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DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Unless specifically set forth to the contrary, when used in this report the terms “Bright Mountain,” the “Company,” “we,” “our,” “us,” and similar terms refers to Bright Mountain Media, Inc., a Florida corporation, and our subsidiaries. In addition, “fourth quarter of 2021” refers to the three months ended December 31, 2021, “2021” refers to the year ended December 31, 2021, “fourth quarter of 2020” refers to the three months ended December 31, 2020, and “2020” refers to the year ended December 31, 2020.
Unless specifically set forth to the contrary, the information which appears on our website at www.brightmountainmedia.com is not part of this report.
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 stockholders 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|
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in Part I. Item 1A. Risk Factors appearing elsewhere in this report. Other sections of this report include additional factors, which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
ITEM 1. DESCRIPTION OF BUSINESS
Bright Mountain Media, Inc. is engaged in operating a proprietary, end-to-end digital media and advertising services platform designed to connect brand advertisers with select-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, limiting involvement from a third party.
Through acquisitions and organic product 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. 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 involves traditional interpersonal contact between ad buyers and advertising sales representative(s) resulting in an IO (insertion order) business.
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.
We currently own parenting and lifestyle domains CafeMom, Mom.com, LittleThings, Revelist, BabyNameWizard and MamasLatinas. Our diverse digital publishing website portfolio averages more than 100 million page views per month. These digital publishing assets are the foundation of one of Bright Mountain Media’s audiences – women between the ages of 19-54, which we believe appeal to brands focused on marketing consumer products and providing products and services relating to parenting, financial services, health, lifestyle and travel, among others. Major brands on our platform connecting with consumers using our parenting and lifestyle domains include Amazon, Target, Disney, Unilever, Clorox, Warner Brothers, and Chase Bank.
Current Advertising Model Reliant on Digital Advertising Supply Chain
According to eMarketer, U.S. digital ad spending surpassed traditional media spending in 2019 and is projected to reach over two-thirds of total media spending by 2023. With the migration of ad dollars to mobile devices, desktops and connected televisions, the digital advertising supply chain has evolved into a fragmented and complex ecosystem, forcing ad buyers to contend with hundreds, if not thousands, of touch points. Consequently, numerous specialized product and service providers now populate the ecosystem, standing in between brands and ad agencies and publishers and their media. Key players in the prevailing supply chain, whom we will refer to as “middlemen,” include:
|●||Advertiser ad servers: direct ads to their designated place in a publisher’s inventory when the correct impression opportunity is available.|
|●||Ad networks: networks of relationships established between the buy and sell side to make the ad buying process easier and to expose more inventory and purchasing opportunities.|
|●||Ad exchanges: a web of ad networks, enabling real-time bidding transactions through a single source.|
|●||Demand side platforms (DSPs): a platform that executes programmatic media buying, a form of buying in which inventory is purchased real-time to show one specific ad to one consumer in one individual context – including determining which media, how much to buy and at what price. Ad placement is bought on an individual impression basis, as opposed to being bought per thousand impressions (CPM).|
|●||Supply side platforms (SSPs): a platform that serves a similar function to a DSP, but on the sell side. It is a platform which publishers use to facilitate real-time bidding, as well as some direct buys. Its goal is to help advertisers purchase impressions more efficiently.|
|●||Trading desks: the programmatic buying arm of an agency that aggregates programmatic, auction-based inventory across various DSPs and ad exchanges.|
|●||Private marketplaces: an invitation-only marketplace that gives agency buyers access to premium inventory while using automated or programmatic buying methods to purchase faster, thus eliminating the RFP and negotiation process.|
|●||Data management platforms (DMPs): a platform which stores, organizes and analyzes first- and third-party data to discover and reach target audiences. It then applies in-depth measurement to optimize media buying and creatives.|
|●||Media management platforms: working alongside all the players in the ecosystem, media management companies provide tools to manage campaigns, automating every step of the advertising workflow, including planning, buying, analyzing, optimizing and invoicing.|
|●||Measurement and analytics providers: these players aggregate and organize data so that marketers can get a holistic view of the campaign metrics they care most about.|
|●||Data providers: they provide insight across the spectrum, from audience to pricing, so that marketers may make better ad buying decisions. Data is specifically used for targeting, segmentation, identification, verification and more.|
Aside from frustration caused by managing so many disparate services and providers, advertisers face challenges that can be difficult to address within the prevailing ecosystem. For instance, advertisers may have difficulty ascertaining the value they receive for the ad dollars spent and/or lack certainty on how best to mitigate advertising fraud. Many advertisers may not have the resources necessary to neutralize or lessen the impact of ad-blocking software or have control over where their advertisements actually appear on the web.
Downstream, publishers may not be able to generate sufficient revenue to support their web pages and/or overall operations after the middlemen are paid their fees. (See Current Advertising Model graphic below.)
Optimizing the Digital Advertising Supply Chain
Through Bright Mountain Media’s technology-driven platform, the supply chain is consolidated and condensed into a streamlined, end-to-end solution providing ad buyers and publishers with a sole source capable of delivering products and services to meet their respective needs and objectives without reliance on third-party providers. (See Optimizing the Supply Chain graphic below)
Building Our Platform
Since our founding in 2010, Bright Mountain Media has operated as a digital media holding company for websites primarily targeting the military and public safety sectors, including active, reserve and retired military; law enforcement; first responders and other public safety employees. In addition to our corporate website, we own and/or manage a portfolio of websites customized to provide our target users with products, information and news that we believe may be of interest to them. In addition, up until December 2018, we operated ecommerce businesses, which we exited to focus exclusively on evolving our business into a full service digital media and advertising services and solutions company. Since August 2019, we have completed and vertically integrated three acquisitions as part of our business plan:
|●||S&W Media, which we subsequently rebranded as Oceanside Media.|
|●||News Distribution Network, which we subsequently rebranded as MediaHouse|
|●||CL Media Holdings, d/b/a Wild Sky Media|
As consumers shift from traditional cable boxes to Internet-enabled devices and smart televisions, advertising budgets are following. CTV/OTT apps are presenting the opportunity for publishers to not only diversify revenue streams and capitalize on an influx of high CPM ad spends, but also to increase distribution by getting in front of a growing audience on numerous platforms. Leveraging Oceanside’s proprietary streaming technology; CTV/Over-the-Top (OTT) app development and monetization experience; and 13 CTV/OTT apps offered on ROKU, Apple TV, Amazon Fire and Android TV; Bright Mountain Media has become a one-stop-shop helping existing publishers, content creators and influencers to access connected TV audiences via our SSP, We enable digital advertisers to reach engaged digital TV audiences while delivering impactful video ad formats and aligning their brands with premium vertical video content. Our focus is in developing proprietary video content for specific verticals; distribution of that content; and securing deals with OTT companies providing for the pre-installation of our CTV/OTT apps on web-enabled televisions or through an Internet-enabled device, such as ROKU or Apple TV, connected to a conventional television.
Through Wild Sky Media, we own and operate parenting and lifestyle brands CafeMom, Mom.com, LittleThings, Revelist, BabyNameWizard and MamasLatinas. This portfolio of established multimedia websites is enabling Bright Mountain Media to build the next generation of brands that women can identify with while providing advertisers with a packaged target audience to market a broad range of premium branded products and services.
Our cloud-based platform, referred to as Bright Mountain Network and BrightX (Bright Exchange), also provides advertisers with additional built-in services including campaign planning and execution, data integration, optimization, ad placement verification, cross-device targeting and fraud detection, among other functions.
Moving forward, we plan to continue seeking complementary companies and technologies to acquire with a primary focus on DSPs, SSPs, ad exchanges, ad servers and DMPs. In addition, we plan to continue to implement organic growth initiatives centered on the design and development of software products that we believe will enhance and support our expanding platform and business operations – all capabilities that we believe will increase revenues and improve gross profit margin on sales.
We believe that our advertisers benefit from the high level of granularity, transparency and accountability our platform provides for their ad campaigns and marketing budgets. Publishers, including our owned and operated websites and CTV apps, benefit from capturing a larger share of the total ad spend.
In February 2019, eMarketer published a report in which the market research firm noted that US digital ad spending is expected to achieve 17.0% growth this year, increasing to $151.3 billion (pre-COVID). (See Digital Ad Spending in the US, 2018-2023 chart inset below.)
However, in June 2020, eMarketers revised its earlier forecast in a report titled “US Digital Ad Spending Update Q2 2020,” decreasing its previous expectation from 17% growth in 2020 to 1.7%, rising to $134.7 billion for the year. (See How Has the Forecast for Digital Ad Spending in the US Changes? 2019-2024 chart inset below.)
In another recent study, published by Interactive Advertising Bureau (IAB) in September 2020 and titled “2020-21 Covid Impact on Advertising,” the report reflected that digital ad spending may actually expand 6%, while traditional media advertising will decline 30%, indicating digital’s market share is growing as a result of the global coronavirus pandemic.
Bernstein Research, a Wall Street brokerage and research firm, released a report in August 2020 is even more bullish on the market, suggesting that “digital ad spend may have turned the corner from March-April lows and current trends are pointing towards a ‘long promised’ migration of $70 billion from the television ad market to digital channels, with a 13% year-on-year uptick expected in the second half of 2020.” (Source: https://menafn.com/1100658712/Digital-ads-poised-for-13-YoY-uptick-long-promised-migration-from-linear-TV-Report)
We currently rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information.
Technology and Product Platforms (including URL’s)
Our top technical priority is the fast and reliable delivery of pages and ads to our users. Our systems are designed to handle traffic and network growth. We rely on multiple tiers of redundancy / failover and third-party content delivery network to achieve our goal of 24 hours-a-day, seven-days-a-week website uptime. Regular automated backups protect the integrity of our data. Our servers are continuously monitored by numerous third-party and open-source monitoring and alerting tools.
The internet and industries that operate through it are intensely competitive. We compete with other companies that have significantly greater financial, technical, marketing, and distribution resources. Our competitors include Verizon Media, AppNexus, Pubmatic, The Arena Group, and Ziff Davis.
Most of our competitors have significantly greater financial, technical, marketing and distribution resources as well as greater experience in the industry. There are no assurances we will ever be able to effectively compete in our marketplace. Our websites, ad technology, and monetization solutions may not be competitive with other technologies and/or our websites, ad technology, and monetization solutions may be displaced by newer technology. If this happens, our sales and revenues will likely decline. In addition, our current and potential competitors may establish cooperative relationships with larger companies, to gain access to greater development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.
Our customers are various advertisers, advertising agencies and advertising service organizations all seeking to have their respective advertisements placed on one of the many platforms serviced by the Company.
There are also a number of specific laws and regulations governing the collection and use of certain types of consumer data relevant to our business. For example, the Children’s Online Privacy Protection Act (“COPPA”), imposes restrictions on the collection and use of data about users of child-directed websites. To comply with COPPA, we have taken various steps to implement a system that: (i) flags seller-identified child-directed sites to buyers, (ii) limits advertisers’ ability to serve interest-based advertisements, (iii) helps limit the types of information that our advertisers have access to when placing advertisements on child- directed sites, and (iv) limits the data that we collect and use on such child-directed sites.
The use and transfer of personal data in EU member states is currently governed under the EU Data Protection Directive, which generally prohibits the transfer of personal data of EU subjects outside of the EU, unless the party exporting the data from the EU implements a compliance mechanism designed to ensure that the receiving party will adequately protect such data. We have relied on alternative compliance measures, which are complex, which may be subject to legal challenge, and which directly subject us to regulatory enforcement by data protection authorities located in the European Union. By relying on these alternative compliance measures, we risk becoming the subject of regulatory investigations in any of the individual jurisdictions in which we operate. Each such investigation could cost us significant time and resources, and could potentially result in fines, criminal prosecution, or other penalties. Further, some of these alternative compliance measures are facing legal challenges, which, if successful, could invalidate the alternative compliance measures that we currently rely on. It may take us significant time, resources, and effort to restructure our business and/or rely on another legally sufficient compliance measure. In addition, the European Union has finalized the General Data Protection Regulation (“GDPR”), which became effective in May 2019. The GDPR sets out higher potential liabilities for certain data protection violations, as well as a greater compliance burden for us in the course of delivering our solution in Europe; among other requirements, the GDPR obligates companies that process large amounts of personal data about EU residents to implement a number of formal processes and policies reviewing and documenting the privacy implications of the development, acquisition, or use of all new products, technologies, or types of data. Further, the European Union is expected to replace the EU Cookie Directive governing the use of technologies to collect consumer information with the ePrivacy Regulation. The ePrivacy Regulation propose burdensome requirements around obtaining consent and impose fines for violations that are materially higher than those imposed under the Cookie Directive.
