UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For
the quarterly period ended | ||
| or | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from ___________ to ___________ | ||
Commission
File Number
(Exact Name of Registrant as Specified in its Charter)
State or Other Jurisdiction of Incorporation or Organization |
I.R.S. Employer Identification No. |
| Address of Principal Executive Offices | Zip Code |
Registrant’s Telephone Number, Including Area Code
Not applicable
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of August 10, 2022 there were shares of the issuer’s shares outstanding.
TABLE OF CONTENTS
| Page No. | ||
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1. | FINANCIAL STATEMENTS. | 4 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 31 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 36 |
| ITEM 4. | CONTROLS AND PROCEDURES. | 36 |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | LEGAL PROCEEDINGS. | 37 |
| ITEM 1A. | RISK FACTORS. | 37 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 37 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | 37 |
| ITEM 4. | MINE SAFETY DISCLOSURES. | 37 |
| ITEM 5. | OTHER INFORMATION. | 37 |
| ITEM 6. | EXHIBITS. | 38 |
| 2 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report 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 risks associated with:
| ● | our ability to fully develop the Bright Mountain Media Ad Exchange Network and services platform; | |
| ● | 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 third party service providers; | |
| ● | our ability to detect advertising fraud; | |
| ● | liability related to content which appears on our websites; | |
| ● | regulatory risks and compliance with privacy laws; | |
| ● | 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; and | |
| ● | provisions of our charter and Florida law which may have anti-takeover effects |
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report, including the Part II, Item 2, our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on June 13, 2022 and our other filings with the Securities and Exchange Commission in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “Bright Mountain”, the “Company,” “we”, “us”, “our” and similar terms refer to Bright Mountain Media, Inc., a Florida corporation, and its subsidiaries. In addition, when used in this report, “second quarter of 2022” refers to the three months ended June 30, 2022, “second quarter of 2021” refers to the three months ended June 30, 2021, and “2021” refers to the year ended December 31, 2021. The information which appears on our website at www.brightmountainmedia.com is not part of this report.
| 3 |
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Note receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Website acquisition assets, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Prepaid services/consulting agreements – long term | ||||||||
| Right-of-use asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued interest to related party | ||||||||
| Premium finance loan payable | ||||||||
| Deferred revenues | ||||||||
| Long term debt, current portion | ||||||||
| Long term debt to related parties, current portion, net | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long term debt to related parties, net | ||||||||
| Operating lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ deficit | ||||||||
| Convertible preferred stock, par value $, shares authorized: | ||||||||
| Series A-1, shares designated, shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Series B-1, shares designated, shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Series E, shares designated, shares issued and outstanding at June 30, 2022 and December 31, 2021; liquidation preference of $ | ||||||||
| Series F, shares designated, shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Common stock, par value $, shares authorized, and issued and and outstanding at June 30, 2022 and December 31, 2021, respectively | ||||||||
| Treasury stock, at cost; shares at June 30, 2022 and December 31, 2021 | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 4 |
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Advertising | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Advertising | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Gain on forgiveness of PPP loan | ||||||||||||||||
| Other income (expense) | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense - related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss before tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock dividends | ||||||||||||||||
| Series A, Series E, and Series F preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 5 |
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS’ (DEFICIT) EQUITY
For the Three and Six Months Ended June 30, 2022 and 2021
(unaudited)
| Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Series E preferred stock dividend | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock option vesting expense | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||
| To Oceanside personnel as part of acquisition agreement | — | — | ||||||||||||||||||||||||||||||||||||||
| Adjustment from foreign currency translation, net | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Series E preferred stock dividend | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock option vesting expense | — | — | — | |||||||||||||||||||||||||||||||||||||
| Adjustment from foreign currency translation, net | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||
| Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Series A-1, E and F preferred stock dividend | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock option vesting expense | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||
| Options exercise | — | — | ||||||||||||||||||||||||||||||||||||||
| Warrants exercise | ||||||||||||||||||||||||||||||||||||||||
| Adjustment from foreign currency translation, net | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| To Oceanside personnel as part of acquisition agreement | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Series A-1, E and F preferred stock dividend | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock option vesting expense | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock: | ||||||||||||||||||||||||||||||||||||||||
| To Centre Lane Partners as part of debt financing | ||||||||||||||||||||||||||||||||||||||||
| Adjustment for currency translation | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 6 |
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Amortization | ||||||||
| Stock option compensation expense | ||||||||
| Stock compensation for Oceanside shares | ||||||||
| Gain on forgiveness of PPP loan | ( | ) | ( | ) | ||||
| Write off doubtful accounts | ( | ) | ||||||
| Warrant expense for services rendered | ||||||||
| Provision for (Recovery of) bad debt | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Other assets | ( | ) | ||||||
| Right of use asset and lease liability | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Accrued interest – related party | ||||||||
| Deferred revenues | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments of premium finance loan payable | ( | ) | ( | ) | ||||
| Proceeds from stock option exercises | ||||||||
| Dividend payments | ( | ) | ||||||
| Principal payments received (funded) for notes receivable | ( | ) | ||||||
| Proceeds from related party debt financing | ||||||||
| Repayments of debt | ( | ) | ||||||
| Proceeds from PPP loan | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 7 |
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30, 2022
(unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for Interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Recognition of right-of-use asset and operating lease liability | $ | $ | ||||||
| Issuance of common shares to Oceanside to settle share liability | $ | $ | ||||||
| Issuance of common stock to Centre Lane for debt issuance | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 8 |
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Organization and Nature of Operations
Bright Mountain Media, Inc. (the “Company” or “Bright Mountain” or “We”) is a Florida corporation formed on May 20, 2010. Its wholly owned subsidiary, Bright Mountain LLC, was formed as a Florida limited liability company in May 2011. Its wholly owned subsidiary, Bright Mountain, LLC (“BMLLC”) F/K/A Daily Engage Media Group, LLC (“Daily Engage”) was formed as a New Jersey limited liability company in February 2015. In August 2019, Bright Mountain Israel Acquisition, an Israeli company was formed and acquired the wholly owned subsidiary Slutzky & Winshman Ltd. (“S&W”) which then changed its name to Oceanside Media LLC (“Oceanside”). Further, on November 18, 2019, Bright Mountain, through its wholly owned subsidiary BMTM2, Inc., a Florida corporation, acquired News Distribution Network, Inc. (“NDN”), a Delaware company, which then changed its name to MediaHouse, Inc. (“MediaHouse”). On June 1, 2020, Bright Mountain acquired the wholly owned subsidiary CL Media Holdings, LLC D/B/A “Wild Sky Media” (“Wild Sky”). When used herein, the terms “BMTM, the “Company,” “we,” “us,” “our” or “Bright Mountain” refers to Bright Mountain Media, Inc. and its subsidiaries.
