed the greater
of:
43
●
1%
of the number of shares of our common stock then outstanding, which
equaled 642,489 shares as of April 15, 2019, or
●
the
average weekly trading volume of our common stock, assuming our
shares are then traded on a national securities exchange, during
the four calendar weeks preceding the filing of a notice on Form
144 with respect to that sale.
Sales
under Rule 144 are also subject to manner-of-sale provisions,
notice requirements and the availability of current public
information about us.
LEGAL MATTERS
The
validity of the securities offered by this prospectus will be
passed upon for us by Pearlman Law Group LLP., Fort Lauderdale,
Florida.
EXPERTS
The
consolidated balance sheets of Bright Mountain Media, Inc. and
subsidiaries as of December 31, 2018, and the related consolidated
statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 2018, have been audited by EisnerAmper
LLP, independent registered public accounting firm, as stated in
their report which is incorporated herein. Such financial
statements have been incorporated herein in reliance on the report
of such firm given upon their authority as experts in accounting
and auditing.
Our
consolidated balance sheet as of December 31, 2017 and the related
consolidated statement of operations, changes in shareholders'
equity and cash flows for the year ended December 31, 2017 included
in this prospectus have been audited by Liggett & Webb, P.A.,
independent registered public accounting firm, as indicated in
their report with respect thereto, and have been so included in
reliance upon the report of such firm given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the Securities and Exchange Commission the
registration statement on Form S-1 under the Securities Act of 1933
for the common stock offered by this prospectus. This prospectus,
which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits
filed with it, portions of which have been omitted as permitted by
Securities and Exchange Commission rules and regulations. For
further information concerning us and the securities offered by
this prospectus, we refer to the registration statement and to the
exhibits filed with it. Statements contained in this prospectus as
to the content of any contract or other document referred to are
not necessarily complete. In each instance, we refer you to the
copy of the contracts and/or other documents filed as exhibits to
the registration statement.
This registration statement on Form S-1, including
exhibits, is available over the Internet at the Securities and
Exchange Commission's website at http://www.sec.gov.
You may also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the Securities and
Exchange Commission at 100 F Street, N.E., Room 1580, Washington,
D.C. 20549. Callers in the United States can also call
1-202-551-8090 for further information on the operations of the
public reference facilities.
44
BRIGHT MOUNTAIN MEDIA, INC.
INDEX TO FINANCIAL STATEMENTS
Page No.
Report
of Independent Registered Public Accounting Firm
F-2
Report
of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Bright Mountain Media, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheet of Bright
Mountain Media, Inc. and subsidiaries (the “Company") as of
December 31, 2018, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for the year
ended December 31, 2018, and the related notes (collectively
referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of the Company as of
December 31, 2018 and the consolidated results of their operations
and their cash flows for the year ended December 31, 2018, in
conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company has
experienced recurring net losses, cash outflows from operating
activities, and has an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provide a reasonable basis
for our opinion.
/s/
EisnerAmper LLP
We have
served as the Company’s auditor since 2018.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of:
Bright
Mountain Media, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheet of Bright
Mountain Media, Inc. and Subsidiaries (the “Company”)
as of December 31, 2017 and the related consolidated statements of
operations, changes in stockholders’ equity and cash flows
for each of the year ended December 31, 2017, and the related
notes. In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2017 and the results of its
operations and its cash flows for the year ended December 31, 2017
in conformity with accounting principles generally accepted in the
United States of America.
Explanatory Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company
sustained a net loss of $2,994,096 and used cash in operating
activities of $1,732,618 for the year ended December 31, 2017. The
Company had an accumulated deficit of $11,818,902 at December 31,2017. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management’s plans in
regard to these matters are described in Note 2. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal controls over financial
reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
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 ("DEM") 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.
Discontinued Operations
Management, prior
to December 31, 2018, with the appropriate level of authority,
determined to discontinue the operations of Black Helmet and Bright
Watches effective December 31, 2018. Both these businesses comprise
our identifiable segment Products. Accordingly, the Company
determined that the assets and liabilities of this reportable
segment met the discontinued operations criteria in Accounting
Standards Codification 205-20-45, and have been classified as
discontinued operations in the accompanying consolidated financial
statements. See Discontinued
Operations Note 5 and Subsequent Events Note
16.
Continuing
Operations
We are a digital media holding company for online
assets targeting and servicing the military and public safety
markets. During 2018, we delivered approximately 2.2 million
advertising impressions. These impressions include both our
targeted demographic and the larger general demographic from our ad
network. Our owned websites are dedicated to providing
“those that keep us
safe” places to go online
where they can do everything from stay current on news and events
affecting them, look for jobs, share information, communicate with
the public, and purchase products. We own 24 websites and manage
five additional websites, for a total of 29 websites, which are
customized to provide our niche users, including active, reserve
and retired military, law enforcement, first responders and other
public safety employees with information, news and entertainment
across various platforms that has proven to be of interest and
engaging to them.
During
the past several years the Company has evolved to place its
emphasis on not only providing quality content on our websites to
drive traffic increases, but to increase the advertising revenue we
generate from companies and brands looking to reach our audiences.
Our ad network connects general use advertisers with approximately
200 digital publications worldwide. Bright Mountain’s
websites feature timely, proprietary and aggregated content
covering current events and a variety of additional subjects that
are targeted to the specific, primarily young male, demographics of
the individual website. Our business strategy requires us to
continue to provide this quality content to our niche markets as we
grow our business, operations and revenues. The Company’s
focus is to launch its full-scale Ad Network Business platform, the
Bright Mountain Media Ad Network Business.
On
September 19, 2017, under the terms of an Amended and Restated
Membership Interest Purchase Agreement with DEM, and its members,
the Company acquired 100% of the membership interests of DEM.
Launched in 2015, DEM is an ad network that connects advertisers
with approximately 200 digital publications worldwide.
NOTE 2 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company sustained a net loss from continuing
operations of $4,131,314, a loss of $1,092,750 from discontinued
operations and used cash in operating activities of $3,970,013 for
the year ended December 31, 2018. The company had an accumulated
deficit of $17,042,966 at December 31, 2018. These factors raise
substantial doubt about the ability of the Company to continue as a
going concern for a reasonable period. The Company's continuation
as a going concern is dependent upon its ability to generate
revenues, control its expenses and its ability to continue
obtaining investment capital and loans from related parties and
outside investors to sustain its current level of
operations.