The UK’s decision to leave the European Union may add cost and complexity to our compliance efforts. If UK and EU privacy and data protection laws and regulations diverge, we will be required to implement alternative EU compliance measures and adapt separately to any new UK requirements.
Because of the service character of our business, the quality of personnel is of crucial importance to our continuing success and our employees, including creative, digital, research, media and account specialists, and their skills and relationships with clients, are among our most valuable assets. We conduct extensive employee training and development throughout our companies. There is keen competition for qualified employees.
As of April 30, 2022, we had 66 employees, of which 35 were employed in the U.S. and 31 outside of the U.S, in Thailand and Israel. We also utilize the services of 69 independent contractors who provide content, operational and website services.
We employ a balanced approach in managing our human capital resources. Depending on where a human-capital management function is most effective or efficient, processes are either managed at the holding company or designated to our operating units to adopt strategies appropriate for their client sector, workforce makeup, talent requirements and business demands. The Company relies on contracted resources to provide accounting support and intends to add staff to its accounting department to improve controls over its accounting and reporting processes.
The holding company retains oversight of all human capital resources and activities, setting standards, providing support and policy guidance, and sharing programs. At the corporate center, centralized human capital management processes include development of human resources governance and policy; executive compensation for senior leaders across the Company; benefits programs; performance planning, development and retention of the Company’s senior-most executives and key roles in the operating units; and executive development.
The Company sets specific standards for human capital management and, on a yearly basis, assesses each operating unit’s performance in managing and developing its workforce. We undertake human capital initiatives with an aim of ensuring that employees have the high level of competence and commitment our businesses need to succeed. We formally assess our operating units against their efforts in the areas of people development, diversity and inclusion, performance management, talent acquisition and organization development in order to drive or support the units’ strategic business and growth goals. Accordingly, the operating units create and deploy skills-training programs, management training, employee goal-setting and feedback platforms, applicant-tracking systems, new-employee onboarding processes, and other programs intended to enhance the performance and engagement of the workforce.
Diversity, Equity and Inclusion are essential priorities for the Company. Our goal is that our talent represents the diversity of our communities and consumers, with a corporate culture that drives belonging, well-being and growth. We believe that such a workplace will enable us to provide cultural insights to help our clients make authentic and responsible connections with their customers. The programs we provide in support of diversity, equity and inclusion include events, training and curated and bespoke content, research and tools, to foster awareness and action on an array of critical issues that we believe are vital for the recruitment, retention, advancement, well-being and belonging for people who are part of under-represented groups.
The events of the past year have highlighted the importance of providing emotional as well as material support to our employees in these demanding times. In response to the ongoing COVID-19 public health crisis, we provided increased support for our people.
History of our company
We were organized as a Florida corporation in 2010 under the name Speyer Investment Advisors, Inc. In 2012, we changed our name to Speyer Investment Research, Inc. In 2014, as we began building our brand, we changed our name to Bright Mountain Holdings, Inc. and in 2015 we changed our name to Bright Mountain Acquisition Corporation and then to Bright Mountain Media, Inc. as we began implementing our strategy to transform into a digital media holding company. During 2018, the Company decided to discontinue its e-commerce product sales segment to focus entirely on the advertising segment. In 2020, we acquired Wild Sky in the digital publishing area sticking with the strategy to focus on the advertising segment.
Additional information concerning the terms of material business combinations can be found in Part II, Item 8, Financial Statements and Supplementary Data, Note 1, “Nature of Operations and Basis of Presentation” and Note 3, “Acquisitions”.
Our principal executive offices are located at 6400 Congress Avenue, Suite 2050, Boca Raton, FL 33487, our telephone number is (561) 998-2440. The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge through the “Investor Relations” section of the Company’s website, www.brightmountainmedia.com, as soon as reasonably practical after they are filed with the Securities and Exchange Commission (“SEC”). The SEC maintains a website, www.sec.gov, which contains reports, proxy and information statements, and other information filed electronically with the SEC by the Company. The information on, or that can be accessed through this website is not part of this Annual Report on Form 10-K and you should not rely on any such information in making the decision whether to purchase the Company Common Stock.
ITEM 1A. RISK FACTORS
Before you invest in our securities, you should be aware that there are various risks in making any such investment. You should carefully consider these risk factors, together with all of the other information included in this report before you decide to purchase any of our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected and you could lose your entire investment in our company.
RISKS RELATED TO OUR COMPANY
WE HAVE A HISTORY OF LOSSES.
We incurred net significant net losses for 2021 and 2020, and at December 31, 2021, we had a significant accumulated deficit. Our revenues and gross margin decreased slightly for 2021 from 2020, and our selling, general and administrative expenses, or “SG&A”, decreased significantly for 2021 from 2020 as well. We anticipate that our SG&A will increase in 2022 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 currently relies on contracted resources to provide additional accounting support, and also intends to add staff to its accounting department to improve controls over its accounting and reporting processes. There is substantial doubt that we will be able to significantly increase our revenues and gross profit to a level which supports profitable operations and provides sufficient funds to pay our operating expenses and other obligations as they become due.
WE ARE DEPENDENT UPON SALES OF EQUITY SECURITIES AND LOANS FROM OUR CHAIRMAN OF THE BOARD TO PROVIDE OPERATING CAPITAL.
We do not generate sufficient gross profit to pay our operating expenses and we reported a net loss in 2021 and 2020. Historically we have been dependent upon the purchase of equity securities or convertible notes by Mr. Kip Speyer, our Chairman of the Board, to provide operating capital. During 2020, the Company raised approximately $4.0 million through the sale of our securities in a private placement. While we expect to seek to raise additional working capital through the sale of our securities in private or public transactions, we are not a party to any binding agreements and there are no assurances we will be able to raise any additional third-party capital. Mr. Speyer is also under no obligation to continue to lend us money or purchase equity securities from us. If we are not able to raise sufficient additional working capital as needed, absent a significant increase in our revenues we may be unable to grow our company.
IF WE FAIL TO DETECT ADVERTISING FRAUD OR OTHER ACTIONS THAT IMPACT OUR ADVERTISING CAMPAIGN PERFORMANCE, WE COULD HARM OUR REPUTATION WITH ADVERTISERS OR AGENCIES, WHICH WOULD CAUSE OUR REVENUE AND BUSINESS TO SUFFER.
Once established, the Bright Mountain Media Advertising Services Business will rely on our ability to deliver successful and effective advertising campaigns. Some of those campaigns may experience fraudulent and other invalid impressions, clicks or conversions that advertisers may perceive as undesirable, such as non-human traffic generated by machines that are designed to simulate human users and artificially inflate user traffic on websites. These activities could overstate the performance of any given advertising campaign and could harm our reputation. It may be difficult for us to detect fraudulent or malicious activity on websites where we do not own content and rely in part on our customers to control such activity. If we fail to detect or prevent fraudulent or other malicious activity, the affected advertisers may experience or perceive a reduced return on their investment and our reputation may be harmed. High levels of fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund or future credit demands or withdrawal of future business.
IF ADVERTISING ON THE INTERNET LOSES ITS APPEAL, OUR REVENUE COULD DECLINE.
Our business model may not continue to be effective in the future for a number of reasons, including:
|●||a decline in the rates that we can charge for advertising and promotional activities;|
|●||our inability to create applications for our customers;|
|●||the fact that Internet advertisements and promotions are, by their nature, limited in content relative to other media;|
|●||companies may be reluctant or slow to adopt online advertising and promotional activities that replace, limit or compete with their existing direct marketing efforts;|
|●||companies may prefer other forms of Internet advertising and promotions that we do not offer;|
|●||the quality or placement of transactions, including the risk of non-screened, non-human inventory and traffic, could cause a loss in customers or revenue; and|
|●||regulatory actions may negatively impact our business practices.|
If the number of companies who purchase online advertising and promotional services from us does not grow, we may experience difficulty in attracting publishers, and our revenue could decline.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY EXPAND AND MANAGE OUR RELATIONSHIPS WITH OUR PUBLISHERS.
Outside of our owned and operated websites, we are dependent upon our publishing partners to provide the media we sell. We depend on these publishers to make their respective media inventories available to us to use in connection with the campaigns that we manage, create or market. Our growth depends, in part, on our ability to expand and maintain our publisher relationships within our network and to have access to new sources of media inventory such as new partner websites and Facebook pages that offer attractive demographics, innovative and quality content and growing Web user traffic volume. Our ability to attract new publishers to our networks and to retain Web publishers currently in our networks will depend on various factors, some of which are beyond our control. These factors include, but are not limited to, our ability to introduce new and innovative products and services, our pricing policies, and the cost-efficiency to Web publishers of outsourcing their advertising sales. In addition, the number of competing intermediaries that purchase media inventory from Web publishers continues to increase. In the event we are not able to maintain effective relationships with our publishers, our ability to distribute our advertising campaigns will be greatly hindered which will reduce the value of our services and adversely impact our results of operations in future periods.
WE ARE DEPENDENT ON REVENUES FROM A LIMITED NUMBER OF CUSTOMERS.
For 2021, one customer represents 8.6% of revenue and for 2020, one customer represents 9.6% of revenue. The loss of these customers could have a material adverse impact on our results of operations in future periods.
WE ARE SUBJECT TO SEASONAL FLUCTUATIONS IN OUR REVENUES IN FUTURE PERIODS.
Typically advertising technology companies report a material portion of their revenues during the fourth calendar quarter as a result of holiday related ad spend. Our experience since transitioning to focus solely on our advertising segment has been consistent with this trend. Because of seasonal fluctuations, there can be no assurance that the results of any particular quarter will be indicative of results for the full year or for future years or quarters.
THE ACQUISITION OF NEW BUSINESSES IS COSTLY AND THESE ACQUISITIONS MAY NOT ENHANCE OUR FINANCIAL CONDITION.
A significant element of our growth strategy has been to acquire companies which complement our business. The process to undertake a potential acquisition can be time-consuming and costly. We have expended and expect to continue to expend significant resources to undertake business, financial and legal due diligence on potential acquisition targets. In addition, there is no guarantee that we will acquire the company after completing due diligence. The process of identifying and consummating an acquisition could result in the use of substantial amounts of cash and exposure to undisclosed or potential liabilities of acquired companies. In some instances, we may be required to provide historic audited financial statements for up to two years for acquisition targets in compliance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The necessity to provide these audited financial statements will increase the costs to us of consummating an acquisition or, if it is determined that the target company cannot obtain the requisite audited financials, we may be unable to pursue an acquisition which might otherwise be accretive to our business. In addition, even if we are successful in acquiring additional companies, there are no assurances that the operations of these businesses will enhance our future financial condition. To the extent that a business we acquire does not meet the performance criteria used to establish a purchase price, some or all of the goodwill related to that acquisition could be charged against our future earnings, if any.
ACQUISITION(S) MAY DISRUPT GROWTH.
We may pursue strategic acquisitions in the future. Risks in acquisition transactions include difficulties in the integration of acquired businesses into our operations and control environment, difficulties in assimilating and retaining employees and intermediaries, difficulties in retaining the existing clients of the acquired entities, assumed or unforeseen liabilities that arise in connection with the acquired businesses, the failure of counterparties to satisfy any obligations to indemnify us against liabilities arising from the acquired businesses, and unfavorable market conditions that could negatively impact our growth expectations for the acquired businesses. Fully integrating an acquired company or business into our operations may take a significant amount of time. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with acquisitions and other strategic transactions. These risks may prevent us from realizing the expected benefits from acquisitions and could result in the failure to realize the full economic value of a strategic transaction or the impairment of goodwill and/or intangible assets recognized at the time of an acquisition. These risks could be heightened if we complete a large acquisition or multiple acquisitions within a short period of time.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.
User confidence in our websites depends on maintaining strong security features. While we are unaware of any security breaches to date, experienced programmers or “hackers” could penetrate sectors of our systems. Because a hacker who is able to penetrate network security could misappropriate proprietary information or cause interruptions in our services, we may have to expend significant capital and resources to protect against or to alleviate problems caused by hackers. Additionally, we may not have a timely remedy against a hacker who is able to penetrate our network security. Such security breaches could materially affect our operations, damage our reputation and expose us to risk of loss or litigation. In addition, the transmission of computer viruses resulting from hackers or otherwise could expose us to significant liability. Our insurance policies may not be adequate to reimburse us for losses caused by security breaches. We also face risks associated with security breaches affecting third parties with whom we have relationships.
WE MUST PROMOTE THE BRIGHT MOUNTAIN BRAND TO ATTRACT AND RETAIN USERS, ADVERTISERS AND STRATEGIC BUYERS.