The Company is engaged in operating a proprietary, end-to-end digital media and advertising services platform designed to connect brand advertisers with demographically-targeted consumers – both large audiences and more granular segments – across digital, social and connected television (CTV) publishing formats. We define “end-to-end” as our process for taking ad buying from beginning to end, delivering a complete functional solution, usually without requiring any involvement from a third party.
Through acquisitions and organic software development initiatives, we have consolidated and plan to further condense key elements of the prevailing digital advertising supply chain through the elimination of industry “middlemen” and/or costly redundancy of services via our ad exchange network. Our aim is to enable and support a streamlined, end-to-end advertising model that addresses both demand (ad buy side) and supply (media sell side) for both direct sales teams and programmatic sales and publishing of digital advertisements that reach specific target audiences based on what, where, when and how that specific target audience elects to access certain web and/or streaming video content. Programmatic advertising relies on computer programs to use data and proprietary algorithms to select which ads to buy and for what price, while direct sales involve traditional interpersonal contact between ad buyers and advertising sales representative(s).
By selling advertisements on our current portfolio of 20 owned and operated websites and 13 CTV apps, coupled with acquisition or development of other niche web properties in the future, we are building depth in specific demographic verticals that allow us to package audiences into targeted consumer categories valued by advertisers.
Oceanside provides digital performance-based marketing services to customers which include primarily advertisers and advertising agencies that promote or sell products and/or services to consumers through digital media.
MediaHouse partners with content producers and online news market websites to distribute video and banner advertisements throughout the United States of America (“U.S.”).
Wild Sky owns and operates a collection of websites that offer significant global reach through its content and niche audiences and has become a wholly-owned subsidiary of the Company. Wild Sky is the home to parenting and lifestyle brands.
NOTE 2 - GOING CONCERN.
These
condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. The Company’s management has evaluated whether
there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt
existed as of the date of the end of the period. This determination was based on the following factors: (i) The Company has sustained
a net loss of $
| 9 |
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. 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 accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Principles of Consolidation and Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The accompanying unaudited financial statements for the three and six months ended June 30, 2022 and 2021 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the Securities Act of 1933. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. In the opinion of management, such unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for periods presented are not necessarily indicative of the results to be expected for the full year or any future periods. The condensed consolidated balance sheet information as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on June 13, 2022. The interim condensed consolidated financial statements should be read in conjunction with that report.
Prior Period Reclassification
During the June 30, 2022 quarterly financial reporting close process, the Company identified an immaterial reclassification impacting the three months ended March 31, 2022. Specifically, the Company identified a reclassification of commissions from selling, general and administrative expenses to cost of revenue on the condensed consolidated statements of operations. This reclassification had no impact on the previously reported net loss for the three months ended March 31, 2022.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company recognizes revenues at a point-in-time when control of services is transferred to the customer. Cash received by the Company prior to when control of services is transferred to the customer is recorded as deferred revenue.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the advertising services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the advertising services promised within each contract and determines those that are performance obligations and assesses whether each promised advertising service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation based on relative fair values, when (or as) the performance obligation is satisfied.
| 10 |
The Company recognizes revenue from its own advertising platform, ad network partners and websites (“Ad Network”) through its publishing advertiser impressions and pay-for-click services, the Company’s owned and operated sites, our ad network, or platforms. Invalid traffic on the Ad Network may impact the amount collected and adjusted by our Ad Network.
The Company has one revenue stream generated directly from publishing advertisements, whether on the Company’s owned and operated sites, our ad network, or platforms. The revenue is earned when the website visitors view or click the published website advertisements. Specific revenue recognition criteria for the advertising revenue stream is as follows:
| ● | Advertising revenues are generated by website visitors viewing or “clicking” on website advertisements utilizing direct-sold campaigns or 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. |
There are no significant initial costs incurred to obtain contracts with customers, and no contract assets or recorded in our condensed consolidated financial statements.
Leases
The Company records leases in accordance with FASB ASC Topic 842, Leases (“ASC 842”).
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease terms. Since the Company’s lease agreements does not provide an implicit rate, the Company estimated an incremental borrowing rate based on the information available in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as operating costs and property taxes are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires 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 condensed consolidated financial statements as well as reported amounts of revenue and expenses during the periods presented. Our condensed 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 condensed consolidated financial statements include revenue recognition, the fair value of acquired assets for purchase price allocation in business combinations, valuation of goodwill and intangible assets, estimates of amortization period for intangible assets, estimates of depreciation period for fixed assets, the valuation of equity-based transactions, and the valuation allowance on deferred tax assets.
| 11 |
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.
Cash and cash equivalents are all maintained in bank accounts in the U.S. and other foreign countries in which the Company operates.
Cash maintained in bank accounts outside of the U.S. is not significant. At June 30 2022 and December 31, 2021, the Company had $
Credit Risk
The Company maintains certain of its cash balances in various U.S. banks, which at times, may exceed federally insured limits. The Company has not incurred any losses on these accounts. In addition, the Company maintains various bank accounts in Thailand and Israel, which are not insured. During the three and six months ended June 30, 2022 and 2021, and the year ended December 31, 2021, we have not incurred material losses on these uninsured accounts. The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. The Company performs ongoing evaluations of its trade accounts receivable customers and generally does not require collateral.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 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 condensed consolidated balance sheets consist of cash, accounts receivable, 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 carrying value for similar debt instruments.
| 12 |
Financial Disclosures about Fair Value of Financial Instruments
The tables below set forth information related to the Company’s financial instruments (in thousands):
| Level in Fair | June 30, 2022 | December 31, 2021 | ||||||||||||||||
Value Hierarchy | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||
| PPP Loan | 2 | $ | $ | $ | $ | |||||||||||||
| Long-term debt to related parties, gross | 3 | $ | $ | $ | $ | |||||||||||||
| Non-interest bearing BMLLC acquisition debt | 2 | $ | $ | $ | $ | |||||||||||||
The following are the major categories of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of June 30, 2022 and 2021:
Fair Value measurement using Level 3
| Balance at December 31, 2020 | $ | |||
| Reclassification (1) | ( | ) | ||
| Balance at March 31, 2021 | $ | |||
| Extinguishment (2) | ( | ) | ||
| Acquisition debt, Wild Sky, related party | ||||
| Addition: Related party debt (3) | ||||
| Addition: Related part debt (4) | ||||
| Total Debt | ||||
| Less: debt discount, related party(5) | ( | ) | ||
| Less: current portion of long-term debt, related party | ( | ) | ||
| Balance at June 30, 2021 | $ |
| Total long term debt to related parties at December 31, 2021 | $ | |||
| Addition: Related party debt (6) | ||||
| Decrease: Related party debt amortization (7) | ||||
| Total long term debt to related parties at March 31, 2022 | $ | |||
| Addition: Related party debt (6) | ||||
| Decrease: Related party debt amortization (7) | ||||
| Less: current portion of long-term debt, related party | ( | ) | ||
| Total long term debt to related parties at June 30, 2022 | $ |
| (1) | ||
| (2) | ||
| (3) | ||
| (4) | ||
| (5) | ||
| (6) | ||
| (7) |
Off-balance sheet arrangements
There are no off-balance sheet arrangements as of June 30, 2022 and December 31, 2021.