F-9
Management
continues raising capital through private placements and is
exploring additional avenues for future fund-raising through both
public and private sources. The Company is not currently involved
in any binding agreements to raise private equity
capital.
The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern.
NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation and Basis of Presentation
For
Fiscal 2018 and 2017, our revenues from continuing operations have
come from our advertising segment, our one reportable
segment.
The
consolidated financial statements include the accounts of the
Company and it’s wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated
Revenue Recognition
The
Company recognizes revenue in accordance with the Financial
Accounting Standards Board ("FASB") Accounting Standards
Codification ("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:
●
Advertising revenue
is received directly from 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, net of adjustments based on the traffic generated and
is billed monthly. The Company subsequently settles these
transactions with publishers at which time adjustments for invalid
traffic may impact the amount collected.
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, and the valuation allowance on deferred
tax assets.
F-10
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash
equivalents.
Fair Value of Financial Instruments and Fair Value
Measurements
FASB ASC 820
“Fair
Value Measurement and Disclosures: (“ASU 820”)
defines fair value as the price that would be received to sell an
asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. A financial
instrument’s level within the fair value hierarchy is based
on the lowest level of input significant to the fair value
measurement.
The
Company measures its financial assets and liabilities in accordance
with GAAP. For certain of our financial instruments, including
cash, accounts payable, accrued expenses, and the short-term
portion of long-term debt, the carrying amounts approximate fair
value due to their short maturities. We adopted accounting guidance
for fair values measurements and disclosures (ASC 820). The
guidance utilizes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those
three levels:
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; and
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.
Financial
instruments recognized in the consolidated balance sheets consist
of cash, accounts receivable, prepaid expenses and other current
assets, note receivable, accounts payable, accrued expenses and
premium finance loan payable. The Company believes that the
carrying value of its current financial instruments approximates
their fair values due to the short-term nature of these
instruments. The carrying value of long-term debt to related
parties and long-term debt to others approximates the current
borrowing rate for similar debt instruments.
The
following are the major categories of liabilities measured at fair
value on a recurring basis: as of December 31, 2018 and December31, 2017, using significant unobservable inputs (Level
3):
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 Company is also subject to adjustments from traffic settlements
that are deducted from open invoices.
The
policy for determining past due status is based on the contractual
payment terms of each customer, which are generally net 30 or net
60 days. Once collection efforts by the Company and its collection
agency are exhausted, the determination for charging off
uncollectible receivables is made. As of December 31, 2018 and
2017, the Company has recorded an allowance for doubtful accounts
of $228,779 and $40,000, respectively.
F-11
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 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.
The
Company accounts for its website development costs in accordance
with ASC 350-50, "Website
Development Costs". These costs, if any, are included in
intangible assets in the accompanying consolidated financial
statements.
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.
Amortization and impairment of long-lived assets
are non-cash expenses relating primarily to website acquisitions.
The Company accounts for long-lived assets in accordance with the
provisions of ASC 360, "Property, Plant and
Equipment". This requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Website acquisition costs are amortized over five years.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset.
If such assets are impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. While it is likely that we will have significant
amortization expense as we continue to acquire websites, we believe
that intangible assets represent costs incurred by the acquired
website to build value prior to acquisition and the related
amortization and impairment charges of assets, if applicable, are
not ongoing costs of doing business.
Stock-Based Compensation
The
Company accounts for stock-based instruments issued to employees
for services in accordance with ASC Topic 718. ASC Topic 718
requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity-based
compensation issued to employees. The value of the portion of an
employee award that is ultimately expected to vest is recognized as
an expense over the requisite service periods using the
straight-line attribution method. The Company accounts for
non-employee share-based awards in accordance with the measurement
and recognition criteria of ASC Topic 505-50, "Equity-Based Payments to Non-Employees". The Company
estimates the fair value of stock options by using the
Black-Scholes option-pricing model. Non-cash stock-based stock
option compensation is expensed over the requisite service period
and are included in selling, general and administrative expenses on
the accompanying statement of operations. For the year ended
December 31, 2018 and 2017, non-cash stock-based stock option
compensation expense was $24,128 and $108,090,
respectively.
Advertising and Marketing
Advertising and
marketing expenses are expensed as incurred and are included in
selling, general and administrative expenses on the accompanying
consolidated statement of operations. For the years ended December31, 2018 and 2017, advertising and marketing expense was $289,018
and $307,621, respectively, of which $0 and $33,518, was
attributable to continuing operations, respectively.
F-12
Income Taxes
We use
the asset and liability method to account for income taxes. Under
this method, deferred income taxes are determined based on the
differences between the tax basis of assets and liabilities and
their reported amounts in the consolidated financial statements
which will result in taxable or deductible amounts in future years
and are measured using the currently enacted tax rates and laws in
the period those differences are expected to reverse. A valuation
allowance is provided to reduce net deferred tax assets to the
amount that, based on available evidence, is more likely than not
to be realized.
The
Company follows the provisions of ASC 740-10, Income Taxes - Overall. When tax
returns are filed, it is highly certain that some positions taken
would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the
position taken or the amount of the position that would be
ultimately sustained. In accordance with the guidance of ASC
740-10, the benefit of a tax position is recognized in the
financial statements in the period during which, based
on all available evidence, management believes it is more likely
than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if
any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is
more than 50 percent likely of being realized upon settlement with
the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount
measured as described above should be reflected as a liability for unrecognized tax
benefits in the accompanying consolidated balance sheets along with
any associated interest and penalties that would be payable to the taxing
authorities upon examination. Interest and penalties
associated with unrecognized tax expenses are recognized as tax
expenses in the Statement of Operations.
As of
December 31, 2018, tax years 2017, 2016, and 2015 remain open for
Internal Revenue Service ("IRS") audit. The Company has received no
notice of audit or any notifications from the IRS for any of the
open tax years.
Concentrations
The
Company generates revenues from through an Ad Exchange Network and
through our Owned and Operated Ad Exchange Network. There are two
large customers who account for approximately 22.6% of the 2018 Ad
Exchange Network Revenue and approximately 33% of the Accounts
Receivable at December 31, 2018.
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 December 31,2018 and December 31, 2017, the Company had approximately $706,000
and $0, respectively, in cash balances above the FDIC insured
limit. The Company performs ongoing evaluations of its trade
accounts receivable customers and generally does not require
collateral.