The success of the Bright Mountain brand depends largely on our ability to provide high quality content which is of interest to our users. If our users do not perceive our existing content to be of high quality, or if we introduce new content or enter into new business ventures that are not favorably perceived by users, we may not be successful in promoting and maintaining the Bright Mountain brand. Any change in the focus of our operations creates a risk of diluting our brand, confusing users and decreasing the value of our website traffic base to advertisers. If we are unable to maintain or grow the Bright Mountain brand, our business would be severely harmed.
WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR CONTENT OR TO DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT SUCCESSFUL, WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE REQUIRED TO PAY SIGNIFICANT FEES.
Our success and ability to compete are dependent on our proprietary content. We rely exclusively on copyright law to protect our content. While we actively take steps to protect our proprietary rights, these steps may not be adequate to prevent the infringement or misappropriation of our content, which could severely harm our business. In addition to content written by our employees, we also acquire content from various freelance providers and other third-party content providers. While we attempt to ensure that such content may be freely used by us, other parties may assert claims of infringement against us relating to such content. We may need to obtain licenses from others to refine, develop, market and deliver new content or services. We may not be able to obtain any such licenses on commercially reasonable terms or at all or rights granted pursuant to any licenses may not be valid and enforceable.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR CLAIMS BY OTHERS THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS COULD SUBSTANTIALLY HARM OUR BUSINESS.
Our website domain names are crucial to our business. However, as with phone numbers, we do not have and cannot acquire any property rights in an internet address. The regulation of domain names in the United States and in other countries is also subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we might not be able to maintain our domain names or obtain comparable domain names, which could harm our business. We also rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated. Others may independently discover our trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights. Therefore, in certain jurisdictions, we may be unable to protect our technology and designs adequately against unauthorized third-party use, which could adversely affect our ability to compete.
DEVELOPING AND IMPLEMENTING NEW AND UPDATED APPLICATIONS, FEATURES AND SERVICES FOR OUR WEBSITES MAY BE MORE DIFFICULT THAN EXPECTED, MAY TAKE LONGER AND COST MORE THAN EXPECTED AND MAY NOT RESULT IN SUFFICIENT INCREASES IN REVENUE TO JUSTIFY THE COSTS.
Attracting and retaining users of our websites requires us to continue to provide quality, targeted content and to continue to develop new and updated applications, features and services for our websites. If we are unable to do so on a timely basis or if we are unable to implement new applications, features and services without disruption to our existing ones, our ability to continue to expand our website traffic will be in jeopardy. The costs of development of these enhancements may negatively impact our ability to achieve profitability. There can be no assurance that the revenue opportunities from expanded website content, or updated technologies, applications, features or services will justify the amounts ultimately spent by us.
IF WE ARE UNABLE TO OBTAIN OR MAINTAIN KEY WEBSITE ADDRESSES, OUR ABILITY TO OPERATE AND GROW OUR BUSINESS MAY BE IMPAIRED.
Our website addresses, or domain names, are critical to our business. We currently own more than 25 domain names. However, the regulation of domain names is subject to change, and it may be difficult for us to prevent third parties from acquiring domain names that are similar to ours, that infringe our trademarks or that otherwise decrease the value of our brands. If we are unable to obtain or maintain key domain names for the various areas of our business, our ability to operate and grow our business may be impaired.
OUR TECHNOLOGY DEVELOPMENT EFFORTS MAY NOT BE SUCCESSFUL IN IMPROVING THE FUNCTIONALITY OF OUR NETWORK, WHICH COULD RESULT IN REDUCED TRAFFIC ON OUR WEBSITES.
If our websites do not work as intended, or if we are unable to upgrade the functionality of our websites as needed to keep up with the rapid evolution of technology for content delivery, our websites may not operate properly, which could harm our business. Additionally, software product design, development and enhancement involve creativity, expense and the use of new development tools and learning processes. Delays in software development processes are common, as are project failures, and either factor could harm our business.
OUR ABILITY TO DELIVER OUR CONTENT DEPENDS UPON THE QUALITY, AVAILABILITY, POLICIES AND PRICES OF CERTAIN THIRD-PARTY SERVICE PROVIDERS.
We rely on third parties to provide website hosting services. In certain instances, we rely on a single service provider for some of these services. In the event the providers were to terminate our relationship or stop providing these services, our ability to operate our websites could be impaired. Our ability to address or mitigate these risks may be limited. The failure of all or part of our website hosting services could result in a loss of access to our websites which would harm our results of operations.
WE MAY BE HELD LIABLE FOR CONTENT, BLOGS OR THIRD PARTY LINKS ON OUR WEBSITE OR CONTENT DISTRIBUTED TO THIRD PARTIES AND OUR GENERAL LIABILITY INSURANCE MAY NOT BE ADEQUATE TO COMPENSATE US FOR ALL LIABILITIES TO WHICH WE ARE EXPOSED.
As a publisher and distributor of content over the internet, including blogs which appear on our websites and links to third-party websites that may be accessible through our websites, or content that includes links or references to a third-party’s website, we face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature, content or ownership of the material that is published on or distributed from our websites. These types of claims have been brought, sometimes successfully, against online services, websites and print publications in the past. Other claims may be based on errors or false or misleading information provided on linked websites, including information deemed to constitute professional advice such as legal, medical, financial or investment advice. Other claims may be based on links to sexually explicit websites. Although we carry general liability insurance, our insurance may not be adequate to indemnify us for all liabilities imposed. Any liability that is not covered by our insurance or is in excess of our insurance coverage could severely harm our financial condition and business. Implementing measures to reduce our exposure to these forms of liability may require us to spend substantial resources and limit the attractiveness of our websites to users.
OUR MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR ACQUISITIONS AND TO MANAGE OUR GROWTH AND WE MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS OF THESE ACQUISITIONS.
We are subject to various risks associated with our growth strategy, including the risk that we will be unable to identify and recruit suitable acquisition candidates in the future or to integrate and manage the acquired companies. Acquired companies’ histories, the geographical location, business models and business cultures will be different from ours in many respects. Successful integration of these acquisitions is subject to a number of challenges, including:
|●||the diversion of management time and resources and the potential disruption of our ongoing business;|
|●||difficulties in maintaining uniform standards, controls, procedures and policies;|
|●||unexpected costs and time associated with upgrading both the internal accounting systems as well as educating each of their staff as to the proper methods of collecting and recording financial data;|
|●||potential unknown liabilities associated with acquired businesses;|
|●||the difficulty of retaining key alliances on attractive terms with partners and suppliers; and|
|●||the difficulty of retaining and recruiting key personnel and maintaining employee morale.|
There can be no assurance that our efforts to integrate the operations of any acquired assets or companies will be successful, that we can manage our growth or that the anticipated benefits of these proposed acquisitions will be fully realized.
WE DEPEND ON THE SERVICE OF OUR CHAIRMAN OF THE BOARD. THE LOSS OF HIS SERVICE COULD HURT OUR ABILITY TO OPERATE OUR BUSINESS IN FUTURE PERIODS.
Our success largely depends on the efforts, reputation and abilities of W. Kip Speyer, our Chairman of the Board. While we are a party to an employment agreement with Mr. Speyer and do not expect to lose his services in the foreseeable future, the loss of the services of Mr. Speyer could materially harm our business and operations in future periods.
WE MUST HIRE, INTEGRATE AND/OR RETAIN QUALIFIED PERSONNEL TO SUPPORT OUR EXPECTED BUSINESS EXPANSION.
Our success also depends on our ability to attract, train and retain qualified personnel. In addition, because our users must perceive the content of our websites as having been created by credible and notable sources, our success also depends on the name recognition and reputation of our editorial staff. Competition for qualified personnel is intense and we may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we fail to attract and retain qualified personnel, our business will suffer, and we may be unable to timely meet our reporting obligations under Federal securities laws.
WE DELIVER ADVERTISEMENTS TO USERS FROM THIRD-PARTY ADVERTISING SERVICES WHICH EXPOSES OUR USERS TO CONTENT AND FUNCTIONALITY OVER WHICH WE DO NOT HAVE ULTIMATE CONTROL.
We display pay-per-click, banner, cost per acquisition “CPM”, direct, and other forms of advertisements to users that come from third-party Advertising Services. We do not control the content and functionality of such third-party advertisements and, while we provide guidelines as to what types of advertisements are acceptable, there can be no assurance that such advertisements will not contain content or functionality that is harmful to users. Our inability to monitor and control what types of advertisements get displayed to users could have a material adverse effect on our business, financial condition, and results of operations.
OUR SERVICES MAY BE INTERRUPTED IF WE EXPERIENCE PROBLEMS WITH OUR NETWORK INFRASTRUCTURE.
The performance of our network infrastructure is critical to our business and reputation. Because our services are delivered solely through the internet, our network infrastructure could be disrupted by a number of factors, including, but not limited to:
|●||unexpected increases in usage of our services;|
|●||computer viruses and other security issues;|
|●||interruption or other loss of connectivity provided by third-party internet service providers;|
|●||natural disasters or other catastrophic events; and|
|●||server failures or other hardware problems.|
If our services were to be interrupted, it could cause loss of users, customers, and business partners, which could have a material adverse.
OUR SYSTEMS MAY FAIL DUE TO NATURAL DISASTERS, TELECOMMUNICATIONS FAILURES AND OTHER EVENTS, ANY OF WHICH WOULD LIMIT USER TRAFFIC.
Our websites are hosted by third party providers. Any disruption of the computing platform at these third party providers could result in a service outage. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins, supplier failure to meet commitments, and similar events could damage these systems and cause interruptions in the hosting of our websites. Computer viruses, electronic break-ins or other similar disruptive problems could cause users to stop visiting our website and could cause advertisers to terminate any agreements with us. In addition, we could lose advertising revenues during these interruptions and user satisfaction could be negatively impacted if the service is slow or unavailable. If any of these circumstances occurred, our business could be harmed. Our insurance policies may not adequately compensate us for losses that may occur due to any failures of or interruptions in our systems. We do not presently have a formal disaster recovery plan.
Our websites must accommodate high volumes of traffic and deliver frequently updated information. While we have not experienced any systems failures to date, it is possible that we may experience systems failures in the future and that such failures could harm our business. In addition, our users depend on internet service providers, online service providers and other website operators for access to our websites. Many of these providers and operators have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. Any of these system failures could harm our business.
WE ARE UNABLE TO PREDICT THE IMPACT OF COVID-19 ON OUR BUSINESS.
Because our company operates in the digital advertising industry, unlike a brick and mortar-based company, predicting the impact of the coronavirus pandemic on our company is difficult at this stage in the viruses US expansion. Thus far, we have experienced a pause in marketing campaigns by a limited number of clients and a potential impact from a number of suppliers. We have issued a work from home policy to protect our employees and their families from potential virus transmission among co-workers, but have returned to our Corporate offices in Boca Raton, FL since September 2020 while adhering to CDC and local/state recommendations. Generally, marketing budgets tend to decline in times of a recession. We have started to curtail expenses, including travel and we have issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers. We are beginning to experience interruptions in our daily operations, including financial reporting process, as a result of these policies. We expect the revenue impact on our industry could vary dramatically by vertical. For example, we would expect to see less advertising demand from the travel, leisure and hospitality verticals and more advertising demand in the health, technology, insurance, and pharmaceutical verticals. We also maintain long-standing relationships with Yahoo!, Google and others that provide access to hundreds of thousands of advertisers from which most of our Real Time Bidding and digital publishing revenue originates. Any adverse impact on the operations of those companies would have a correspondingly adverse impact on our revenues in future periods. We will continue to assess the impact of the COVID-19 pandemic on our company, however, at this time we are unable to predict all possible impacts on our company, our operations, and our revenues. Should revenues turn downwards both quickly and dramatically, we would not be in a strong position to offset equally as quickly with expenses.
PRIVACY CONCERNS COULD IMPAIR OUR BUSINESS.
WE ARE SUBJECT TO A NUMBER OF REGULATORY RISKS, ANY FAILURE TO COMPLY WITH THE VARIOUS REGULATIONS COULD ADVERSELY IMPACT OUR BUSINESS.
We are subject to a number of domestic and, to the extent our operations are conducted outside the United States, foreign laws and regulations that affect companies conducting business on the internet and through other electronic means, many of which are still evolving and could be interpreted in ways that could harm our business. United States and foreign regulations and laws potentially affecting our business are evolving frequently. We currently have not developed our internal compliance program, nor do we have policies in place to monitor compliance. Instead, we rely on the policies of our publishing partners. If we are unable to identify all regulations to which our business is subject and implement effective means of compliance, we could be subject to enforcement actions, lawsuits and penalties, including but not limited to fines and other monetary liability or injunction that could prevent us from operating our business or certain aspects of our business. In addition, compliance with the regulations to which we are subject now or in the future may require changes to our products or services, restrict or impose additional costs upon the conduct of our business or cause users to abandon material aspects of our services. Any such action could have a material adverse effect on our business, results of operations and financial condition.