| 13 |
Accounts Receivable
Accounts receivable represent receivables from customers in the ordinary course of business. These are recorded at invoice amount on the date revenue is recognized. Receivables are recorded net of the allowance for doubtful accounts in the accompanying condensed consolidated balance sheets. 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 June 30, 2022 and December 31, 2021, the Company has recorded an allowance for doubtful accounts of $
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements.
Website Development Costs
The Company accounts for its website development costs in accordance with FASB ASC Topic 350-50, Website Development Costs. These costs, if any, are included in intangible assets in the accompanying condensed consolidated balance sheets. Upgrades or enhancements that add functionality are capitalized while other costs during the operating stage are expensed as incurred. The Company amortizes the capitalized website development costs over an estimated life of five years.
As of June 30, 2022 and December 31, 2021, all website development costs have been expensed. While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business.
Amortization and Impairment of Long-Lived Assets
The Company evaluates long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets.
The Company accounts for share-based compensation related to instruments issued to employees and non-employees under GAAP, which requires the measurement and recognition compensation costs for all equity-based payment awards based on estimated fair values. 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 estimates the fair value of stock options by using the Black-Scholes option-pricing model. Share-based compensation expense is included in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. We have elected to account for forfeitures as they occur.
| 14 |
Advertising, Marketing and Promotion Costs
Advertising
and marketing expenses are expensed as incurred and are included in selling, general and administrative expenses on the accompanying
consolidated statements of operations and comprehensive loss. For the three months ended June 30, 2022 and 2021, advertising, marketing
and promotion expense was $
Foreign currency translation
Assets and liabilities of the Company’s Israeli subsidiary are translated from Israeli shekels to United States dollars at exchange rates in effect at the balance sheet date. Income and expenses are translated at the exchange rates for the weighted average rates for the period. The translation adjustments for the reporting period will be included in our statements of comprehensive income. Based on the foreign subsidiaries’ activities the impact of the currency exchange is immaterial for the three and six months ended June 30, 2022 and 2021.
Income Taxes
The Company follows the provisions of FASB ASC Topic 740-10, Income Taxes – Overall (“ASC 740-10”). 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 condensed 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 and comprehensive loss.
As of June 30, 2022, tax years 2018 through 2021 remain open for Internal Revenue Service (“IRS”) audit. The Company has not received any notice of audit or notifications from the IRS for any of the open tax years.
Concentrations
The
Company generates revenues from through Ad Exchange Networks and through our Owned and Operated Ad Exchange Network. There was one customer
who accounted for approximately
As
of June 30, 2022, one customer accounted for more than
Earnings (loss) per share is calculated and reported under the “two-class” method. The “two-class” method is an earnings allocation method under which earnings per share is calculated for each class of common stock and participating security considering both dividends declared or accumulated and participation rights in undistributed earnings as if all such earnings had been distributed during the period. The Company has convertible preferred stock which have a right to participate in dividends; these are deemed to be participating securities. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund the losses of the Company.
| 15 |
When applicable, basic earnings (loss) per share is calculated by dividing net income, after deducting dividends on convertible preferred stock and participating securities as well as undistributed earnings allocated to participating securities, by the average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated in a similar manner after consideration of the potential dilutive effect of common stock equivalents on the average number of common shares outstanding during the period. Common stock equivalents include warrants and stock options. Common stock equivalents are calculated based upon the treasury stock method using an average market price of common shares during the period. Dilution is not considered when a net loss is reported. Common stock equivalents that have an antidilutive effect are excluded from the computation of diluted earnings per share.
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; however, the latter is insignificant.
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13 (amended by ASU 2019-10), “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, regarding the measurement of credit losses for certain financial instruments.” which replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company is required to adopt the new guidance on January 1, 2023. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04 (amended by ASU 2019-10), “Intangibles – Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment.” Which simplifies the test for goodwill impairment by removing the second step of the test. There is a one-step qualitative test and does not amend the optional qualitative assessment of goodwill impairment. The new standard is effective January 1, 2023 and is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)”. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to users. The new standard is effective January 1, 2024 (early adoption is permitted, but not earlier than January 1, 2021). The Company is currently evaluating the impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This accounting standards update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This new guidance may be adopted by the Company no later than December 1, 2022, with early adoption permitted. The potential adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
| 16 |
NOTE 4 – PREPAID COSTS AND EXPENSES.
At June 30, 2022 and December 31, 2021, respectively, prepaid expenses and other current assets consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid consulting service agreements – Spartan (1) | ||||||||
| Prepaid software | ||||||||
| Prepaid expenses – other | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
| (1) |
NOTE 5 – PROPERTY AND EQUIPMENT.
At June 30, 2022 and December 31, 2021, respectively, property and equipment consisted of the following:
Estimated Useful Life (Years) | June 30, 2022 | December 31, 2021 | ||||||||
| Furniture and fixtures | $ | $ | ||||||||
| Computer equipment | ||||||||||
| Total property and equipment | ||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| Total property and equipment, net | $ | $ | ||||||||
Depreciation
expense for the three months ended June 30, 2022 and 2021, was $
Depreciation
expense for the six months ended June 30, 2022 and 2021, was $
NOTE 6 – WEBSITE ACQUISITION AND INTANGIBLE ASSETS.