Concentration of Funding
During
the year ended December 31, 2017 a large portion of the Company's
funding was provided through the issuance of 12% convertible notes
and the sale of shares of the Company's common stock and preferred
stock to a related party officer and director, as well as to a
principal shareholder.
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
December 31, 2018, and 2017 there were 1,797,000 and 2,027,000
common stock equivalent shares outstanding as stock options,
respectively; 16,319,875 and 0 common stock equivalent shares
outstanding from warrants to purchase common shares, respectively,
6,844,017 and 1,475,000 common stock equivalents from the
conversion of preferred stock, respectively; and 200,000 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.
F-13
Segment Information
The
Company currently operates in one reporting segment. 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
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, which will go into effect on January 1, 2019,
retrospectively, with a minimal cumulative
adjustment.
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. The Company will implement ASU 2016-02 in the
first quarter of 2019, based on the liability as of December 31,2018, we anticipate that approximately $338,600 will be established
as a right of use asset with a similar
obligation.
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 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.
F-14
In June 2018, the FASB issued ASU No. 2018-07,
“Compensation – Stock
Compensation (Topic 718): Improvements to Nonemployee Share-based
Payment Accounting.” ASU
2018-17 simplifies the accounting for share-based payments issued
to nonemployees for goods and services aligning such payments with
the requirements of share-based payments granted to employees. This
provision supersedes ASC 505-50 and expands ASC 718 to include all
share-based payment arrangements involving both nonemployees and
employees. The Company has implemented ASU No. 2018-07 early and
the adoption of this standard did not have a material impact on the
Company’s financial position and results of
operations.
In
August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement
(Topic 820), - Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement," which makes a number of
changes meant to add, modify or remove certain disclosure
requirements associated with the movement amongst or hierarchy
associated with Level 1, Level 2 and Level 3 fair value
measurements. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December15, 2019. Early adoption is permitted upon issuance of the update.
We do not expect the adoption of this guidance to have a material
impact on our consolidated Financial Statements.
Reclassification
Certain
reclassifications have been made to the December 31, 2017
consolidated balance sheet to conform to the December 31, 2018
consolidated balance sheet presentation.
NOTE 4 – ACQUISITIONS
On
March 3, 2017the Company entered into a Membership Interest
Purchase Agreement with DEM, and its members Harry G. Pagoulatos,
George G. Rezitis and Angelos Triantafillou (collectively, the
"Members"). On September 19, 2017 the parties entered into an
Amended and Restated Membership Interest Purchase Agreement which
modified certain terms of the original agreement. The original
agreement, as amended, is referred to as the "Daily Engage Purchase
Agreement." Following the execution of the amendment, on September19, 2017 the parties closed the transaction pursuant to which the
Company acquired 100% of the membership interests of DEM in
exchange for the following consideration:
F-15
NOTE 4 – ACQUISITIONS (CONTINUED)
●
$380,000
paid through the delivery of unsecured, interest free, one-year
promissory notes (the "Closing Notes"). Subsequent to the
acquisition, these notes were reduced by $125,313 for working
capital adjustments.
●
an
aggregate of 1,100,233 shares of our common stock valued at
$429,092 (the "Consideration Shares"); and
●
the
forgiveness of $204,411 in working capital we had previously
advanced DEM.
At
the request of the Members and included as part of the Closing
Notes and Consideration Shares, a portion of the closing
consideration, including an $165,162 principal amount Closing Note
together with 275,058 Consideration Shares, were issued to Mr.
Vinay Belani, a third party with whom DEM has a business
relationship and are included in the above figures.
Under the terms of the Daily Engage Purchase
Agreement, upon DEM achieving certain revenue and operating income
tests, we agreed to issue additional consideration, if met.
Management assessed the likelihood of
meeting these targets and determined that it was unlikely. As a
result no contingency has been recognized.
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
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 was included in
accrued expenses at December 31, 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.
Pro forma results
The
following table sets forth a summary of the unaudited pro forma
results of the Company as if the acquisition of DEM which closed in
September 2017, had taken place on the first day of the periods
presented. These combined results are not necessarily indicative of
the results that may have been achieved had the assets been
acquired as of January 1, 2017.
Management,
prior to December 31, 2018 with the appropriate leve or authority,
determined to exit, effective December 31, 2018, its Black Helmet
business line as a result of, among other things, the change in our
strategic direction to a focus solely in our advertising segment.
Historically revenues from our product sales segment including
revenues from two of our websites that operate as e-commerce
platforms, including Bright Watches and Black Helmet, as well as
Bright Watches’ retail location.
Management,
prior to December 31, 2018, with the appropriate level of
authority, determined to discontinue the operations of Bright
Mountain watches effective December 31, 2018. The decisions to exit
all components of our product segment will result in these
businesses being accounted for as discontinued operations. The
Company has determined that the exit of the Bright Watches business
requires the Company to liquidate the inventory and settle all
obligations to wind down the business unit. The Company anticipates
selling the inventory of remaining products at reduced prices
within one year. Accordingly, the Company determined that the
assets and liabilities of this reportable segment met the
discontinued operations criteria in Accounting Standards
Codification 205-20-45, as such the results have been classified as
discontinued operations.
On
March 8, 2019 the Black Helmet Apparel E-Commerce business was sold
for $175,000. At December 31, 2018, $180,000 of inventory was
considered held for sale and included in discontinued
operations.
The
detail of the consolidated balance sheets the consolidated
statements of operations and consolidated cash flows for the
discontinued operations is as stated below:
Year
ended December 31,
Discontinued
Operations
2018
2017
Cash and Cash
Equivalents
$16,747
$38,790
Inventory,
net
223,000
593,224
Total Current
Assets – Discontinued Operations
239,747
632,014
Property and
Equipment, net
49,347
57,835
Intangible Assets,
net
—
491,508
Prepaid
Rents
—
50,417
Other
Assets
11,123
20,906
Total Other Assets
– Discontinued Operations
60,470
620,666
Total Assets -
Discontinued Operations
300,217
1,252,680
Accounts
Payable
127,512
264,711
Accrued
Expenses
—
10,856
Deferred
Rents
16,417
18,886
Total Current
Liabilities – Discontinued Operations
Depreciation
expense was $26,289 and $26,129, with $13,220 and $13,950
attributable to continuing operations for the years ending December31, 2018 and 2017, respectively.