LITIGATION IS BOTH COSTLY AND TIME-CONSUMING AND THERE IS NO CERTAINTY OF A FAVORABLE RESULT.
We are presently involved in litigation which is described elsewhere in this filing. This litigation is both costly and time consuming and has resulted in the diversion of management time and resources. While we believe that all or a portion of our costs are covered by insurance, there are no assurances that they are covered nor are there assurances that we will prevail in the litigation.
RISKS RELATING TO OUR INDEBTEDNESS
Our secured indebtedness may limit our ability to operate our business.
As of December 31, 2021, we had $23.9 million and as of December 31, 2020, we had $19.0 million of outstanding secured indebtedness under our outstanding credit facilities. The instruments governing our existing secured indebtedness may inhibit our ability to incur additional debt equity and require significant payments from the proceeds of any debt or equity sale without consent of the lender. In addition, we have additional covenants and obligations under the secured indebtedness which may limit our ability to operate our business. Our ability to repay the indebtedness may require us to dedicate a substantial portion of our cash flow for operations to payment of debt service and principal thereby reducing funds available to implement our business strategy. Our level of indebtedness could also provide limits in our ability to adjust to changing market conditions and vulnerability in the event of a downturn in economic conditions in the businesses in which we operate, and impair our ability to obtain additional financing for our business strategy. If we are unable to meet our obligations under the secured indebtedness, the lender may call a default and our business could be foreclosed upon or otherwise transferred.
Between January 26, 2022 and June 10, 2022, the Company and certain of its subsidiaries entered into seven amendments 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 $2.7 million, in the aggregate. This term loan matures on June 30, 2023. In addition, and as part of the transaction, there is an Exit Fee (“the Exit Fee”) totaling $468 thousand which will be added and capitalized to the principal amount of the original loan and the original loan terms apply.
RISKS RELATED TO THE OWNERSHIP OF OUR SECURITIES
The Company’s economic performance has raised substantial doubts about our ability to continue as a going concern.
Our consolidated financial statements have been prepared assuming we will continue as a going concern. We have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $106.1 million at December 31, 2021. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have material weaknesses in our disclosure controls and our internal control over financial reporting. If we fail to remediate any material weaknesses or if we fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”). ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with United States generally accepted accounting principles (“GAAP”). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Historically, we have reported material weaknesses in our disclosure controls and internal control over financial reporting. These material weaknesses have resulted in our failure to timely file certain periodic reports as required by SEC rules and regulations, and resulted in the restatement of our financial statements as of and for the year ended December 31, 2019 and for each of the quarterly periods ended September 30, 2019, March 31, 2020, June 30, 2020 and September 30, 2020.
Our failure to remediate the material weaknesses or the identification of additional material weaknesses in the future could adversely affect our ability to report financial information, including our filing of quarterly or annual reports with the SEC on a timely and accurate basis. Moreover, our failure to remediate the material weaknesses identified above or the identification of additional material weaknesses could prohibit us from producing timely and accurate financial statements, which may adversely affect the market price of shares of our common stock. The Company is committed to resolving the material weaknesses by enhancing its accounting and finance department, implementing a new organization wide ERP system with an inherent robust control structure, and utilizing external expertise related to all aspects of internal control environments.
There is a Limited Public Market For our Common Stock.
Our shares of Common Stock are currently quoted for trading on the OTC Expert Market. There is a limited trading market for our shares of common stock and a robust trading market for our securities may not develop in the foreseeable future. If no market develops, it may be difficult or impossible for you to sell your shares if you should desire to do so. There is extremely limited and sporadic trading of our common stock and no assurance can be given, when, if ever, an active trading market will develop or, if developed, that it will be sustained.
The amount of working capital we have available could be adversely impacted by the amount of cash dividends we pay affiliates.
At May 2, 2022, we had one series (“E’) of preferred stock outstanding that pay cash dividends and are owned by Mr. W. Richard Rogers, a former member of our board of directors. During 2021, we paid cash dividends of $5,000 to this affiliate. During 2020, we paid cash dividends of $63,316 to these affiliates. These dividend amounts are in addition to the $8,136 interest payments made to Mr. Speyer under the terms of convertible promissory notes which were exchanged for one of the series of outstanding preferred stock in November 2019. The payment of these cash dividends and interest payments reduces the amount of capital we have available to devote to the growth of our company. For additional information on these series of preferred stock please see Note 12 to the notes to our audited consolidated financial statements.
We have outstanding preferred stock, convertible notes, options and warrants to purchase approximately 39% of our outstanding common stock.
At December 31, 2021, we had 149,810,383 shares of our common stock and 125,000 preferred stock outstanding. Options, preferred stock and warrants to purchase an aggregate of 37,363,543 shares of common stock are outstanding. At December 31, 2020 we had 117,336,975 shares of our common stock and 8,044,017 preferred stock outstanding. Options, preferred stock and warrants to purchase an aggregate of 45,267,560 shares of common stock are outstanding. The conversion or possible exercise of the warrants and/or options, will increase the total outstanding shares by approximately 25% at December 31, 2021 and 39% at December 31, 2020, which will have a dilutive effect on our existing stockholders.
CERTAIN OF OUR OUTSTANDING WARRANTS CONTAIN CASHLESS EXERCISE PROVISIONS WHICH MEANS WE WILL NOT RECEIVE ANY CASH PROCEEDS UPON THEIR EXERCISE.
At December 31, 2021, we had common stock warrants outstanding to purchase an aggregate of up to 35,823,316 shares of our common stock with an exercise price range between $0.65 and $1.00 per share. During 2020, a total of 35,848,316 warrants were exercised in a cashless transaction with exercise prices of $0.65 and $1.00 per share. A balance of 512,867 warrants remain exercisable at $0.65 per share, which are held by Spartan Capital employees and are exercisable on a cashless basis. This means that the holder, rather than paying the exercise price in cash, may surrender a number of warrants equal to the exercise price of the warrants being exercised. It is possible that the warrant holders will use the cashless exercise feature. If all warrants are issued using the cashless exercise option, it will deprive us of approximately $333,364 of additional capital that might otherwise be obtained if the warrants were exercised on a cash basis.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS AND FLORIDA LAW MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD DISCOURAGE AN ACQUISITION OF US BY OTHERS, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS AND MAY PREVENT ATTEMPTS BY OUR STOCKHOLDERS TO REPLACE OR REMOVE OUR CURRENT MANAGEMENT.
Provisions in our amended and restated articles of incorporation and amended and restated bylaws, as well as provisions of Florida law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, or remove our current management. These include provisions that:
|●||permit our board of directors to issue up to 20,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate;|
|●||provide that all vacancies on our board of directors, including as a result of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;|
|●||provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also satisfy requirements as to the form and content of a stockholder’s notice;|
|●||not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election; and|
|●||provide that special meetings of our stockholders may be called only by the board of directors or by the holders of at least 40% of our securities entitled to notice of and to vote at such meetings.|
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Section 607.0902 of the Florida Business Corporation Act provides provisions which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. As permitted under Florida law, we have elected not to be governed by this statute. Any provision of our amended and restated articles of incorporation, amended and restated bylaws or Florida law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of common stock or warrants, and could also affect the price that some investors are willing to pay for our shares of common stock or warrants.
OUR COMPANY HAS A CONCENTRATION OF STOCK OWNERSHIP AND CONTROL, WHICH MAY HAVE THE EFFECT OF DELAYING, PREVENTING OR DETERRING A CHANGE OF CONTROL.
Our common stock ownership is highly concentrated. As of December 31, 2021, Mr. W. Kip Speyer, our Chairman of the Board, together with members of our board of directors and a principal stockholder, beneficially owns approximately 20.8% of our total outstanding shares of common and preferred stock. As a result of the concentrated ownership of the stock, Mr. Speyer and our board of directors may be able to control all matters requiring stockholder approval, including the election of directors and approval of mergers and other significant corporate transactions. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company. It could also deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and it may affect the market price of our common stock.
WE DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE AND, AS SUCH, CAPITAL APPRECIATION, IF ANY, OF OUR COMMON STOCK WILL BE YOUR SOLE SOURCE OF GAIN FOR THE FORESEEABLE FUTURE.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. In addition, and any future loan arrangements we enter into may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We may issue additional shares of preferred stock in the future that may adversely impact your rights as holders of our common stock.
Pursuant to our Amended and Restated Articles of Incorporation, the aggregate number of shares of capital stock which we are authorized to issue is 344,000,000 shares, of which 324,000,000 shares are common stock, and 20,000,000 shares are “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. As of the filing of this 10-K, we have 125,000 preferred stock outstanding.
We are an “emerging growth company” as that term is used in the JOBS Act, and we intend to continue to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our common stock being less attractive to investors and adversely affect the market price of our common stock or make it more difficult to raise capital as and when we need it.
We are an “emerging growth company” as that term is used in the JOBS Act, and we intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not to emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved, and exemptions from any rules that the Public Company Accounting Oversight Board may adopt requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. For as long as we qualify as an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would have otherwise been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate us.
We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be for up to five years. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company”, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our business, results of operations, financial condition and cash flows, and future prospects may be materially and adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to a smaller reporting company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable lease agreement expiring on October 31, 2021. Our leased facilities are used for operational, sales and administrative purposes in support of our business, and are all currently being utilized as intended. As of the filing of this 10-K, we have extended our lease on a month-to-month basis as we evaluate a longer term strategy for our facility needs.
We believe that our properties are sufficient to meet our current and projected business needs. We periodically review our facility requirements and may acquire new facilities, or modify, update, consolidate, dispose of or sublet existing facilities, based on evolving business needs.
ITEM 3. LEGAL PROCEEDINGS
From time-to-time, we may be involved in litigation or be subject to claims arising out of our operations or content appearing on our websites in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on our company because of defense and settlement costs, diversion of management resources and other factors.
In 2020, Synacor, Inc commenced an action against MediaHouse, LLC, Inform, Inc. and the Company, alleging the sum of approximately $230,000 was owed based on invoices provided in 2019 in respect to that certain Content Provider & Advertising Agreement with MediaHouse. This is recorded as an accrued liability as of December 31, 2020. There was an understanding reached in principle with MediaHouse, subject to finalization and execution of a definitive agreement, in or about December 1, 2021. During January 2022, the Company entered into a settlement agreement related to the legal proceeding with Synacor referenced in Note 11. The agreement obligates the Company to pay $12,000 per month beginning January 24, 2022 for 12 consecutive months and then a final one-time payment in the amount of $40,000 to be paid on or before January 24, 2023. Notwithstanding, the Company has an early settlement option to pay-off the obligation with a discount if it pays $160,000 to Synacor on or before September 1, 2022, which amount shall be inclusive of the monthly installments previously mentioned prior to the date when early settlement payment is transmitted to Synacor. At December 31, 2021, the Company has included the $230,000 in accounts payable.
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.
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 175,000 warrants to purchase Company stock with a $1.00 exercise price. This is recorded as an accrued liability as of December 31, 2020 and the warrants were issued in May of 2021.
Bright Mountain has been sued by plaintiffs Joey Winshman, Eli Desatnik and Nadav Slutzky (“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. Any potential losses associated with this matter cannot be estimated at this time.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our company.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of December 31, 2020, the Company’s common stock trades at low volumes on the OTCQB Tier of the OTC Markets under the symbol “BMTM.” The approximate number of holders of record of the Company’s common stock at December 31, 2021 was 682. The last sale price of our common stock as reported on the OTCQB on June 30, 2021 was $0.45 per share. The last sale price of our common stock as reported on the OTC Pink Market on September 30, 2021 was $0.23 per share.
Effective at the close of business on June 30, 2021 the Company’s stock ceased trading on the OTCQB and its shares began trading on the OTC Pink Market on July 1, 2021. The common stock will continue to trade with the symbol BMTM. Effective September 30, 2021, the Company’s stock ceased trading on the OTC Pink Market and began trading on the OTC EXPERT market.
The Company has not declared nor paid any cash dividend on its common stock, and it currently intends to retain future earnings, if any, to finance the expansion of its business, and the Company does not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on its common stock will be made by its board of directors, in their discretion, and will depend on the Company’s financial condition, results of operations, capital requirements and other factors that its board of directors considers significant.
Recent sales of unregistered securities
During 2021, employees exercised 100,000 stock options for $13,900.
During 2021, employees exercised 25,000 warrants for $10,000.
During 2021, we issued 379,266 common shares to a vendor for services rendered valued at $1,762.