At June 30, 2022 and December 31, 2021, respectively, website acquisitions, net consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Website acquisition assets | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Less: cumulative impairment loss | ( | ) | ( | ) | ||||
| Website Acquisition Assets, net | $ | $ | ||||||
| 17 |
At June 30, 2022 and December 31, 2021, respectively, intangible assets, net consisted of the following:
| Useful Lives | June 30, 2022 | December 31, 2021 | ||||||||
| Trade name | $ | $ | ||||||||
| Customer relationships | ||||||||||
| IP/Technology | ||||||||||
| Non-compete agreements | ||||||||||
| Total Intangible Assets | $ | $ | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Less: accumulated impairment loss | ( | ) | ( | ) | ||||||
| Intangible assets, net | $ | $ | ||||||||
Amortization
expense for the three months ended June 30, 2022 and 2021 was $
NOTE 7 – GOODWILL
The following table represents the allocation of Goodwill as of December 31, 2021 and June 30, 2022:
Owned & Operated | Ad Network | Total | ||||||||
| December 31, 2021 | $ | $ | $ | |||||||
| June 30, 2022 | $ | $ | $ | |||||||
Goodwill is tested for impairment at least annually and if triggering events are noted prior to the annual assessment. Impairment is deemed to occur when the carrying value of the Goodwill associated with the reporting unit exceeds the implied value of the Goodwill associated with the reporting unit. No triggering events were identified in the current period.
NOTE 8 – ACCRUED EXPENSES.
At June 30, 2022 and December 31, 2021, respectively, accrued expenses consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Accrued salaries and benefits | $ | $ | ||||||
| Accrued dividends | ||||||||
| Accrued traffic settlement(1) | ||||||||
| Accrued legal settlement(2) | ||||||||
| Accrued legal fees | ||||||||
| Accrued other professional fees | ||||||||
| Share issuance liability(4) | ||||||||
| Accrued warrant penalty(3) | ||||||||
| Accrued Value-Added Tax payable | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses | $ | $ | ||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
| 18 |
NOTE 9 – NOTES PAYABLE
Long-term debt to related parties
Centre Lane Partners Master Credit Fund II, L.P. (“Center Lane Partners”), who sold the Company the Wild Sky business in June 2020 has partnered and assisted the Company from a liquidity perspective starting in April 2021. This relationship has been determined to qualify as a related party. A related party is a party that can exercise significant influence over the Company in making financial and/or operating decisions.
Effective
June 1, 2020, the Company entered into a membership interest purchase agreement to acquire
On
April 26, 2021, the Company and certain of its subsidiaries entered into a First Amendment to Amended and Restated Senior Secured Credit
Agreement (the “First Amendment”). The Company and its subsidiaries are parties to a credit agreement between itself and
Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020 (the “Credit Agreement”). The Credit
Agreement was amended to permit the Company to raise up to $
On
May 26, 2021, the Company and certain of its subsidiaries entered into a Second amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Second Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
August 12, 2021, the Company and certain of its subsidiaries entered into a Third amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Third Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
| 19 |
On
August 31, 2021, the Company and certain of its subsidiaries entered into a Fourth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Fourth Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
October 8, 2021, the Company and certain of its subsidiaries entered into a Fifth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Fifth Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
November 5, 2021, the Company and certain of its subsidiaries entered into a Sixth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Sixth Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
December 23, 2021, the Company and certain of its subsidiaries entered into a Seventh amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Seventh Amendment”). The Company and its subsidiaries are
parties to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020,
as amended the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
January 26, 2022, the Company and certain of its subsidiaries entered into a Eighth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Eighth Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
February 11, 2022, the Company and certain of its subsidiaries entered into a Ninth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Ninth Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
| 20 |
On
March 11, 2022, the Company and certain of its subsidiaries entered into a Tenth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Tenth Amendment”). The Company and its subsidiaries are parties
to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020, as amended
the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
March 25, 2022, the Company and certain of its subsidiaries entered into an Eleventh amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Eleventh Amendment”). The Company and its subsidiaries are
parties to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020,
as amended the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
April 15, 2022, the Company and certain of its subsidiaries entered into a Twelfth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Twelfth Amendment”). The Company and its subsidiaries are
parties to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020,
as amended the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
May 10, 2022, the Company and certain of its subsidiaries entered into a Thirteenth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Thirteenth Amendment”). The Company and its subsidiaries are
parties to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020,
as amended the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
On
June 10, 2022, the Company and certain of its subsidiaries entered into a Fourteenth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners (“the Fourteenth Amendment”). The Company and its subsidiaries are
parties to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent dated June 5, 2020,
as amended the Credit Agreement. The Credit Agreement was amended to provide for an additional loan amount of $
| 21 |
As
part of these transactions and given that Centre Lane was determined to be a related party, an independent fair value analysis was performed
by the Company and all related transactions were recorded accordingly. As of the First Amendment dated April 26, 2021, the Company evaluated
the debt for extinguishment or debt modification under FASB ASC Topic 470-50, Debt – Modifications and Extinguishments,
and determined extinguishment was applicable. Under the rules, the Company extinguished the debt, which included the capitalized interest
through April 26, 2021, and recorded it net of the debt discount, including all applicable fees and stock issuances. The debt discount
determined for the First Amendment totaled $
The
accumulated gross debt discount as of June 30, 2022 and December 31, 2021 totaled $
| 22 |
On
July 31, 2019, the Company executed a Share Exchange Agreement and Plan of Merger (the “Oceanside Merger Agreement”) with
Slutzky & Winshman Ltd., an Israeli company (“Oceanside”) and the shareholders of Oceanside (the “Oceanside Shareholders”).
The merger closed on August 15, 2019, and the Company acquired all of the outstanding shares of S&W. Pursuant to the terms of the
Merger Agreement, the Company issued shares valued at $
During
November 2018, the Company issued 10% convertible promissory notes in the amount of $
The
principal balance of these notes payable was $
Long-term debt
On
February 17, 2021, under the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic
Security (“CARES”) Act, administered by the Small Business Administration (“SBA”), the Company entered into a
promissory note of $
On
March 23, 2021, under the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security
(“CARES”) Act, administered by the Small Business Administration (“SBA”), the Company’s Wild Sky subsidiary
entered into a promissory note of $
On
April 24, 2020, under the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security
(“CARES”) Act, administered by the Small Business Administration (“SBA”), the Company entered into a promissory
note of $
| 23 |
Effective
June 1, 2020, the Company acquired Wild Sky and assumed the $
At June 30, 2022 and December 31, 2021, a summary of the Company’s debt is as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| Non-interest bearing BMLLC acquisition debt | $ | $ | ||||||
| PPP loans | ||||||||
| Wild Sky acquisition debt | ||||||||
| Centre Lane debt | ||||||||
| Note payable debt to the Company’s Chairman of the Board | ||||||||
| Total Debt | ||||||||
| Less: debt discount, related party | ( | ) | ( | ) | ||||
| Less: current portion of long-term debt | ( | ) | ||||||
| Less: current portion of long-term debt, related party | ( | ) | ( | ) | ||||
| Long term debt to related parties, net and long term debt | $ | $ | ||||||
Interest
expense was $
The minimum annual principal payments of notes payable at June 30, 2022 were:
| For the Twelve Months Ending: | ||||
| 2022 (remainder of the year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | $ | |||
Premium Finance Loan Payable
Total
Premium Finance Loan Payable balance for the Company’s policies was $
| 24 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES.