NOTE 8 –WEBSITE ACQUISITION AND INTANGIBLE
ASSETS.
At
December 31, 2018 and 2017, respectively, intangible assets, net
consisted of the following:
Useful Lives
2018
2017
Tradename
5
years
$32,000
$150,000
Customer
relationships
5
years
187,000
250,000
Non-compete
agreements
5-8
years
78,000
192,000
Total
Intangible Assets
297,000
592,000
Less:
accumulated amortization
(75,883)
(22,666)
Intangible
assets, net
$221,117
$569,334
Amortization
expense for the years ended December 31, 2018 and 2017 was $355,015
and $327,529, respectively, of which $165,066 and $135,798 was
attributed to discontinued operations, respectively, related to
both the website acquisition costs and the
intangibles.
Included
in discontinued operations are impairment losses for the years
ended December 31, 2018 and 2017 was $326,442 and $61,029,
respectively. See Note 5 for further discussion.
F-19
NOTE 9 – ACCRUED EXPENSES
At
December 31, 2018 and 2017, respectively, accrued expenses
consisted of the following:
Between September 2016 and August
2017, the Company issued a series of convertible notes
payable to an executive officer and a major shareholder totaling
$2,035,000. The notes mature five years from issuance at
which time all principal and interest are payable. Interest rates
on the notes ranged from 6% to 12% and the notes were 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.
On
November 7, 2018the 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 September26, 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.
●
$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
Company determined the value of the preferred shares using a third
party valuation expert. The summary of the Exchange Transaction as
of November 7, 2018 is as follows:
Fair value of
preferred Series F-1
$995,076
Fair value of
preferred Series F-2
643,904
Fair value of
preferred Series F-3
333,601
Total
consideration
1,972,581
Principal balance
of convertible notes
2,035,000
Accrued
interest
20,963
Discount on
convertible notes
(662,615)
Net Carrying value
of debt extinguished
$1,393,348
Loss on
extinguishment of debt
$579,233
During
November 2018 the Company issued 10% convertible promissory notes
in the amount of $80,000 to a related party, to our Chief Executive
Officer. The notes mature five years from issuance and is
convertible at the option of the holder into shares of common stock
at any time prior to maturity at a conversion price of $0.40 per
share. A beneficial conversion feature exists on the date the
convertible notes were issued whereby the fair value of the
underlying common stock to which the notes are convertible into is
in excess of the face value of the note of $70,000.
F-20
The principal balance of these notes
payable was $80,000 and $2,035,000 at December 31, 2018
and December 31,
2017, respectively and discounts recognized upon respective origination dates as a result of
the beneficial
conversion feature total $68,312 and
$1,018,125. At
December 31, 2018 and 2017, the total convertible notes payable to
related party
net of discounts was $11,688 and
$1,198,893, respectively.
Interest
expense for note payable to related party was $174,588 and $154,499
for the years ended December 31, 2018 and 2017, respectively and
discount amortization was $196,375 and $168,613,
respectively.
Long-term debt
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 was unsecured and carries an interest rate of
10% per annum payable in arrears at maturity. An amendment made on
September 30, 2017 reduced the interest rate from the original 25%
to 10%. In addition, the note holder reduced the accrued interest
due under the note from approximately $106,000 to $50,000 at
September 20, 2017. This reduction in accrued interest of
approximately $56,000 reduced interest expense for the year ended
December 31, 2017. The maturity date was amended and extended from
the former maturity date of April 30, 2018 to December 31, 2018 and
may be prepaid at any time without notice or prepayment penalty.
During the year ended December 31, 2018 the note balance was paid
in full.
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 December 31, 2018 and 2017, was
$57,181 and $67,334 net of discounts of $0 and $11,820
respectively.
The
Company assumed certain notes upon the DEM acquisition on September19, 2017. The note balances assumed were $123,913, and as of
December 31, 2017, the note balance was paid off. The Company
amortized $12,811 of debt discount on the notes payable assumed
from DEM upon full repayment of these notes payable as of December31, 2017.
In
connection with the acquisition of DEM, 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 December 31, 2018 and 2017 were
$165,162 and $254,687, respectively. This note was not paid off by
the maturity date due to pending litigation. See further discussion
in Note 11, under Legal.
$150,000 non-interest bearing Note Payable issued on January6, 2016 for the acquisition of the WarIsBoring.com website maturing
on January 4, 2019
57,181
67,334
Non-interest
bearing Promissory Note issued for the DEM acquisition on September19, 2017 which matured on September 19, 2018. The original
note was $380,000 of which $35,000 was reclassified in 2018 to the
Service Agreement listed below.
The
minimum annual principal payments of notes payable at December 31,2018 were:
2019
$229,844
Interest expense for notes payable was $34,070 and $59,768 for the
years ended December 31, 2018 and 2017, respectively and discount
amortization was $10,910 and $23,772,
respectively.
NOTE 11
–PREMIUM FINANCE LOANS PAYABLE
Premium Finance Loan Payable
The
Company generally finances its annual insurance premiums through
the use of short-term notes, payable in 10 equal monthly
installments. Coverages financed include Directors and Officers and
Errors and Omissions with premiums financed in 2018 of $92,537 and
$63,999, respectively.
The
Company leases its corporate offices at 6400 Congress Avenue, Suite
2050, Boca Raton, Florida33487 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, FL33445 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. The Company has discontinued all retail
operations and has made a settlement with the landlord to terminate
the lease of approximately $52,000 which is included in accrued
expenses. See Discontinued Operations Note 5.
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 right (See Note 8). 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, escalating at approximately
3% per year thereafter. The Company has notified the landlord of
its intent to vacate the premises on or before March 31, 2019. See
Discontinued Operations Note 5.
Future
minimum lease commitments due for facilities under non-cancellable
operating leases at December 31, 2018 are as follows:
Operating Leases
2019
$109,582
2020
112,763
2021
and thereafter
115,642
Total
minimum lease payments
$337,987
Rent
expense for the years ended December 31, 2018 and 2017 was $350,974
and $246,127 of which $132,891 and $139,987 are from continuing
operations, respectively. Rent commitments have decreased because
two leases were not renewed and the Company down sized the space
rented at its corporate headquarters.
Legal
Effective July18, 2018 we terminated the employment agreements with each of
Messrs. Harry G. Pagoulatos and George G. Rezitis for cause.