In 2021, we issued 7,919,017 shares of our common stock to an accredited investor upon the automatic conversation of 7,919,017 shares of our 10% Series A convertible preferred stock together with accrued but unpaid dividends on those shares. In accordance with the designations, rights and preferences of the 10% Series A convertible preferred stock, those shares automatically converted into shares of our common stock on a one for one basis on the fifth anniversary of the date of issuance of such shares. The issuance of the shares of our common stock upon the conversion were exempt from registration under Securities Act in reliance on an exemption provide by Section 3(a)(9) of such act, and the issuance of the shares of our common stock as dividends on such shares were exempt from registration in reliance on an exemption provided by Section 4(a)(2) of the Securities Act.
On September 22, 2021, the Company entered into a share issuance settlement with Spartan Capital Securities, LLC (“Spartan”). Under the terms of the agreement, the Company agreed to issue a total of 10,398,700 of its common stock to seventy-five accredited investors who participated in the Company’s Private Placement Offering, which began in November 2019 and was completed in August 2020. This issuance was determined to be a deemed dividend.
During 2020, the Company sold an aggregate of 10,398,700 units of its securities to 167 accredited investors in a private placement exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D resulting in gross proceeds to the Company of $5,199,350. Each unit, which was sold at a purchase price of $0.50, consisted of one share of common stock and one five-year warrant to purchase one share of common stock at an exercise price of $0.75 per share. Spartan Capital Securities, LLC (“Spartan Capital”) served as placement agent for the Company in this offering. As compensation for its services, Spartan Capital held back $779,903 for commissions, providing cash to the Company of $4,419,447. From this amount, Spartan Capital deducted $165,000 to pay the accrued finder’s fee for the Oceanside acquisition, and $275,000 in other consulting fees, and $401,750 in success and escrow fees resulting in net cash received by the Company of $3,577,697. The Company issued Spartan Capital Placement Agents Warrants to purchase an aggregate of 1,039,870 shares of our common stock, including the cash commission and Placement Agent Warrants issued pursuant to the closings included in the Company’s consolidated statement of changes in stockholders’ equity for the year ended December 31, 2020.
During 2020, a former employee exercised 50,000 stock options for $6,950. A current employee exercised 80,000 stock options for $11,112.
Purchases of equity securities by the issuer and affiliated purchasers
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our consolidated financial condition and results of operations for the years ended December 31, 2021 and 2020 should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this prospectus. We use words such as “anticipate”, “estimate”, “plan”, “project”, “continuing”, “ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could” and similar expressions to identify forward-looking statements.
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared COVID-19 a pandemic. The spread of COVID-19, a novel strain of coronavirus, has and continues to alter the behavior of business and people in a manner that is having negative effects on local, regional and global economies. The COVID-19 pandemic has caused disruptions in the services we provide. The COVID-19 pandemic has resulted in many states and countries imposing orders resulting in the closure of non-essential businesses, including many companies which advertise digitally. During 2021, we continued seeing lower advertising dollar spend in the first half of the year, but saw a rebound during the second half of 2021 as the health crisis improved supported by higher travel rates, national vaccination programs, higher vaccination rates for the general public and a broader age distribution of vaccines permitting lower aged children to obtain the vaccinations. The pandemic has continued into 2022, but the digital ad spend dollars appears to be on an uptrend which would be positive for our industry.
Bright Mountain Media, Inc. 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. 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 involves 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.
We currently own parenting and lifestyle domains CafeMom, Mom.com, LittleThings, Revelist, BabyNameWizard and MamasLatinas. Wild Sky Media’s diverse website portfolio averages more than 100 million page views per month. These particular web assets are the foundation of one of Bright Mountain Media’s audiences – women between the ages of 19-54, which we believe appeal to brands focused on marketing consumer products and providing products and services relating to parenting, insurance, mortgages, health, lifestyle and travel, among others. Major brands on our platform connecting with consumers using our parenting and lifestyle domains include Amazon, Target, Disney, Unilever, Clorox and Warner Brothers.
When advertisers leverage our end-to-end platform for serving ads on web and CTV apps we own and operate, Bright Mountain Media retains 100% of the advertising dollars spent for the ads, also referred to as “advertising spend.” If advertisements are placed on our partner publishers’ websites through our platform, they, too, benefit, earning up to 50% of the advertising spend. This compares to a revenue yield of 30% or less of the advertising spend when ads are served through the conventional supply chain model.
Results of Operations
|For the Year Ended|
|Cost of revenues||6,323,204||7,906,347|
|Selling, general and administrative expenses||18,508,316||22,092,352|
|Impairment expense – Intangible assets||—||16,486,929|
|Impairment expense – Goodwill||—||42,279,087|
|Loss from operations||(11,906,951||)||(72,925,286||)|
|Total other income (expense)||(93,286||)||(356,650||)|
|Net loss before tax||(12,000,237||)||(73,281,936||)|
|Income tax benefit||—||567,514|
|Total preferred stock dividends||(241,903||)||(363,460||)|
|Net loss attributable to common stockholders||$||(12,242,140||)||$||(73,077,882||)|
Advertising revenues decreased approximately $2.9 million or 18% in 2021 over 2020. The main reason was softness in our Oceanside advertising display business year over year and the effect of the MediaHouse restructuring completed at the end of 2020.
Cost of Revenue
Cost of revenue as a percentage of revenues decreased approximately 1%, from approximately 50% in 2020 to approximately 49% in 2021 thereby increasing gross profit margins from 50% during 2020 to 51% in 2021, mainly due to the inclusion of the Wild Sky business, improving gross margins in our other ad network businesses and offset by the restructuring of the MediaHouse business which occurred at the end of 2020.
During 2020, we recorded impairment expenses related to goodwill and intangible assets amounting to approximately $42.3 million and $16.5 million, respectively. These were non-recurring events in 2020 driven in part by the COVID-19 pandemic, that were not present in 2021.
The year 2020 was marked by the COVID-19 Global pandemic when many companies in various industries were forced to restructure their advertising budgets and spending. This caused a significant contraction of economic activity at the beginning in the first months of the year and has continued. Although there are recent signs of improvement with significant GDP gains, many companies have yet to reinstate their advertising budgets and/or have changed the way they are spending these budgets. Many advertisers have moved away from direct ad buys in favor of programmatic distribution with its lower costs. The fair value of the respective reporting units was determined based on both the Income Approach (Discount Cash Flows) and the Market Multiples Approach. In September 2020, it was determined that the carrying value of the Goodwill associated with the Ad Network reporting unit exceeded the fair value of the Goodwill and in September 2020, the Company recorded an impairment charge of $42.3 million. No such adjustment was recorded for the Owned & Operated reporting unit as it was determined not to be impaired.
Similarly, we performed an assessment of our finite-lived intangibles based on indicators of impairment noted by management, including decreased revenues. It was determined that the carrying values of the finite lived intangible assets associated with Oceanside did not exceed the respective fair values of the assets, therefore no impairment associated with these assets has been recognized. It was determined that the finite lived intangible assets associated with MediaHouse were deemed impaired based on an analysis of the carrying values and fair values of the assets. In September 2020, the Company recorded an impairment charge of $16.5 million.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses decreased by approximately $3.6 million for 2021 compared to 2020. Our selling, general and administrative expenses were 143% of our total revenues for 2021 as compared to 139% for 2020. The increase was mainly due to the incremental five months of selling, general and administrative costs for the Wild Sky acquisition which occurred in June 2020.
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.
Total other income (expense)
Other income (expense) decreased by $263 thousand for 2021 compared to 2020.
The main drivers of the decrease were PPP loan forgiveness in 2021 of $2.2 million offset by increased interest expense – related party of $1.9 million from 2021 to 2020:
Proforma results of acquisitions
The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisition of Wild Sky which closed in June 2020, respectively, had taken place on the first day of 2020. These combined results are not necessarily indicative of the results that may have been achieved had the business been acquired as of the first day of the period presented.
|December 31, 2020|
|Total operating expenses||(90,365,754||)|
|Net loss attributable to common stockholders||$||(79,476,397||)|
For the year ended December 31, 2021, the Company’s tax provision was $0.
For the year ended December 31, 2020, the Company had an income tax benefit of $567,514 and a deferred tax liability of $0 as a result of the reversal of the existing deferred tax liabilities associated with acquisitions from the impairment recorded. The Company’s net operating loss carry forwards may be subject to annual limitations if the Company experiences a change of ownership as defined in Section 382 of the Internal Revenue Code. The Company has not conducted a study to determine if a change of ownership has occurred.
Preferred stock dividends
Preferred stock dividends paid decreased by $122 thousand from 2021 to 2020. We paid stock dividends on our A-1 series of our preferred stock which was held by an unrelated third party, and cash dividends on E and F series of our preferred stock which are held by affiliates.
We report Adjusted EBITDA from continuing operations 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.
Our adjusted EBITDA from continuing operations is defined as operating income/loss excluding:
|●||non-cash stock option compensation expense;|
|●||non-cash loss on note exchange transaction with our Chairman of the Board;|
|●||acquisition-related items consisting of amortization expense and impairment expense;|
|●||amortization on debt discount.|
We believe this measure is useful for analysts and investors as this measure allows a more meaningful year-to-year comparison of our performance. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole. The above items are excluded from adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, adjusted EBITDA corresponds more closely to the cash operating income/loss generated from our business. Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses.
Adjusted EBITDA (used as described above) for the year ended December 31, 2021 was a loss of $7.0 million, compared to a loss of $7.0 million for the year ended December 31, 2020.
The following is a reconciliation of loss before tax - continuing operations, the most directly comparable GAAP measure, to adjusted EBITDA:
|For the Year Ended December 31,|
|Loss before tax||$||(12,000,237||)||$||(73,281,936||)|
|Gain on forgiveness of PPP loan||(2,171,535||)||-|
|Bad debt expense||74,282||-|
|Share-based compensation (a)||488,355||947,147|
|Depreciation and amortization (b)||2,210,417||3,700,473|
|Acquisition related expenses (c)||-||1,281,801|
|Capital raise expenses (d)||1,569||319,979|
|Impairment expense (e)||-||58,766,016|
|Interest expense, net (f)||2,266,966||630,725|
|Oceanside seller note expense (g)||-||625,000|
|Adjusted EBITDA from continuing operations||$||(7,031,112||)||$||(7,010,795||)|
|(a)||Stock options and restricted stock awards were granted to employees and independent directors of the Company.|
|(b)||Includes depreciation, amortization of intangibles and amortization of the debt discount.|
|(c)||Acquisition expenses were incurred for the Wild Sky acquisition in 2020|
|(d)||The Company incurred expenses in connection with raising capital from third parties in order to continue funding the Company.|
|(e)||The Company recorded impairment charges related to goodwill and other intangibles in 2020 driven by the COVID-19 pandemic.|
|(f)||Includes interest expense to related parties of $1,944,794 and 58,807 in 2021 and 2020, respectively.|
|(g)||Includes Oceanside seller note compensation expense of $625,000. This is a one-time, nonrecurring expense related to the Oceanside acceleration of the seller note accounting treatment.|
These 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 covered by this report. This determination was based on the following factors: (i) the Company used cash of approximately $5.9 million in operations in 2021; (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 by this report and for one year from the issuance of these consolidated financial statements.
The Company has sustained a net loss of $12.0 million, used cash outflows from of $5.9 million for the year ended December 31, 2021, and has an accumulated deficit of $106.1 million at December 31, 2021 that raise substantial doubt about its ability to continue as a going concern.
We consider liquidity in terms of cash flows from operations and their sufficiency to fund business operations, including working capital needs, debt service, acquisitions, contractual obligations, and other commitments. In particular, to meet our payment service obligations at all times, we must have sufficient highly liquid assets and be able to move funds on a timely basis.
Our principal sources of liquidity are our borrowing on our debt facilities along with capital raised through sale of our securities, supplemented with cash generated by operating activities. Our primary cash needs are for day to day operations, to pay interest and principal on our indebtedness, to fund working capital requirements and complete business acquisitions.
As of December 31, 2021, we had a balance of cash and cash equivalents of $781 thousand and negative working capital of $17.8 million as compared to cash and cash equivalents of $736 thousand and negative working capital of $7.9 million as of December 31, 2020. The Company is in discussions with various vendors to settle balances due for common stock and/or common stock warrants as opposed to cash.
Our current assets decreased approximately $2.9 million or 35% as of December 31, 2021 from December 31, 2020 which reflects the substantial decrease in our accounts receivable. Our current liabilities increased approximately $7.0 million as of December 31, 2021 from December 31, 2020 which primarily reflects an increase in the current portion of long-term debt.
During 2020 we raised an additional $3,577,698 in net proceeds through the sale of our securities via a private placement memorandum which includes one share and one stock warrant. We issued 10,398,700 shares and 10,398,700 warrants in the transactions.