The
Company leases its corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable
operating lease agreement that expired on
The right-of-use asset and lease liability is as follows as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Operating lease right of use asset | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease liability | $ | $ | ||||||
The Company’s non-lease components are primarily related to property maintenance and other operating services, which varies based on future outcomes and is recognized in rent expense when incurred and not included in the measurement of the lease liability. The Company did not have any variable lease payments for its operating lease for the three and six months ended June 30, 2022 and 2021.
The maturity of the Company’s operating lease liability at June 30, 2022:
| 2022 (remainder of year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liability | $ |
The following summarizes additional information related to the operating lease:
| June 30, 2022 | ||||
| Weighted-average remaining lease term | ||||
| Weighted-average discount rate | % | |||
For
the three months ended June 30, 2022 and 2021, rent expense was $
Legal
From time-to-time, the Company 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, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on our business.
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In
2020, Synacor, Inc commenced an action against MediaHouse, LLC, Inform, Inc. and the Company, alleging approximately $
A former employee of the Company filed a suit against the Company MediaHouse, Inc., and Gregory A. Peters, a former Executive, (the “Defendants”) alleging two counts of defamation. Any potential losses associated with this matter cannot be estimated at this time.
Bright Mountain has been sued by plaintiffs Joey Winshman, Eli Desatnik and Nadav Slutzy (“Plaintiffs”) in a lawsuit filed in the United States District Court for the Southern District of Florida on December 17, 2021 (the “Lawsuit”). Plaintiffs allege that BMM defaulted on its obligations to Plaintiffs under three promissory notes that arose from the merger between Bright Mountain Israel Acquisition Ltd., a wholly owned subsidiary of Bright Mountain, and Slutzky & Winshman Ltd. Plaintiffs seek to recover from Bright Mountain the principal balance of the promissory notes, interest, attorney’s fees, and costs. Discovery in the Lawsuit is underway and the parties continue to intermittently explore the possibility of settlement.
Encoding.com,
Inc. (“Encoding”) was a former digital media customer of MediaHouse. Encoding had a long overdue outstanding receivable from
MediaHouse’s predecessor company, Inform, Inc. MediaHouse did not assume the liability at acquisition. In 2020, the Company and
Encoding agreed to settle the overdue receivable through the issuance of
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.
NOTE 11 – PREFERRED STOCK.
On
August 31, 2021, W. Kip Speyer, the Company’s CEO, at that time, gave notice that all of his held preferred stock was converted
in accordance with the original terms. Accordingly, shares of the Company’s common stock is to be issued to Mr. Speyer.
The Company notified the transfer agent on March 19, 2022 of the share issuance, and the issuance of the shares is a matter of administration.
Management confirmed with SEC legal counsel that the shareholder rights have transferred at the time of the exercise notice. The Company
considers the Common Shares issued and outstanding as of the date of the conversion notice. The Company recognizes the conversion of
the preferred stock on August 31, 2021 and provides all rights as a common shareholder with regard to said shares to Mr. Speyer, including
all voting rights. The Company confirms that there was no inducement to convert the shares and that the correct shares were issued in
accordance with the original conversion terms. As of said date, the Company has an accrued dividend liability due to Mr. W. Kip Speyer
recorded totaling $
The
Company has authorized shares of preferred stock with a par value of $ (the “Preferred Stock”), issuable in
such series and with such designations, rights and preferences as the board of directors may determine.
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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
| ● | 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 $ | |
| ● | the shares are not redeemable by the Company. |
At both June 30, 2022 and December 31, 2021 shares of Series E Stock were issued and outstanding. There are no shares of Series A-1 Stock, Series B Stock, Series B-1 Stock, Series C Stock, Series D or Series F Stock issued and outstanding.
Other designations, rights and preferences of each of series of preferred 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.
Dividends
paid for Convertible Preferred Stock were $
Total
preferred stock dividend accrued amounted to $
NOTE 12 – COMMON STOCK.
A) Stock issued for Cash
During the six months ended June 30, 2022 and 2021, the Company did not sell any of its securities through a private placement.
B) Stock issued for services
During the six months ended June 30, 2022, the Company issued shares of our common stock for the following concepts:
| Shares (#) | Value | |||||||
| Shares issued to Oceanside employees per the acquisition agreement valued at $ | $ | |||||||
| Total | $ | |||||||
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During the six months ended June 30, 2021, the Company issued a net shares of our common stock for the following concepts:
| Shares (#) | Value | |||||||
| Shares issued to Centre Lane related to debt financing | $ | |||||||
| Options exercised by employees | ||||||||
| Warrants exercised | ||||||||
| Shares issued to Oceanside employees per the acquisition agreement valued at $ | ||||||||
| Total | $ | |||||||
C) Stock issued for acquisitions
During the six months ended June 30, 2022 and 2021, the Company did not make any acquisitions.
D) Stock issued for deemed dividend
During the six months ended June 30, 2022 and 2021, the Company did not issue any stock that resulted in a deemed dividend.
Stock Option Compensation
The Company accounts for stock option compensation issued to employees for services in accordance with FASB ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 requires companies to recognize in the statement of operations and comprehensive loss 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 Topic 505, Equity, and ASC 718, including related amendments and interpretations. The related expense is recognized over the period the services are provided.
On April 14, 2022, the Board of Directors of the Company and the Compensation Committee of the Board adopted and approved the 2022 Bright Mountain Media Stock Option Plan (the “Stock Option Plan”). The Stock Option Plan will be presented for stockholder approval at the Company’s 2022 Annual Meeting of Stockholders. The Stock Option Plan provides for the grants of awards to eligible employees, directors and consultants in the form of stock options. The purpose of the 2022 Plan (the “Plan” is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. The Stock Option Plan is the successor to the Company’s prior stock option plans (2011, 2013, 2015, and 2019 Plans) and accordingly no new grants will be made under the prior plans from and after the date hereof. The Stock Option Plan is a term of years and authorizes the issuance of up to shares of the Company’s common stock. As of June 30, 2022 shares were remaining under the 2022 Plan for the future issuance.
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.