Messrs. Pagoulatos and Rezitis had been employed by us as
chief operating officer and chief technology officer, respectively,
of our DEM subsidiary since
our acquisition of that company in September 2017. Mr. Todd Speyer,
our Vice President, Digital and a member of our board of
directors, have assumed operating responsibilities for DEM.
While the malfeasance of Messrs. Harry G. Pagoulatos and George G.
Rezitis giving rise to their for-cause termination adversely
affected our results
of operations for the second and third
quarters, we do not expect that these terminations will result in
any material, long-term
change in the operations of
DEM.
In July of
2018, Messrs. Pagoulatos and
Rezitis, along with a
third party who had been a
minority owner in DEM
prior to our acquisition of that
company, filed a Complaint in
the U.S. District Court,
District of New Jersey (case number 2: l
8-cv-11357-ES-SCM) against our Company
and our Chief Executive Officer, seeking compensatory and punitive damages and attorneys' fees, among other
items, and alleging,
among other items, fraud
and breach of contract. We vehemently deny all allegations in
the complaint and believe
them to be without merit. We filed a
Motion to Dismiss this case for
a multitude of reasons
including, but
not restricted to, failure to state a cause of
action and jurisdictional and venue arguments as the
acquisition and employment agreements provides that
any dispute
should be heard in either the
state or local
courts of Palm Beach County, Florida. This Motion to Dismiss has been
pending and ripe for a decision since October 2018. At
the appropriate juncture, we
also intend to serve a Rule 11 Motion for Sanctions based upon the fact that the Complaint contains frivolous arguments
or arguments with no evidentiary support.
F-22
In connection with the DEM acquisition, the
Company entered into
three-year employment agreements with two
former members of the entity. Under
these agreements, the Company was obliged to
pay base salaries of $65,000 and $70,000, respectively to the
employees with an increase to $75,000 each
in the second
year of the agreement as well
as bonuses to be paid at the discretion of the board
of directors.
As described above, the principles of
DEM failed to disclose an obligation
of approximately $300,000 at
closing. The obligation, which
has been reduced to approximately $200,000, is included in accrued
expenses at December 31, 2018 and the net assets acquired from DEM
have been adjusted as disclosed in Note 4. 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 Part II, Item I, Legal Proceedings for further
discussion.
Other Commitments
On September 5, 2018 the
Company entered into a Master Services Agreement with
Kubient, Inc. pursuant to which it will provide its
programmatic technology platform to us on a nonexclusive basis for
the purpose of managing our programmatic business partners. The
Company did not pay anything to Kubient, Inc. for the
year ended December 31, 2018 for its platform. The Company has
provided advertising services to Kubient and at December 31, 2018the Company is owed $108,817 and a note receivable of $75,000 and
we have reserved a total of $136,000 against these balances.
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. The Company has completed the due diligence
process and has made a determination that it will not pursue the
acquisition of Kubient, Inc.
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 (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
year ended December 31, 2018.
●
Consulting fees consisting of
$300,000 in cash and 1,000,000 shares of
common stock valued at $750,000 as well as the $500,000 M&A
advisory fee are considered prepaid expenses. Total prepaid
service/consulting fees, net were $1,472,500, of which
$310,000 is considered short-term and
is included in prepaid expenses and other current assets as of
December 31, 2018. These prepaid expenses are being amortized over
60 months, the term of the respective agreements. The amortization
expense was $77,500 for the year ended December 31,2018.
F-23
For
the 36 months from the final closing of this private placement,
Spartan Capital has certain rights of first refusal if we decide to
undertake a future private or public offering or if we decide to
engage an investment banking firm.
The Company granted the purchasers in the offering
demand and piggy-back registration rights with respect to the
shares of our common stock included in the Units and the
shares of common stock issuable upon the exercise of the Private
Placement Warrants. In addition, the Company
agreed to file a resale registration statement within 120
days following the final closing of this offering covering the
shares of common stock issuable upon the exercise of the Private
Placement Warrants included in the Units. If the Company should
fail to timely file this resale registration statement, then within five business days of the end of month
we will pay the holders an amount in cash, as partial liquidated
damages, equal to 2% of the aggregate purchase price paid by the
holder for each 30 days, or portion thereof, until the earlier of
the date the deficiency is cured or the expiration of six months
from filing deadline .
The Company will keep any such
registration statement
effective until the earlier of the
date upon which all such securities may be sold without
registration under Rule 144 promulgated under the Securities Act or
the date which is six months after the expiration date of the Private Placement Warrants. We are
obligated to pay all costs associated with this registration
statement, other than selling expenses of the
holders.
On
December 11, 2018 we entered into an Uplisting Advisory and
Consulting Agreement with Spartan Capital pursuant to which Spartan
Capital will provide (i) advice and input with respect to
strategies to accomplish an uplisting of our common stock to the
Nasdaq Capital Market or NYSE American LLC or another national
securities exchange, and the implementation of such strategies and
making introductions to facilitate the uplisting, (ii) advice and
input with respect to special situation and restructuring services,
including debtor and creditor advisory services, and (iii)
sell-side advisory services with respect to the sale and
disposition of non-core businesses and assets, including
facilitating due diligence and identifying potential buyers and
strategic partners and positioning these businesses and assets to
maximize value. We paid Spartan Capital a fee of $200,000 for its
services under this agreement which is for a 12 month term
beginning on the closing date of the offering. The agreement also
provides that we will reimburse Spartan Capital for reasonable
out-of-pocket expenses, which we must approve in advance. The
Company has included this payment in prepaid expense at December31, 2018 and it will be amortized over a twelve-month
period.
The
Company entered into an Executive Employment Agreement with our
Chief Executive Officer, with an effective date of June 1, 2014.
Under the terms of this agreement, the Company will compensate the
Chief Executive Officer with a base salary of $75,000 annually, and
he is entitled to receive discretionary bonuses as may be awarded
by the Company's
board of directors from time to time. The initial term of the
agreement is three years, and the Company may extend it for an
additional one-year period upon written notice at least 180 days
prior to the expiration of the term. The Company amended this
agreement April 1, 2017 for an additional term of three years. The
Chief Executive Officer's base annual salary was increased to
$165,000 upon recommendation of the Compensation Committee of the
board of directors. The employment
agreement contains customary non-compete and confidentiality
provisions. The Company also agreed to indemnify the Chief
Executive Officer pursuant to the provisions of the Company's
Amended and Restated Articles of Incorporation and Amended and
Restated By-laws.