During 2021, the Company entered into an amendment to their existing Credit Agreement with Centre Lane Partners to provide an additional $5.1 million of funding and liquidity. Pursuant to the terms of the Credit Agreement, the term loan is due and payable on or before June 30, 2023.
|For the Year Ended December 31,|
|Net cash used in operating activities||$||(5,927,418||)||$||(6,508,935||)|
|Net cash (used in) provided by investing activities||(237||)||1,637,483|
|Net cash provided by financing activities||5,972,929||4,649,371|
|Net increase in cash and cash equivalents classified within assets related to discontinued operations||-||1,114|
|Net increase (decrease) in cash and cash equivalents||$||45,274||$||(220,967||)|
Net cash used in operating activities totaled $5.9 million and $6.5 million for 2021 and 2020, respectively. The decrease in cash used of $0.6 million is a result of an increase of $6.9 million of changes in working capital and a reduction of $6.3 million of cash generated by our operating results for the year ended December 31, 2021, which were positively impacted by the growth of the business and acquisitions during the year.
Net cash used in investing activities totaled $237 in 2021 as a result of the purchase of property and equipment. Net cash provided by investing activities totaled $1.6 million in 2020 solely related to cash acquired as part of the Wild Sky Media acquisition.
Net cash provided by financing activities totaled $6.0 million and $4.6 million for 2021 and 2020, respectively. Financing activities in 2021 were mainly cash provided debt financing of $5.1 million and proceeds from the PPP loan of $1.1 million, offset by repayments of debt of $285 thousand. Financing activities in 2020 were mainly cash provided from the sale of our securities, net of repayments of debt obligations and the payable of cash dividends on our Series A, E and F convertible preferred stock to related parties.
Off balance sheet arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical accounting policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are discussed in Part II, Item 8, Financial Statements and Supplementary Data, Note 3, “Summary of Significant Accounting Policies.”
Critical accounting policies are those policies that management believes are very important to the portrayal of our financial position and results of operations, and that require management to make estimates that are difficult, subjective or otherwise complex. Based on these criteria, management has identified the following critical accounting policies:
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, our 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 our owned and operated sites, our ad network, or platforms. The revenue is earned when the users click on the published website advertisements. Specific revenue recognition criteria for the advertising revenue stream are as follows:
|●||Advertising revenues are generated by users “clicking” on or seeing website advertisements utilizing several ad networks 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.|
Accounts receivable represent receivables from customers in the ordinary course of business. These are recorded at invoiced amounts on the date revenue is recognized. Receivables are recorded net of the allowance for doubtful accounts in the accompanying 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.
Goodwill, Net and Intangible Assets, Net
Goodwill and Intangible assets result primarily from acquisitions. The Company categorizes Goodwill into two reporting units: “Owned & Operated” and “Ad Network”. Intangible assets include trade name, customer relationships, IP/technology and non-compete agreements. Upon the acquisition, the purchase price is first allocated to identifiable assets and liabilities, including the trade name and other intangibles, with any remaining purchase price recorded as goodwill.
Goodwill is not amortized, rather, an impairment test is conducted on an annual basis, or more frequently if indicators of impairment are present, which are determined through a qualitative assessment. A qualitative assessment includes consideration of the economic, industry and market conditions in addition to the overall financial performance of the Company and these assets. If our qualitative assessment does not conclude that it is more likely than not that the estimated fair value of the reporting unit is greater than the carrying value, we perform a quantitative analysis. In a quantitative test, the fair value of a reporting unit is determined based on a discounted cash flow analysis and further analyzed using other methods of valuation. A discounted cash flow analysis requires us to make various assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on our long-term projections. Assumptions used in our impairment testing are consistent with our internal forecasts and operating plans. Our discount rate is based on our debt structure, adjusted for current market conditions. If the fair value of the reporting unit exceeds its carrying amount, there is no impairment. If not, we compare the fair value with its carrying amount. To the extent the carrying amount exceeds its fair value, an impairment charge of the reporting unit’s goodwill would be necessary. The Company’s annual assessment date is September 30.
The Company’s trade name, customer relationships and IP/technology are amortized on a straight-line basis over a useful life of 5 years. Non-compete agreements are amortized on a straight-line basis over the length of each agreement, typically between 3-5 years. The Company reviews for impairment indicators of finite-lived intangibles and other long-lived assets as described below in “Amortization and Impairment of Long-Lived Assets.”
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.
We use the asset and liability method to account for income taxes. Under this method, deferred income taxes are determined based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements which will result in taxable or deductible amounts in future years and are measured using the currently enacted tax rates and laws in the period those differences are expected to reverse. A valuation allowance is provided to reduce net deferred tax assets to the amount that, based on available evidence, is more likely than not to be realized.
The Company follows the provisions of ASC 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 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s consolidated financial statements and related notes, together with the report of independent registered public accounting firm, appear starting at pages F-1 of this Annual Report on Form 10-K for the years ended December 31, 2021 and 2020 are incorporated by reference in this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 25, 2021, the Audit Committee of the Board of Directors of the Company dismissed EisnerAmper LLP (“Eisner”), as the Company’s independent registered public accounting firm, effective August 24, 2021, and engaged WithumSmith+Brown, PC (“Withum”) as its new independent registered public accounting firm for the years ended December 31, 2020 and 2019. As described below, the change in independent registered public accounting firm is not the result of any disagreement with Eisner.
Eisner’s audit reports on the financial statements for the year ended December 31, 2018 did not provide an adverse opinion or disclaimer of opinion to the Company’s financial statements, or modify its opinion as to uncertainty, audit scope or accounting principles except for the inclusion of an explanatory paragraph related to substantial doubt about the ability to continue as a going concern, but the 2019 opinion was withdrawn when the Company filed its Form 8-K on March 31, 2021 stating that a restatement was necessary and previously issued consolidated financial statements as of and for the year ended December 31, 2019, and unaudited consolidated financial statements as of and for each of the interim quarterly periods ended March 31, 2020, June 30, 2020, and September 30, 2020 could not be relied upon.
During the fiscal years ended December 31, 2020 and 2019, and the subsequent interim period through August 24, 2021, there were: (i) no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions between the Company and Eisner on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Eisner’s satisfaction, would have caused Eisner to make reference thereto in their reports; and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K, except that Eisner concurred with the Company’s assessment of material weaknesses related to the Company’s internal controls over financial reporting.
From August 25, 2021 through the date of filing of this 10-K, there were: (i) no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions between the Company and Withum on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Withum’s satisfaction, would have caused Withum to make reference thereto in their reports; and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K, except that Withum concurred with the Company’s assessment of material weaknesses related to the Company’s internal controls over financial reporting.
In its Management’s Report on Internal Control Over Financial Reporting, as set forth in Item 4 “Controls and Procedures” of the Company’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020 and, September 30, 2020 and Item 9A “Controls and Procedures” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company reported material weaknesses in its internal controls over financial reporting, which constitute reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K). These material weaknesses are: i) Insufficient segregation of duties, oversight of work performed and lack of compensating controls in our finance and accounting functions due to limited personnel, ii) The Company’s systems that impact financial information and disclosures have ineffective information technology controls, iii) Inadequate controls surrounding revenue recognition, to ensure that all material transactions and developments impacting the financial statements are reflected and properly recorded, iv) Management evaluation of 1) the disclosure controls and procedures and 2) internal control over financial reporting was not sufficiently comprehensive due to limited personnel, v) Ineffective controls and procedures in area of review and preparation of Form 10-K and other filings on a timely basis, vi) Inadequate controls surrounding information provided to third party valuation reports in connection with acquisitions to ensure that the financial information is accurate and free from misstatements, and vii) Management calculation of the provision for income taxes and related deferred income taxes were not calculated correctly in accordance with ASC Topic 740, Income Taxes. Management needs to gain a more precise understanding of the components of the income tax provision and deferred income taxes and monitor the differences between the income tax basis and financial reporting basis of assets and liabilities to effectively reconcile the deferred income tax balances. The Audit Committee discussed the subject matter of the reportable events with Eisner. The Company has authorized Eisner to respond fully to Withum’s inquiries concerning the subject matter of such reportable events. Notwithstanding these material weaknesses in internal control over financial reporting, the Company has concluded that, based on its knowledge, the consolidated financial statements, and other financial information included in its Annual Reports on Form 10-K for the fiscal year ended December 31, 2019 present fairly, in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. However, on March 31, 2021, the Company issued a Form 8-K where it disclosed that it determined that the Company’s previously issued consolidated financial statements as of and for the years ended December 31, 2019, and the unaudited consolidated financial statements as of and for each of the interim quarterly periods ended September 30, 2019, March 31, 2020, June 30, 2020 and September 30, 2020 (collectively, the “Prior Period Financial Statements”), should no longer be relied upon due to material errors contained in those financial statements.
During the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through August 24, 2021, neither the Company nor anyone on its behalf has consulted with Withum regarding: (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Withum concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions; or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
The Company provided Eisner with a copy of its Form 8-K prior to its filing with the Securities and Exchange Commission (“SEC”) and requested that Eisner furnish the Company with a letter addressed to the SEC stating whether or not Eisner agrees with the above statements. A copy of the letter from Eisner dated August 31, 2021 is filed with its Form 8-K.
Concurrent with the decision to dismiss Eisner as the Company’s independent registered public accounting firm, the Company’s Audit Committee and the Board of Directors approved the engagement of Withum as the Company’s new independent registered public accounting firm to audit the Company’s financial statements for the fiscal years ended December 31, 2021, 2020 and 2019.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and President, and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2021. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, our disclosure controls and procedures were not effective because of the material weakness in internal control over financial reporting ICFR described below.
Notwithstanding such material weakness in ICFR, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our consolidated financial statements as of and for the years ended December 31, 2021 and 2020, present fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Annual Report on Form 10-K, in conformity with GAAP.
Management’s Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate ICFR (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our ICFR includes controls and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Our management, with the participation of our Chief Executive Officer and President, and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 Internal Control – Integrated Framework (the “COSO Framework”). Based on this evaluation under the COSO Framework, management concluded that, as of December 31, 2020, our internal control over financial reporting was not effective because of the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses, which have caused management to conclude that as of December 31, 2021 our ICFR were not effective at the reasonable assurance level:
|●||Insufficient segregation of duties, oversight of work performed and lack of compensating controls in our finance and accounting functions due to limited personnel.|
|●||The Company’s systems that impact financial information and disclosures have ineffective information technology controls.|
|●||Inadequate controls surrounding revenue recognition, to ensure that all material transactions and developments impacting the financial statements are reflected and properly recorded;|
|●||Management evaluation of 1) the disclosure controls and procedures and 2) internal control over financial reporting was not sufficiently comprehensive due to limited personnel.|
|●||Ineffective controls and procedures in area of review and preparation of Form 10-K and other filings on a timely basis.|
|●||Inadequate controls surrounding information provided to third party valuation reports in connection with acquisitions to ensure that the financial information is accurate and free from misstatements.|
Internal Control Remediation Efforts. Management expects to remediate the material weaknesses identified above as follows:
|●||Management has leveraged and will continue to leverage experienced consultants to assist with ongoing GAAP, U.S. Securities, and Exchange Commission compliance requirements. We have expanded our finance department through the hiring of a certified public accountant to strengthen the segregation of duties, internal controls and enhance our current staff. Management will further expand the accounting and finance function by hiring appropriate staff to resolve this material weakness in 2021.|
|●||Segregation of duties will be analyzed and adjusted Company-wide as part of the internal controls’ implementation and documentation of those controls and procedures that is expected to commence in 2021.|
|●||In addition, we expect that the discontinuation of the E-Commerce segment will provide the opportunity for the finance department to focus on enhancing the efficiency and effectiveness of the department functions and reporting, allowing the staff to focus on one segment and revenue stream.|
|●||The Company plans on evaluating various accounting systems to enhance our system controls.|
|●||The Company plans to bring in consultants as needed to assist with the preparation of financial reports to be filed and ensure filings are made on a timely basis.|
|●||The Company plan to implement controls related to the information to be provided to third party valuation firms to ensure information is accurate and free from misstatements.|
|●||The Company will provide additional training and development classes for accounting and finance staff regarding current changes in accounting for income taxes and deferred income taxes, pursuant to ASC 740, to enhance their current skills and understanding of the components of deferred taxation and accounting for income taxes.|
We will continue to monitor and evaluate the effectiveness of our ICFR on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
This Annual Report on Form 10-K does not include an attestation report of the Company’s registered independent public accounting firm on management’s assessment regarding ICFR due to the exemption from such requirements established by rules of the SEC for smaller reporting companies.