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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 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 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 stock has limited trading volume history. 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 $ and $ of non-cash stock-based stock option compensation expense for the three months ended June 30, 2022 and 2021, respectively. The Company recorded $ and $ of non-cash stock-based stock option compensation expense for the six months ended June 30, 2022 and 2021, respectively. The stock option expense for the three and six months ended June 30, 2022 and 2021, respectively has been recognized as a component of general and administrative expenses in the accompanying condensed consolidated financial statements.
As of June 30, 2022, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $ to be recognized through May 2026.
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding, December 31, 2021 | $ | $ | ||||||||||||||
| Granted | — | |||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited | — | — | ||||||||||||||
| Expired | ) | — | — | |||||||||||||
| Balance Outstanding, June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 | $ | $ | ||||||||||||||
| Options Outstanding | ||||||||||||||||||||
Range
or | Number Outstanding | Weighted Average Exercise Price | Remaining Average Contractual Life (In Years) | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
| $ - | $ | $ | ||||||||||||||||||
| $ - | ||||||||||||||||||||
| $ - | ||||||||||||||||||||
| $ - | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
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NOTE 13 – RELATED PARTIES.
Centre Lane Partners Master Credit Fund II, L.P. (“Center Lane Partners”), who sold the Company the Wild Sky business in June 2020 has partnered and assisted the Company from a liquidity perspective during 2021 and through the three and six months ended June 30, 2022. This relationship has been determined to qualify as a related party. A related party is a party that can exercise significant influence over the Company in making financial and/or operating decisions. Through June 30, 2022, the Company has entered into fourteen amendments to the Amended and Restated Senior Secured Credit agreement between itself and Centre Lane Partners. See Note 9 - Notes Payable for more information.
The
total related party debt owed to Centre Lane Partners was $
As
discussed in Note 9, notes payable to the Chairman of the Board amounted to $
During
the three months ended June 30, 2022 and 2021, we paid cash dividends on the outstanding shares of the Company’s Series E and F
Preferred Stock of $
The
unsecured and interest free Closing Notes of $
NOTE 14 – INCOME TAXES.
The
Company recorded $
At
June 30, 2022 and December 31, 2021, the Company had
NOTE 15 – SUBSEQUENT EVENTS.
On July 1, 2022, the Company filed an application with the OTCQB for a review of its candidature to be upgraded to the OTCQB exchange from the OTC Expert market as the Company is now current with its SEC filing obligations. This process is expected to take between eight to ten weeks.
On
July 8, 2022, the Company and certain of its subsidiaries entered into its fifteenth amendment to the Amended and Restated Senior Secured
Credit Agreement between itself and Centre Lane Partners Master Credit Fund II, L.P. (“Centre Lane Partners”). The Company
and its subsidiaries are parties to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral
Agent dated June 5, 2020, as amended (the “Credit Agreement”). The Credit Agreement was amended to provide for an additional
loan amount of $
The
Company announced that it accepted the resignation of its Chief Financial Officer, Edward Cabanas on July 26, 2022, effective August
15, 2022, and appointed Miriam Martinez as the Company’s new Chief Financial Officer. Pursuant to an Offer Letter, Ms. Martinez
will receive an annual base salary of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our unaudited condensed consolidated financial condition and results of operations for the three and six months ended June 30, 2022 and 2021 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth later in this report under Part II, Item 1A. in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on June 13, 2022 (the “2020 Form 10-K”) and our other filings with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All information in this section for the three and six months ended June 30, 2022 and 2021 is unaudited and derived from the unaudited condensed consolidated financial statements appearing elsewhere in this report; unless otherwise noted, all information for the year ended December 31, 2021 is derived from our audited consolidated financial statements appearing in the 2021 Form 10-K as filed with the SEC on June 13, 2022.
Executive Overview of Second Quarter 2022 Results
Our key user metrics and financial results for the second quarter of 2022 are more fully discussed and described herein and should be read in context with the disclosure on this page. The second quarter of 2022 results are as follows:
User metrics:
| ● | Quarterly ad impressions delivered were approximately 1.2 billion for the three months ended June 30, 2022 and approximately 2.2 billion for the six months ended June 30, 2022; this compares to approximately 0.9 billion for the three months ended June 30, 2021 and approximately 2.0 billion for the six months ended June 30, 2021. |
Second quarter 2022 financial results:
| ● | Advertising revenue increased 135% in the three months ended June 30, 2022 from the same period of 2021. Advertising revenue increased 90% in the six months ended June 30, 2022 from the same period of 2021. | |
| ● | Gross profit increased 194% in the three months ended June 30, 2022 from the same period of 2021. Gross profit increased 130% in the six months ended June 30, 2022 from the same period of 2021. | |
| ● | Selling, general and administrative expenses decreased 28% in the three months ended June 30, 2022 from the same period of 2021. Selling, general and administrative expenses decreased 19% in the six months ended June 30, 2022 from the same period of 2021. | |
| ● | Included within the expenses for the three months ended June 30, 2022 are $389,739 of non-cash amortization of the intangible assets, and $30,119 of stock based compensation. Included within the expenses for the six months ended June 30, 2022 are $786,006 of non-cash amortization of the intangible assets and $59,035 of stock based compensation. | |
| ● | Net cash used in operating activities was ($2,565,605) for the first six months of 2022 as compared to ($2,059,030) for the six months of 2021. |
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Overview
Bright Mountain Media, Inc. is an end-to-end digital media and advertising services platform, efficiently connecting brands with targeted consumer demographics. Through the removal of middlemen in the advertising services process, Bright Mountain Media efficiently connects brands with targeted consumer demographics while maximizing revenue to publishers. Bright Mountain Media’s assets include the Bright Mountain, LLC ad network, MediaHouse (f/k/a NDN), Oceanside (f/k/a S&W Media), Wild Sky Media and 20 owned and/or managed websites.
We generate revenue sales of advertising services which generate revenue from advertisements (ad impressions) placed on our owned and managed sites, as well as from advertisements we place on partner websites, for which we earn a share of the revenue. We also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers, often called DSPs (Demand Side Platforms) and sellers, often called SSPs (Supply Side Platforms).
When fully developed Bright Mountain’s full suite of advertising solutions will include:
| ● | The ability for advertisers to purchase advertising space on a variety of digital publications; | |
| ● | Leading targeting technology, allowing advertisers to pinpoint their marketing efforts to reach geo-targeted, specific demographics across desktop, tablet, and mobile devices; | |
| ● | The ability to handle any ad format, including video, display, and native advertisements; | |
| ● | Ad serving and self-service features for publishers and advertisers; and | |
| ● | Server-to-server integration with other advertiser and publisher platforms for extremely quick transactions and ad deployments. |
Bright Mountain’s platform will be a marketplace for publishers and advertisers where they will be able to choose from various features to maximize their earning potential. Advertisers have the ability to directly target desired demographics on publishers’ sites through our platform. Publishers will be able to select a variety of ad units for their video, mobile, display and native advertisements, and have the ability to create their own unique ad formats.