NOTE 13 – 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").
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.
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.
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 August30, 2022. Additional terms of the designations, rights and
preferences of the Series F-1, Series F-2 and Series F-3
include:
●
the
shares have no voting rights, except as may be provided under
Florida law;
●
the
shares pay cash dividends subject to the provisions of Florida law
at the dividend rates set forth above, payable monthly in
arrears;
●
the
shares are convertible at any time at the option of the holder into
shares of our common stock on a 1:1 basis. The conversion ratio is
proportionally adjusted in the event of stock splits,
recapitalization or similar corporate events. Any shares not
previously converted will automatically convert into shares of our
common stock on the dates set forth above;
●
the
shares rank junior to our 10% Series A Convertible Preferred Stock
and our 10% Series E Convertible Preferred Stock;
●
in
the event of a liquidation or winding up of the 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; and
At
December 31, 2018, there were 0 shares of Series A Stock and
2,500,000 shares of Series E Stock and 4,344,017 shares of Series F
Stock issued and outstanding. There are no shares of Series B
Stock, Series C Stock or Series D Stock issued and
outstanding.
The
Series A Stock is senior to all other classes of the Company's
securities and has a stated value of $0.50 per share. Holders of
shares of Series A Stock are entitled to the payment of a 10%
dividend payable in shares of the Company’s common stock at a
rate of one share of common stock for each 10 shares of
Series A Stock, payable annually the 10th business day of
January. The shares of Series A Stock are redeemable at the
Company's option upon 20 days’ notice for an amount equal to
the amount of capital invested. On the 10th business day of January
2018 there were 10,000 shares of common stock dividends owed and
payable to the Series A Stockholder of record as dividends on
the Series A Stock. These preferred shares automatically
converted into common shares on December 30, 2018 as defined
above.
On
September 6, 2017, the board of directors designated 2,500,000
shares of Preferred Stock as Series E Stock, which such designation
was amended on September 29, 2017. Holders of shares of Series E
Stock are entitled to 10% dividends, payable monthly as may be
permitted under Florida law out of funds legally available
therefor. The shares of Series E Stock rank senior to any other
class of our equity securities, except for the Series A Stock, have
a liquidation preference of $0.40 per share and are not
redeemable.
F-25
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.
During
2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,125,500 shares of
the Company’s Series E Convertible Preferred Stock at a
purchase price of $0.40 per share. The designations, rights and
preferences of Series E Stock are described in Note
12.
In
2017, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,250,000 shares of
Series E Stock at a purchase price of $0.40 per share.
During
2017, Mr. Richard Rogers, a director of the Company, purchased an
aggregate of 125,000 shares of the Company’s 10% Series E
Convertible Preferred Stock at a purchase price of $0.40 per
share.
Dividends
for Series E and F Convertible Preferred Stock paid to Mr. W. Kip
Speyer were $107,294 and $11,164 during the years ended December31, 2018 and 2017, respectively.
NOTE 14 – COMMON STOCK
A)
Stock
Issued for cash
During
2018, the Company sold an aggregate of 14,836,250 units of its
securities to 106 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
$5,934,500. Each unit, which was sold at a purchase price of
$0.40, consisted of one share of common stock and one five-year
warrant to purchase one share of common stock at an exercise price
of $0.65 per share. Spartan Capital, served as placement
agent for the Company in this offering. As compensation for
its services, the Company paid Spartan Capital commissions and
other fees totaling $793,450, and issued Spartan Capital Placement
Agents Warrants to purchase an aggregate of 1,483,625 shares of our
common stock, including the cash commission and Placement Agent
Warrants issued pursuant to the final closing on November 30, 2018
included in the Company’s consolidated statement of changes
in shareholders’ equity for the year ended December 31, 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 in
Note 11, and are using the balance for general working capital.
Under the terms of the agreement the Company agreed to file a
resale registration agreement within 120 days after the final
closing of the offering covering the common stock shares issuable
upon exercise of the Private Placement Warrants included in the
Units. The Company did not file the resale registration agreement
timely and has an obligation $3,260 per day that the filing is
delinquent.
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.
B)
Stock
issued for services
The Company issued Spartan Capital 1,000,000
shares of our common stock based on the fair
value at the date of grant, or $0.75 a share valued at $750,000
(the "Consulting
Shares") in accordance with the
consulting agreement. See Commitments and Contingencies Note
11.
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 a share valued at $7,500.
F-26
On
April 25, 2017, the Company issued to the Company’s employees
28,500 shares of its common stock with a fair value $22,800 on the
date of issuance for compensation to employees and
officers.
On
January 16, 2017the Company issued 3,600 shares to a consultant at
$0.85 per share valued at $3,060 for services rendered. The Company
valued these common shares based on a fair value on the date of the
grant.
C)
Stock
issued for acquisitions
On
September 19, 2017, the Company issued 1,100,233 shares of its
common stock in connection the acquisition of the DEM Group, LLC -
(See Note 3). The common shares were valued at $429,092 or $0.85
per share, based on the fair value on the date of
issuance.
D)
Stock
issued for dividends
In
January 2017, the Company issued 10,000 shares of its common stock
as dividends to the holder of its Series A preferred
stock.
Stock Option Compensation
The
Company accounts for stock option compensation issued to employees
for services in accordance with ASC Topic 718, “Compensation – Stock
Compensation”. ASC Topic 718 requires companies to
recognize in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to
employees. The value of the portion of an employee award that is
ultimately expected to vest is recognized as an expense over the
requisite service periods using the straight-line attribution
method. The Company accounts for non-employee share-based awards in
accordance with the measurement and recognition criteria of
ASU No. 2018-07,
“Compensation – Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting.” . The Company estimates the fair value
of stock options by using the Black-Scholes option-pricing
model.
Stock
options issued to consultants and other non-employees as
compensation for services provided to the Company are accounted for
based on the fair value of the services provided or the estimated
fair market value of the option, whichever is more reliably
measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, including related amendments and
interpretations. The related expense is recognized over the period
the services are provided.