Changes in Internal Control Over Financial Reporting
As stated, the steps taken in remediation were the changes in the Company’s ICFR (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2021 that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 9C. Disclosure Regarding Foreign Jurisdictions the Prevent Inspections
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers and Directors
|W. Kip Speyer||73||Chairman of the Board of Directors|
|Matthew Drinkwater*||49||Chief Executive Officer|
|Edward Cabanas*||50||Chief Financial Officer|
|Todd F. Speyer*||40||Director, Chief Executive Officer- Bright Mountain, LLC|
|Charles H. Lichtman||66||Director|
* Named Executive Officer (“NEO”)
W. Kip Speyer has been our CEO, President and Chairman of the Board since May 2010. During December 2021, he has stepped down as CEO and transitioned Mr. Matthew Drinkwater as the Company’s new CEO (see Subsequent Events Note 20 for further information). From 2005 to 2009 Mr. Speyer served as a director, the president and chief executive officer of Speyer Door and Window, LLC, which was sold to Haddon Windows, LLC (SecuraSeal, LLC, AccuWeld Corporation) in December 2009. From October 2002 to May 2005 Mr. Speyer had been a private investor. Mr. Speyer was president and chief executive officer of Intelligent Systems Software, Inc. from October 2000 through June 2002, whereby Mr. Speyer became chief executive officer of ICAD, Inc. (ICAD: NASDAQ) which was a combination of ISSI and Howtek, Inc. (HOWT:NASDAQ). Mr. Speyer was the president and chief executive officer of Galileo Corporation (GAEO: NASDAQ) from 1998 to 1999. Galileo Corporation changed its name to NetOptix (OPTX: NASDAQ) and was merged with Corning Corporation (GLW: NYSE) in a stock purchase in May 2000. From 1996 to 1998 Mr. Speyer was the president of Leisegang Medical Group, three medical device companies owned by Galileo Corporation. Prior to joining Galileo Corporation, Mr. Speyer founded Leisegang Medical, Inc. and served as its president and chief executive officer from 1986 to 1996. Leisegang Medical, Inc. was a company specializing in medical devices for women’s health. Mr. Speyer is a graduate of Northeastern University, Boston, Massachusetts, where he earned a Bachelor of Science Degree in Business Administration in 1972. Mr. W. Kip Speyer is active in many local charities and is the father of Mr. Todd F. Speyer, our Chief Operating Officer – Bright Mountain, LLC and a director. Mr. Speyer’s experience as the Chief Executive Officer and/or Chairman of the Board of Directors of other public companies were factors considered by our board of directors in concluding that he should be serving as a director of our company.
Matthew Drinkwater Mr. Drinkwater was appointed Chief Executive Officer on December 1, 2021. Mr. Drinkwater joins the Company with an extensive track record of adding value to the Company’s he has worked for over his professional career in several Key Senior Executive and Sales roles at companies such as Buzzfeed, Twitter, Groupon Inc., Yahoo and America Online (AOL). Mr. Drinkwater, 48, is a digital executive with extensive, progressively advancing leadership experience at iconic high tech brands. From 2017 to the present, he served as the Senior Vice President, International for BuzzFeed. He also was in Agency Development and Global Accounts at Twitter from 2015 to 2017 and head of Twitter’s Global Online Sales in San Paolo, Brazil from 2013 through 2015. Mr. Drinkwater served as Vice President of Groupon East Coast from 2011 to 2013 and, Senior Director of Sales, New England and Canada at Yahoo from 2009 to 2011. Mr. Drinkwater holds a B.A. in Economics from College of the Holy Cross.
Edward Cabanas Mr. Cabanas was appointed Chief Financial Officer on September 1, 2020. Mr. Cabanas, age 49 served as the Vice President-Finance for ACAMS, L.L.C. (Association of Certified Anti-Money Laundering Specialists), a wholly owned subsidiary of Adtalem Global Education (NYSE: ATGE) where he oversaw the finance function for the company and partnered with the operation focusing on sales management, international expansion and product development. From February 2017 until August 2019 Mr. Cabanas served as Senior Vice President, Chief Financial Officer for the connectivity segment of Global Eagle Entertainment (NASDAQ: ENT) where he oversaw the global finance and accounting functions for a leading provider of satellite-based connectivity to the air, sea and remote land markets. From 2001 until 2016 Mr. Cabanas served in various senior finance and business development positions at Laureate Education (NASDAQ: LAUR). Mr. Cabanas received a BS in Public Accounting from Fordham University and obtained his CPA license (currently inactive) from The State of New York.
Todd F. Speyer has been a member of the board of directors and an employee of our company since January 2011, currently serving as our Chief Executive Officer – Bright Mountain, LLC. Mr. Speyer is responsible for the content and operations of our owned websites and proprietary ad serving technology. For over the previous five and one-half years, he has been responsible for the integration of all website organic growth and acquisitions, including content, design and visitor traffic. Previously, Mr. Speyer was our Director of Business Development, helping locate acquisitions and shaping the website portfolio. Mr. Speyer graduated from Florida State University in 2004 with a Bachelor of Arts Degree in English Literature. Mr. Todd F. Speyer is the son of Mr. W. Kip Speyer, our CEO, President and Chairman. Mr. Speyer’s website development experience as well as his marketing experience were factors considered by our board of directors in concluding that he should be serving as a director of our company.
Joey Winshman has been a member of our Board of Directors since August 2019. Mr. Winshman has served as Chief Marketing Officer of S&W since co-founding the company in February 2015 through April 15, 2022. Since June 2019 he has also served as Chief Marketing Officer of Lumynox, a subsidiary of S&W. Prior to co-founding S&W, from June 2013 until January 2015 Mr. Winshman was Media Manager for Taptica International Ltd., now known as Tremor International Ltd. (AIM: TRMR), a leader in advertising technologies with operations in more than 60 countries. Mr. Winshman, who is a citizen of both Israel and the U.S., received a B.S. in Business Administration, Management Information Systems, from the University of Vermont.
Pamela Parizek has been a member of our Board of Directors since October 2020. Pam has over 30 years of experience advising corporate boards, audit committees, c-suite executives and outside counsel on complex accounting, legal and regulatory matters. She is a JD/CPA, certified in financial forensics, and previously served in the enforcement division of the U.S. Securities and Exchange Commission (SEC) and led the Washington, DC forensic practice of a Big Four accounting firm. Pamela has led numerous investigations involving public companies, private entities and charitable foundations and her findings have been presented to U.S. and foreign regulatory authorities – in compliance with restrictive data protection and privacy regimes around the world. She has also provided forensic assistance to audit engagement teams on fraud risk, accounting irregularities and alleged illegal acts. Pamela serves on the Board of Directors of Foundation for a Smoke-Free World and on the Board of Trustees of the National Museum of Women in the Arts. She previously served on the boards of Global Kids, Inc. and the SEC Historical Society. Ms. Parizek holds a JD from Northwestern University School of Law and a BA from Harvard College.
Charles H. Lichtman has been a member of our board of directors since October 2014. Mr. Lichtman is an attorney practicing law since 1980, licensed in Illinois and Florida. He is a partner of Berger Singerman LLP since 2001. Mr. Lichtman has been honored as a two-time Lawyer of the Year by Best Lawyers in America and noted by them for his excellence every year since 2009 in the categories of Complex Business Litigation, Securities Litigation, Bankruptcy Litigation and Commercial Litigation. He has also been recognized by Chambers International and received other legal awards from various entities and periodicals. Mr. Lichtman’s professional experience as an attorney was the factor considered by our board of directors in concluding that he should be serving as a director of our company.
Harry D. Schulman has been a member of our Board of Directors since November 2019. For more than 20 years he has served on multiple boards including Baird Capital, a private equity firm managing over $3 billion, Hancock Fabrics, Inc., O2 Media, Inc., QEP and HeZhong International Holdings. He holds a Master’s degree in International Business from the University of Miami and a Bachelor’s degree in Business from the University of Dayton.
There are no family relationships between any of the executive officers and directors other than as set forth above. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified. If any director resigns, dies or is otherwise unable to serve out his or her term, or if the board increases the number of directors, the board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists. A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor. Vacancies occurring by reason of the removal of directors without cause may only be filled by vote of the stockholders.
Gretchen Tibbits joined the Board of Directors in February 2021. Ms. Tibbits has over 25 years of experience in management, strategy, and mergers & acquisitions. She is an Investment Banker focused on the media & technology and consumer content & commerce sectors. Previously, Ms. Tibbits served in executive roles at LittleThings, StyleCaster, Hearst, ESPN, and WorkingWomanNetwork. Ms. Tibbits holds an M.B.A. in Finance and Management from New York University, where she was a Stern Scholar, and a B.A. from the University of Virginia. She currently chairs the Campaign for the Arts and the Arts Endowment at the University of Virginia and serves on the board of the Tectonic Theater Project.
Ms. Tibbits has no arrangements or understandings with any other person pursuant to which she was appointed as a director and no family relationships with any director or executive officer of the Company. Ms. Tibbits has no direct or indirect beneficial ownership in the Company’s common stock or rights to acquire common stock.
Leadership structure, independence of directors and risk oversight
Mr. W. Kip Speyer serves as our Chairman of our board of directors. Messrs. Lichtman, Schulman, Parizek, and Tibbits are considered independent directors within the meaning of Rule 802 of the NYSE American Company Guide.
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of risks we face, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management process designed and implemented by management are adequate and functioning as designed. To do this, the chairman of the board meets regularly with management to discuss strategy and the risks facing our company. Senior management attends the board meetings and is available to address any questions or concerns raised by the board on risk management and any other matters. The chairman of the board and independent members of the board work together to provide strong, independent oversight of our company’s management and affairs through its standing committees and, when necessary, special meetings of independent directors.
Committees of our board of directors
In May 2015, our board of directors established a standing Audit Committee and a standing Compensation Committee. In August 2016, our board of directors established a standing Corporate Governance and Nominating Committee. Each committee has a written charter. The charters are available on our website at www.brightmountainmedia.com. All committee members are required to be independent directors.
Information concerning the current membership and function of each committee is as follows:
|Charles H. Lichtman*||✔|
|●||On January 14, 2022, Mr. Lichtman stepped down as compensation committee member, and Ms. Tibbits was appointed Chairperson of the Compensation Committee.|
The Audit Committee assists the board in fulfilling its oversight responsibility relating to:
|●||the integrity of our financial statements;|
|●||our compliance with legal and regulatory requirements; and|
|●||the appointment, compensation, and oversight of our independent registered public accountants.|
The Audit Committee is composed of two directors, each of whom has been determined by the board of directors to be independent within the meaning of the NYSE American Company Guide. Two of the members of the Audit Committee are qualified as an “audit committee financial expert” as defined by the SEC. The Audit Committee met eight times during 2021.
The Compensation Committee assists the board in:
|●||determining, in executive session at which our Chief Executive Officer is not present, the compensation for our CEO or President, if such person is acting as the CEO;|
|●||discharging its responsibilities for approving and evaluating our officer compensation plans, policies and programs;|
|●||reviewing and recommending to the board regarding compensation to be provided to our employees and directors; and|
|●||administering our stock compensation plans.|
The Compensation Committee is charged with ensuring that our compensation programs are competitive, designed to attract and retain highly qualified directors, officers, and employees, encourage high performance, promote accountability and assure that employee interests are aligned with the interests of our stockholders. The Compensation Committee is composed of two directors, both of whom have been determined by the board of directors to be independent within the meaning of the NYSE American Company Guide. The Compensation Committee did met two times in 2021.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee:
|●||assists the board in selecting nominees for election to the Board;|
|●||monitors the composition of the board;|
|●||develops and recommends to the board, and annually reviews, a set of effective corporate governance policies and procedures applicable to our company; and|
|●||regularly reviews the overall corporate governance of the Corporation and recommends improvements to the board as necessary.|
The purpose of the Corporate Governance and Nominating Committee is to assess the performance of the board and to make recommendations to the board from time to time, or whenever it shall be called upon to do so, regarding nominees for the board and to ensure our compliance with appropriate corporate governance policies and procedures. The Corporate Governance and Nominating Committee is composed of two directors, both of whom have been determined by the board of directors to be independent within the meaning of the NYSE American Company Guide. The Corporate Governance and Nominating Committee met four times in 2020.