We have begun expansion with the recent acquisition of Wild Sky Media. Wild Sky Media offers massive global reach through engaging content and multicultural audiences. This is achieved through their six websites focusing on parenting and lifestyle brands. The websites include Mom.com, Cafemom.com, LittleThings.com, mamaslatinas.com, revelist.com, and babynamewizard.com.
Key initiatives
Our growth strategy is based upon:
| ● | completing and launching the Bright Mountain Media advertising solutions marketplace; | |
| ● | expanding our sales revenues through organic growth; | |
| ● | continuing to pursue acquisition candidates that are strategic to our business plan; | |
| ● | evaluating expenses attributed to our non-strategic business lines; and | |
| ● | continuing to automate our processes and reduce overhead where possible without impacting our customer experience. |
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Results of operations
Revenues, Cost of Revenue, Gross Profit Margins, selling, general and administrative expenses, and other income (expense)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||
| Advertising revenues | $ | 5,716,779 | $ | 2,433,415 | $ | 3,283,364 | 135 | % | $ | 9,175,943 | $ | 4,833,135 | $ | 4,342,808 | 90 | % | ||||||||||||||||
| Total cost of revenue | $ | 2,899,290 | $ | 1,476,108 | $ | 1,423,182 | 96 | % | $ | 4,589,905 | $ | 2,842,951 | $ | 1,746,954 | 61 | % | ||||||||||||||||
| Gross Profit | $ | 2,817,489 | $ | 957,307 | $ | 1,860,182 | 194 | % | $ | 4,586,038 | $ | 1,990,184 | $ | 2,595,854 | 130 | % | ||||||||||||||||
| Gross profit margin as a percentage of advertising revenues | 49.3 | % | 39.3 | % | 50.0 | % | 41.2 | % | ||||||||||||||||||||||||
Advertising revenue for the three months ended June 30, 2022 was 135% higher than the comparable period in 2021. The main reason for the increase was higher programmatic revenue at our BMLLC business in a combination of adding new clients and increased use of its proprietary RTB platform complemented by higher Direct campaign revenue at our Wild Sky business period over period.
Advertising revenue for the six months ended June 30, 2022 was 90% higher than the comparable period in 2021. The main reason for the increase was higher programmatic revenue at our BMLLC business in a combination of adding new clients and increased use of its proprietary RTB platform complemented by higher Direct campaign revenue at our Wild Sky business period over period.
We incur costs of sales associated with the advertising revenue. These costs include revenue share payments to media providers and website publishers. Our gross profit margin percentage increased 1000 basis points (49.3% versus 39.3%) for the three months ended June 30, 2022 compared to the comparable prior period. Our gross profit margin percentage increased 880 basis points (50.0% versus 41.2%) for the six months ended June 30, 2022 compared to the comparable prior period. This increase is mainly due to higher margins in our programmatic business due to the increased use of our proprietary RTB exchange platform which eliminates the use of third parties and the increase of new clients with improved margins and increased Direct campaign revenues that also have higher gross margins.
Selling, General and Administrative Expenses
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||||||
| Selling, general and administrative expense | $ | 3,443,199 | $ | 4,749,835 | $ | (1,306,636 | ) | (28 | )% | $ | 7,330,558 | $ | 9,024,269 | $ | (1,693,711 | ) | (19 | )% | ||||||||||||||
| Selling, general and administrative expense as a percentage of total revenue | 60 | % | 195 | % | 80 | % | 187 | % | ||||||||||||||||||||||||
Selling, general and administrative costs decreased approximately $1,306,636, or (28%) for the three months ended June 30, 2022 compared to the same period in 2021. Selling, general and administrative costs decreased approximately $1,693,711, or (19%) for the six months ended June 30, 2022. These decreases are mainly due to reduced costs related to reductions in headcount throughout our operations period over period and lower professional fees, specifically audit, tax and valuation work, period over period.
Selling, general and administrative expenses are expected to increase as we execute our planned growth strategy of launching and operating the Bright Mountain Media ad exchange network which will include additional administrative support. Subject to the availability of additional working capital, the Company also intends to add staff to its accounting department to improve controls over its accounting and reporting processes. As the Company expands the size of the accounting department, its use of consultants is expected to decrease.
Other income (expense), net
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||||||
| Other income (expense), net | $ | (561,808 | ) | $ | (696,783 | ) | $ | 134,975 | 19 | % | $ | (559,855 | ) | $ | 835,499 | $ | (1,395,354 | ) | (167 | )% | ||||||||||||
Other income (expense) increased approximately $134,975, or 19% for the three months ended June 30, 2022 compared to the same period in 2021, mainly due to PPP loan forgiveness by $295,600 during the three months ended June 30, 2022.
Other income decreased approximately $1,395,354, or (167%) for the six months ended June 30, 2022 compared to the same period in 2021, mainly due to reduced PPP loan forgiveness by $569,555 and increased interest expense – related party.
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Non-GAAP financial measure
We report adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles (“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 is defined as operating income/loss excluding:
| ● | non-cash stock option compensation expense; | |
| ● | depreciation; | |
| ● | Non-restructuring severance expenses | |
| ● | Nonrecurring professional fees; | |
| ● | 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 and comprehensive loss of certain expenses.
The following is an unaudited reconciliation of net loss to adjusted net loss and Adjusted EBITDA for the periods presented:
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss before tax | $ | (1,187,518 | ) | $ | (4,489,311 | ) | $ | (3,304,375 | ) | $ | (6,198,586 | ) | ||||
| plus: | ||||||||||||||||
| Stock compensation expense | 30,115 | 128,342 | 175,780 | 298,390 | ||||||||||||
| Depreciation expense | 8,468 | 16,487 | 11,853 | 34,534 | ||||||||||||
| Amortization expense | 389,741 | 396,267 | 786,007 | 792,533 | ||||||||||||
| Nonrecurring professional fees | 164,465 | 115,409 | 307,749 | 160,409 | ||||||||||||
| Amortization on debt discount | 333,177 | 141,992 | 613,155 | 145,444 | ||||||||||||
| Bad debt (recovery) | (49,076 | ) | (147,166 | ) | 222,279 | (141,070 | ) | |||||||||
| Non-restructuring severance expense | 29,313 | - | 29,313 | - | ||||||||||||
| Interest expense, net | 722 | 75,211 | 735 | 336,206 | ||||||||||||
| Interest expense – related party | 562,568 | 393,772 | 1,122,007 | 429,060 | ||||||||||||
| Adjusted EBITDA | $ | 281,975 | $ | (3,368,997 | ) | $ | (35,497 | ) | $ | (4,143,080 | ) | |||||
For the three and six months ended June 30, 2022 and 2021, to disclose an adjusted EBITDA that accurately represents actual operations, we have excluded the PPP loan forgiveness from the calculation.