On
April 20, 2011, the Company's board of directors and majority
stockholder adopted the 2011 Stock Option Plan (the "2011 Plan"),
to be effective on January 3, 2011. The Company has reserved for
issuance an aggregate of 900,000 shares of common stock under the
2011 Plan. The maximum aggregate number of shares of Company stock
that shall be subject to Grants made under the Plan to any
individual during any calendar year shall be 180,000 shares. On
April 1, 2013, the Company's board of directors and majority
stockholder adopted the 2013 Stock Option Plan (the "2013 Plan"),
to be effective on April 1, 2013. The Company has reserved for
issuance an aggregate of 900,000 shares of common stock under the
2013 Plan. As of December 31, 2018, 132,000 shares were remaining
under the 2013 Plan for future issuance.
On May22, 2015, the Company's board of directors and majority stockholder
adopted the 2015 Stock Option Plan (the "2015 Plan"), to be
effective on May 22, 2015. The Company has reserved for issuance an
aggregate of 1,000,000 shares of common stock under the 2015 Plan.
As of December 31, 2018, 375,000 shares were remaining under the
2015 Plan for the future issuance.
F-27
The
purpose of the 2011 Plan, 2013 Plan, and 2015 Plan (the
“Plans” are to provide an incentive to attract and
retain directors, officers, consultants, advisors and employees
whose services are considered valuable, to encourage a sense of
proprietorship and to stimulate an active interest of such persons
into our development and financial success. Under the 2015 Plan,
the Company is authorized to issue incentive stock options intended
to qualify under Section 422 of the Code, non-qualified stock
options, stock appreciation rights, performance shares, restricted
stock and long-term incentive awards. The Company's board of
directors will administer the 2011 Plan until such time as such
authority has been delegated to a committee of the board of
directors. The material terms of each option granted pursuant to
the 2011 Plan by the Company shall contain the following terms: (i)
that the purchase price of each share purchasable under an
incentive option shall be determined by the Committee at the time
of grant, (ii) the term of each option shall be fixed by the
Committee, but no option shall be exercisable more than 10 years
after the date such option is granted and (iii) in the absence of
any option vesting periods designated by the Committee at the time
of grant, options shall vest and become exercisable in terms and
conditions, consistent with the Plan, as may be determined by the
Committee and specified in the Grant Instrument. As of December 31,2018, 9,000 shares were remaining under the 2011 Plan for future
issuance.
On
September 1, 2017the Company granted 10,000 ten-year stock
options, which have an exercise price of $0.50 per share. The
aggregate fair value of these options was computed at $1,840 or
$0.184 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 year
ended December 31, 2017:
Assumptions:
2017
Expected
term (years)
6.25
Expected
volatility
52%
Risk-free
interest rate
1.99%
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 company’s
historical volatility, as the Company's common stock is quoted in
the over the counter market on the OTCQB Tier of the OTC Markets,
Inc. The risk-free interest rate is based on the U.S. Treasury
yields with terms equivalent to the expected term of the related
option at the time of the grant. Dividend yield is based on
historical trends. While the Company believes these estimates are
reasonable, the compensation expense recorded would increase if the
expected life was increased, a higher expected volatility was used,
or if the expected dividend yield increased.
The
Company recorded $24,128 and $108,090 of stock option expense for
the year ended December 31, 2018 and December 31, 2017
respectively. The stock option expense for year ended December 31,2018 and 2017 has been recognized as a component of general and
administrative expenses in the accompanying consolidated financial
statements.
As of
December 31, 2018 there were total unrecognized compensation costs
related to non-vested share-based compensation arrangements of
$11,678 to be recognized through December 2020.
Summarized
information with respect to options outstanding under the two
option plans at December 31, 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
0.14 - 0.24
540,000
2.7
$0.14
540,000
$0.14
0.25 - 0.49
351,000
4.7
$0.28
351,000
$0.28
0.50 - 0.85
906,000
6.7
$0.68
790,500
$0.67
1,797,000
5.1
$0.44
1,681,500
$0.44
Summarized
information with respect to options outstanding under the three
option plans at December 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
3.0
$0.14
720,000
$0.14
0.25 - 0.49
351,000
5.2
$0.28
351,000
$0.29
0.50 - 0.85
956,000
7.4
$0.68
706,500
$0.67
2,027,000
5.5
$0.42
1,777,500
$0.38
NOTE 15 – RELATED PARTIES
As
discussed more fully in Note 8, section titled “Long Term
Debt to Related Parties, net”, in 2017, the Company issued a
series of convertible promissory notes to our Chief Executive
Officer totaling $1,460,000. These notes have a conversion price
ranging from $0.50 per share to $0.40 per share and resulted in the
recognition of a beneficial conversion feature recorded as a debt
discount. These notes payable total $1,198,893 at December 31, 2017
net of their unamortized debt discount of $836,107.
F-29
On
November 7, 2018the Company entered into a Note Exchange Agreement
with Mr. W. Kip Speyer, our CEO and member of our Board of
Directors, pursuant to which we exchanged our convertible notes for
three new series of preferred stock. See further discussion in Note
8 Notes Payable for more details regarding the Note Exchange
Agreement and Exchange Transaction.
During November 2018, Mr. w. Kip
Speyer, the Company’s
Chairman and Chief Executive Officer, entered into two convertible
note agreements with the company totaling $80,000. These notes have
a conversion price of $0.40 per share and resulted in the
recognition of a beneficial conversion feature recorded as a debt
discount. These notes payable total $11,688 at December 31, 2018.
The notes are reported net of their unamortized debt discount of
$68,312 as of December 31, 2018.
During
2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,125,500 shares of
the Company’s Series E Convertible Preferred Stock at a
purchase price of $0.40 per share. The designations, rights and
preferences of Series E Stock are described in Note
12.
During
2017, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,250,000 shares of
the Company’s Series E Convertible Preferred Stock at a
purchase price of $0.40 per share. The designations, rights and
preferences of Series E Stock are described in Note
12.
During
2017, Mr. Richard Rogers, a director of the Company, purchased an
aggregate of 125,000 shares of the Company’s Series E
Convertible Preferred Stock at a purchase price of $0.40 per share.
The designations, rights and preferences of Series E Stock are
described in Note 12.
In 2018
and 2017 we paid cash dividends on these outstanding shares of the
Company’s Series E and F Preferred Stock of $83,232 and
$29,707, and $11,303 for W Kip Speyer and Rich Rogers,
respectively.
NOTE 16 – INCOME TAXES
The Tax
Cuts and Jobs Act (the “TCJA”) was enacted on December22, 2017. The TCJA, among other things, contains significant
changes to corporate taxation, including reduction of the corporate
tax rate from a top marginal rate of 35% to a flat rate of 21%,
effective as of January 1, 2018; limitation of the tax deduction
for interest expense; limitation of the deduction for net operating
losses to 80% of current year taxable income and elimination of net
operating loss carrybacks, in each case, for losses arising in
taxable years beginning after December 31, 2017 (though any such
tax losses may be carried forward indefinitely).
For the
years ended December 31, 2018 and 2017 there was no provision for
income taxes and deferred tax assets have been entirely offset by
valuation allowances.
As of
December 31, 2018, the Company has net operating loss carry
forwards of approximately $14,442,460. The Company's net operating
loss carry forwards may be subject to annual limitations if the
Company experiences a change of ownership as defined in Section 382
of the Internal Revenue Code. The Company has not conducted a
study to determine if a change of ownership has
occurred.
In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this
assessment.
Because
of the historical earnings history of the Company, the net deferred
tax assets for 2018 and 2017 were fully offset by a 100% valuation
allowance. The change in the valuation allowance was an increase of
approximately $596,000 and a decrease of approximately $528,000 for
the years December 31, 2018 and 2017, respectively. The Company
recorded a tax benefit for discontinued operations of $241,412 and
$159,138 offset by a similar valuation allowance for the years
December 31, 2018 and 2017, respectively.
For the
years ended December 31, the provision for income taxes
differs from the expected tax provision computed by applying the
U.S. federal statutory rate to loss before taxes as a result of the
following:
2018
2017
Amount
Rate
Amount
Rate
Federal tax expense
(benefit) at the statutory rate from continuing
operations
$(867,576)
-21.00%
(873,700)
-34.00%
State tax benefit,
net of federal income tax benefit
(33,819)
-0.82%
(86,193)
-3.35%
Federal deferred
tax expense
(2,640)
-0.06%
(27,427)
-1.07%
State deferred tax
expense
2,791
0.07%
(25,000)
-0.97%
Effect of true
up
16,906
0.41%
—
—
Effect of tax rate
change
341,358
8.26%
1,305,477
50.80%
Non-deductible
expenses
189,274
4.58%
242,434
9.43%
Change in valuation
allowance
353,706
8.56%
(535,592)
-20.84%
Total - continuing
operations
—
—
—
—
Federal tax expense
(benefit) at the statutory rate from discontinued
operations
(229,478)
-21.00%
(144,293)
-34.00%
State tax benefit,
net of federal income tax benefit
Income taxes from
continuing operations before valuation
Allowance
$(353,706)
$($798,636)
Change in valuation
allowance
353,706
798,636
Total
$—
$—
Discontinued
Operations
Current
Federal
$(229,478)
$(144,293)
State
(11,953)
(14,845)
(241,412)
(159,138)
Deferred
Federal
—
—
State
—
—
—
—
Total
$(241,412)
$(159,138)
Income tax benefit
from continuing operations before valuation
allowance
(241,412)
-
Allowance
—
Change in valuation
allowance
241,412
159,138
Total
$—
$—
NOTE 17 – SUBSEQUENT EVENTS
On
March 8, 2019 the Black Helmet Apparel E-Commerce business was sold
for $175,000, a $20,000 amount was paid at the closing and the
Company received a Promissory Note in the amount of $155,000
bearing a 15% interest rate payable in twelve equal
payments.
On
January 9, 2019, Bright Mountain Media, Inc. sold 163,750 units of
our securities to 1 accredited investor in a private placement
exempt from registration under the Securities Act in reliance on
exemptions provided by Section 4(a)(2) and Rule 506(b) of
Regulation D and Regulation S of the Securities Act. The units (the
“Units”) were sold at a purchase price of $0.40 per
Unit resulting in gross proceeds to us of $65,500 and we paid a
commission to Spartan of $6,550. Each unit consisted of one share
of our common stock and one five-year common stock purchase warrant
to purchase one share of our common stock at an exercise price of
$0.65 per share (the “Private Placement
Warrants”).
F-31
Between
January 28, 2019 and March 22, 2019, Bright Mountain Media, Inc.
sold 750,000 units of our securities to 3 accredited investors in a
private placement exempt from registration under the Securities Act
in reliance on exemptions provided by Section 4(a)(2) and Rule
506(b) of Regulation D and Regulation S of the Securities Act. The
units (the “Units”) were sold at a purchase price of
$0.40 per Unit resulting in gross proceeds to us of $300,000. Each
unit consisted of one share of our common stock and one five-year
common stock purchase warrant to purchase one share of our common
stock at an exercise price of $0.65 per share (the “Private
Placement Warrants”).
Between
February 26, 2019 and April 8, 2019, Bright Mountain Media, Inc.
sold 1,210,000 units of our securities to 12 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 and Regulation S of the
Securities Act. The units (the “Units”) were sold at a
purchase price of $0.50 per Unit resulting in gross proceeds to us
of $605,000. Each unit consisted of one share of our common stock
and one five-year common stock purchase warrant to purchase one
share of our common stock at an exercise price of $0.75 per share
(the “Private Placement Warrants”).
On
February 13, 2019, the Company entered into a not-binding letter of
intent to acquire a company which operates in our industry, subject
to due diligence. During February and March, 2019 we lent that
company an aggregate of $337,500 under the terms of a 6% promissory
note which matures on April 30, 2019. As collateral for the
repayment of the note, the chief executive officer of the target
has pledged his shares in the target.
On
March 29, 2019the Company failed to meet its Registration
requirement by not timely filing the Registration Statement (Resale
S-1) with the SEC to register the resale of the shares sold under
the Private Placement Memorandum with Placement Agent. Under the
Agreement the Company was required to file the Registration
Statement on March 29, 2019. Since the Company has not filed the
Registration Statement timely, the Company will incur an obligation
of $3,260 per day that it is delinquent. The Company intends to
file the Registration Statement as soon as practicable, subsequent
to filing our Form 10-K.
F-32
No dealer, sales representative or any other person has been
authorized to give any information or to make any representations
other than those contained in this prospectus and, if given or
made, such information or representation must not be relied upon as
having been authorized by the company or any of the underwriters.
This prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a
solicitation of any offer to buy, to any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the
delivery of this prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that the information
set forth herein is correct as of any time subsequent to the date
hereof.