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Liquidity and capital resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. The following table summarized total current assets, total current liabilities and working (deficit) at June 30, 2022 as compared to December 31, 2021.
| June 30, 2022 | December 31, 2021 | |||||||
| Total current assets | $ | 4,689,370 | $ | 5,257,577 | ||||
| Total current liabilities | 17,497,981 | 23,069,784 | ||||||
| Net working deficit | $ | (12,808,611 | ) | $ | (17,812,207 | ) | ||
As we continue our efforts to grow our business, we expect that our monthly cash operating overhead will continue to increase as we add personnel, although at a lesser rate, and we are not able at this time to quantify the amount of this expected increase. During 2021, we implemented policies and procedures around cash collections to prevent the aging of accounts receivables that we experienced in 2020. Cash collection efforts have been successful, and we feel that we have appropriately reserved for uncollectible amounts at June 30, 2022.
During February and March 2021, the Company received two loans with proceeds totaling $1,137,140 (the “PPP Loans”) under the second tranche of the Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The Second Bright Mountain and Second Wild Sky PPP Loans are evidenced by promissory notes (the “Promissory Notes”) with Regions Bank and Holcomb Bank, respectively, and have a two-year term and bear interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loans may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains customary events of default provisions. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. On March 23, 2022 and June 15, 2022, the Company obtained PPP forgiveness for the second tranches of the loans totaling $1,137,140.
During January through June 30, 2022, the Company received $2.7 million in debt financing from Centre Lane Partners. The use of the funds was for general working capital needs. During May 26, 2021 through December 31, 2021, the Company received $5.1 million in debt financing from Centre Lane Partners. The use of the funds was for general working capital needs.
Going concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s management has evaluated whether there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt existed as of the date of the end of the period covered by this report. This determination was based on the following factors: (i) the Company used cash of approximately $2.6 million in operations for the six months ended June 30, 2022; (ii) the Company’s available cash as of the date of this filing will not be sufficient to fund its anticipated level of operations for the next 12 months; (iii) the Company will require additional financing for the fiscal year ending December 31, 2022 to continue at its expected level of operations; and (iv) if the Company fails to obtain the needed capital, it will be forced to delay, scale back, or eliminate some or all of its development activities or perhaps cease operations. In the opinion of management, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern as of the date of the end of the period covered and for one year from the issuance of these condensed consolidated financial statements.
The report of our independent registered public accounting firm on our audited consolidated financial statements at December 31, 2021 and 2020 and for the years then ended contained an explanatory paragraph regarding substantial doubt of our ability to continue as a going concern based upon our net losses, cash used in operations and accumulated deficit. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful to manage our working capital deficit, or to manage our cash versus liabilities, or our ability to continue obtaining investment capital and loans from related parties and outside investors or to continue as a going concern, in which event investors would lose their entire investment in our company.
Our ability to fully implement the Bright Mountain Media Ad Exchange Network and maximize the value of our assets are dependent upon our ability to raise additional capital sufficient for our short-term and long-term growth plans. Historically, we have been dependent upon debt financing and equity capital raises to provide adequate funds to meet our working capital needs. During the six months ended June 30, 2022, we raised $2,700,000 of debt financing (see Note 13 Related Parties for more information).
While we have engaged a placement agent to assist us in raising capital, the placement agent is acting on a best-efforts basis and there are no assurances we will be successful in raising additional capital during 2022 through the sale of our securities. Any delay in raising sufficient funds will delay the implementation of our business strategy and could adversely impact our ability to significantly increase our revenues in future periods. In addition, if we are unable to raise the necessary additional working capital, absent a significant increase in our revenues, most particularly from our advertising segment, of which there is no assurance, we will be unable to continue to grow our company and may be forced to reduce certain operating expenses to conserve our working capital.
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Summary of cash flows
For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (2,565,605 | ) | $ | (2,059,030 | ) | ||
| Net cash used in investing activities | $ | (3,824 | ) | $ | (5,337 | ) | ||
| Net cash provided by financing activities | $ | 2,205,297 | $ | 2,423,840 | ||||
During the six months ended June 30, 2022, the Company raised $2,700,000 of debt financing which was used primarily to fund our working capital. We used cash primarily to fund our net loss of $3,304,375.
During the six months ended June 30, 2021, the Company raised $1,500,000 of debt financing which was used primarily to fund our working capital.
Critical accounting policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 3 to our unaudited condensed consolidated financial statements appearing elsewhere in this report.
Recent accounting pronouncements
The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies as described in Note 3 appearing earlier in this report that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Securities Exchange Act of 1934 (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Based on his evaluation as of the end of the period covered by this report, our Chief Financial Officer concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of continuing material weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2021. A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
We have implemented changes and will continue to monitor our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added to our accounting and administrative staff allowing improved internal control over financial reporting.
Changes in Internal Control over Financial Reporting. We continue to strategically plan changes in our internal control over financial reporting through this fiscal quarter, Q2 2022.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None, except as previously disclosed.
ITEM 1A. RISK FACTORS.
We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2021 Form 10-K subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the period from January 1, 2022 through June 30, 2022, Bright Mountain Media, Inc. did not sell any equity securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
| No. | Exhibit Description | Form | Date Filed | Number | Herewith | |||||
| 31.1 | Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer | Filed | ||||||||
| 31.2 | Rule 13a-14(a)/15d-14(a) certification of principal financial and accounting officer | Filed | ||||||||
| 32.1 | Section 1350 certification of Principal Executive Officer and principal financial and accounting officer | Filed | ||||||||
| 101.INS | Inline XBRL Instance Document | Filed | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BRIGHT MOUNTAIN MEDIA, INC. | ||
| August 12, 2022 | By: | /s/ Matthew Drinkwater |
| Matthew
Drinkwater, Chief Executive Officer, Principal Executive Officer | ||
| By: | /s/ Edward A. Cabanas | |
| Edward
A. Cabanas, Chief Financial Officer, Principal Financial and Accounting Officer | ||
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