Stockholders who would like to propose a candidate may do so by submitting the candidate’s name, resume and biographical information to the attention of our Corporate Secretary. All proposals for nomination received by the Corporate Secretary will be presented to the Corporate Governance and Nominating Committee for appropriate consideration. It is the policy of the Corporate Governance and Nominating Committee to consider director candidates recommended by stockholders who appear to be qualified to serve on our board of directors. The Corporate Governance and Nominating Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the board of directors and the committee does not perceive a need to increase the size of the board of directors. In order to avoid the unnecessary use of the Corporate Governance and Nominating Committee’s resources, the committee will consider only those director candidates recommended in accordance with the procedures set forth below. To submit a recommendation of a director candidate to the Corporate Governance and Nominating Committee, a stockholder should submit the following information in writing, addressed to the Corporate Secretary of Bright Mountain at our main office:
|●||the name and address of the person recommended as a director candidate;|
|●||all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act;|
|●||the written consent of the person being recommended as a director candidate to be named in the proxy statement as a nominee and to serve as a director if elected;|
|●||as to the person making the recommendation, the name and address, as they appear on our books, of such person, and number of shares of our common stock owned by such person; provided, however, that if the person is not a registered holder of our common stock, the person should submit his or her name and address along with a current written statement from the record holder of the shares that reflects the recommending person’s beneficial ownership of our common stock; and|
|●||a statement disclosing whether the person making the recommendation is acting with or on behalf of any other person and, if applicable, the identity of such person.|
Code of Ethics and Conduct
We have adopted a Code of Ethics and Conduct which applies to our board of directors, our executive officers and our employees. The Code of Ethics and Conduct outlines the broad principles of ethical business conduct we adopted, covering subject areas such as:
|●||conflicts of interest;|
|●||public disclosure reporting;|
|●||protection of company assets;|
|●||health and safety;|
|●||conflicts of interest; and|
|●||compliance with applicable laws.|
A copy of our Code of Ethics and Conduct is available without charge, to any person desiring a copy, by written request to us at our principal offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487.
In December 2017, our board of directors adopted a compensation policy for our independent directors for 2019. Under the terms of the 2019 director compensation policy, independent directors will receive $500 in cash for each board meeting attended and members of any committee of the board receive an additional $250 per committee meeting attended. In November 2019, our board of directors changed the compensation policy to compensate the directors 2,500 stock options for each meeting attended. Our non-independent directors are not compensated for their services. At the end of 2020, our board of directors changed the compensation policy to compensate the independent directors with 45,000 restricted shares per year on a pro-rata basis, based on their start date.
The following table provides information concerning the compensation paid to our independent directors for their services as members of our board of directors for 2021. The information in the following table excludes any reimbursement of out-of-pocket travel and lodging expenses which we may have paid:
|Name||cash ($)||($)||($)||($)||($)||($)||Total ($)|
|Gretchen Tibbits (1)||—||413||—||—||—||—||413|
|(1)||Ms. Tibbits joined the board in February 2021. She did not earn and was not paid any compensation during the 2020 year.|
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during 2020, except for Mr. Kip Speyer who failed to timely file one Form 4, related to one disposition by gift. The delinquent Form 4 has subsequently been filed.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation recorded by us in the past two years for:
|●||our principal executive officer or other individual serving in a similar capacity;|
|●||our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2021; and|
|●||up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at December 31, 2021.|
Summary Compensation Table
|Name and principal position||Year||Salary ($)||Bonus ($)||Stock Awards ($) (1)||Option Awards ($)||No equity incentive plan compensation ($)||Non-qualified deferred compensation earnings ($)||All other compensation ($)||Total ($)|
|W. Kip Speyer, Chairman of the Board (2)||2021||276,250||8,000||284,250|
|Emily Smith, Chief Executive Officer – Wild Sky Media (3)||2021||305,503||305,503|
|Todd Speyer, Chief Executive Officer – Bright Mountain, LLC||2021||157,250||157,250|
|Matt Drinkwater, Chief Executive Officer (7)||2021||20,833||20,833|
|Edward Cabanas, Chief Financial Officer (4)||2021||191,250||191,250|
|Alan Bergman, Former Chief Financial Officer (5)||2021|
|Greg Peters, Former President and Chief Operating Officer (6)||2021|
|(1)||The amounts included in the “Stock Awards” column represent the aggregate grant date fair value of the shares of our common stock, computed in accordance with ASC Topic 718 “Compensation - Stock Compensation”.|
|(2)||The amount of compensation paid to Mr. W. Kip Speyer excludes $8,113 and $63,136 in interest and dividend payments for 2021 and 2020, respectively. Effective December 1, 2021, Mr. W. Kip Speyer has transitioned Chief Executive Officer role into Chairman of the Board.|
|(3)||Ms. Smith joined the Company in connection with the Wild Sky acquisition on June 1, 2020.|
|(4)||Mr. Cabanas joined the Company as its Chief Financial Officer on September 1, 2020.|
|(5)||As of December 31, 2020, Mr. Bergman is no longer an officer of the Company.|
|(6)||Mr. Peters resigned as the President and Chief Operating Officer of the Company effective December 31, 2020.|
|(7)||Mr. Drinkwater joined the Company on December 1, 2021|
Employment agreement with our named executive and other executive officers
W. Kip Speyer
We have entered into an Executive Employment Agreement with W. Kip Speyer, our Chairman of the Board, with an effective date of June 1, 2014. Under the terms of this agreement, he is serving as Chairman of the Board, Chief Executive Officer and President of our company. On April 1, 2017, we entered into an amendment to his employment agreement which extended the term for an additional three years, set his base compensation at $165,000 per annum and provided the ability to earn a performance bonus beginning for 2017 based upon annual revenues above $3,000,000 per year and the certain earnings before interest, taxes and depreciation, or “EBITDA,” goals as follows: (i) for annual revenues of $3,000,000 to $3,500,000, a bonus of 25% of his then base salary; (ii) for annual revenues of $3,500,001 to $4,000,000 and a minimum EBITDA of $100,000, a bonus of 40% of his then base salary; (iii) for annual revenues of $4,000,0001 to $4,500,000 and a minimum EBITDA of $150,000, a bonus of 65% of his then base salary; and (iv) for annual revenues of $4,500,001 or greater and a minimum EBITDA of $175,000, a bonus of 80% of this then base salary. Effective April 1, 2020, we entered into an amendment of his employment agreement to adjust his compensation to an annual rate of $325,000 and remove the performance bonus structure.
The agreement with Mr. Speyer will terminate upon his death or disability. In the event of a termination upon his death, we are obligated to pay his beneficiary or estate an amount equal to one-year base salary plus any earned bonus at the time of his death. In the event the agreement is terminated as a result of his disability, as defined in the agreement, he is entitled to continue to receive his base salary for a period of one year. We are also entitled to terminate the agreement either with or without case, and he is entitled to voluntarily terminate the agreement upon one year’s notice to us. In the event of a termination by us for cause, as defined in the agreement, or voluntarily by Mr. Speyer, we are obligated to pay him the base salary through the date of termination. In the event we terminate the agreement without cause, we are obligated to give him one years’ notice of our intent to terminate and, at the end of the one-year period, pay an amount equal to two times his annual base salary together with any bonuses which may have been earned as of the date of termination. A constructive termination of the agreement will also occur if we materially breach any term of the agreement or if a successor to our company fails to assume our obligations under Mr. Speyer’s employment agreement. In that event, he will be entitled to the same compensation as if we terminated the agreement without cause. The employment agreement contains customary non-compete and confidentiality provisions. We have also agreed to indemnify Mr. Speyer pursuant to the provisions of our amended and restated articles of incorporation and amended and restated by-laws. Effective December 1, 2021, Mr. W. Kip Speyer has transitioned Chief Executive Officer role into Chairman of the Board.
We have entered into an Executive Employment Agreement with Matthew Drinkwater, our CEO. His employment contract’s term is for 3 years. The annual base salary is for $250,000 and he has a discretionary bonus target equivalent to 100% of his base salary subject to achievement of performance metrics. Lastly, he was granted 500,000 options of the Company’s common stock, which will vest at a rate of 25% per year beginning, December 1, 2021. For more information, please see the employment agreement attached.
We are not a party to an employment agreement with Mr. Todd Speyer. His compensation is determined by the compensation committee, based upon industry norms. Mr. Todd Speyer is Mr. Kip Speyer’s son. Mr. Todd Speyer’s compensation may be changed from time to time at the discretion of the compensation committee of the board of directors.
We are not a party to an employment agreement with Mr. Cabanas. His compensation is determined by the board of directors based upon industry norms. Mr. Cabanas’ compensation may be changed from time to time at the discretion of the compensation committee of the board of directors.
Ms. Emily Smith has an employment agreement which was assigned to Bright Mountain per the acquisition of CL Media Holdings, LLC (d/b/a/ Wild Sky Media) which occurred during June 2020. The agreement is dated August 15, 2019, subsequently amended on September 9, 2019. Ms. Smith would be the Chief Executive Officer of Wild Sky Media and earn an annual salary of $400,000, be eligible for an annual discretionary bonus, and be eligible for-profit participation. In case of termination, there is a 6-month severance clause, including continued benefits, if applicable, through the 6-month period. During April 2020, Ms. Smith accepted a reduction in pay to a base salary of $300,000 per year, which is still in effect as of this writing.
Outstanding equity awards at fiscal year-end
The following table provides information concerning unexercised stock options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2021, together with unexercised stock options, stock that has not vested and equity incentive plan awards for each of our other executive officers outstanding as of December 31, 2021:
|OPTION AWARDS||STOCK AWARDS|
Number of Securities
Number of Securities
Equity Incentive Plan
Awards: Number of
Option Exercise Price
|Option Expiration Date||
Number of Shares or
Units of Stock That
Have Not Vested (#)
Market Value of Shares
or Units of Stock That
Have Not Vested
Equity Incentive Plan
Awards: Number of
Unearned Shares, Units
or Other Rights that
Have Not Vested
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares, Units
or Other Rights That
Have Not Vested
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of May 10, 2022 we had 151,154,970 shares of our common stock issued and 150,329,795 shares of our common stock outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of that date by:
|●||each person known by us to be the beneficial owner of more than 5% of our common stock;|
|●||each of our directors;|
|●||each of our named executive officers; and|
|●||our named executive officers and directors as a group.|
Unless specified below, the business address of each stockholder is c/o 6400 Congress Avenue, Suite 2050, Boca Raton, FL 33487. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
|Name of Beneficial Owner||Common Stock|
|% of Class|
|Kip Speyer - Chairman of the Board||31,313,107||31,513,107||20.8||%|
|Todd Speyer - CEO and Board member||541,900||616,900||0.4||%|
|Edward Cabanas - CFO||-||100,000||0.1||%|
|Matt Drinkwater - CEO||-||500,000||0.3||%|
|Gretchen Tibbits - Board Member||41,250||41,250||0.0||%|
|Pamela Parizek - Board Member||54,370||54,370||0.0||%|
|Joey Winshman - Board Member||4,353,351||4,353,351||2.9||%|
|Harry Schulman - Board Member||90,000||95,000||0.1||%|
|Chuck Lichtman - Board Member||1,626,037||1,762,636||1.2||%|
|Officers and Directors - TOTAL||38,020,015||39,036,614||25.8||%|
|Andy Handwerker - Affiliate||11,918,458||11,918,458||7.9||%|
|TOTAL - Officers, Directors, and Affiliates (OD&A)||49,938,473||50,955,072||33.7||%|
|(1)||The number of shares of common stock beneficially owned by Mr. Speyer includes 200,000 shares of our common stock issuable upon the conversion of convertible promissory notes in the aggregate principal amount of $80,000 which have a conversion price of $0.40 per share.|
|(2)||The number of shares of common stock beneficially owned by Mr. Speyer includes 75,000 shares underlying vested stock options.|
|(3)||The number of shares beneficially owned by Mr. Lichtman includes 136,599 shares underlying vested stock options.|
|(4)||The number of shares beneficially owned by Mr. Handwerker includes:|
|●||5,169,500 shares held jointly with his wife: and|
|●||4,390,888 shares held individually.|
The number of shares beneficially owned by Mr. Handwerker excludes 750,000 shares underlying common stock purchase warrants. Under the terms of the warrants, Mr. Handwerker may not exercise the warrants to the extent such conversion or exercise would cause him, together with his affiliates, to beneficially own a number of shares of our common stock which would exceed 4.99% of our then outstanding shares of our common stock following such exercise. This limitation may be increased to 9.99% at Mr. Handwerker’s option upon 61 days’ notice to us.
Securities authorized for issuance under equity compensation plans
The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of December 31, 2021.
|Plan category||Number of |
securities to be
issued upon exercise of
outstanding options, warrants
and rights (a)
of outstanding options,
warrants and rights
Number of securities remaining
available for future issuance
under equity compensation
securities reflected in column (a))
|Plans approved by our stockholders:|
|2011 Stock Option Plan||203,000||0.67||697,000|
|2013 Stock Option Plan||333,000||0.62||567,000|
|2015 Stock Option Plan||141,000||0.83||859,000|
|2019 Stock Option Plan||738,227||0.60||4,261,773|
|Plans not approved by stockholders:||-||-||-|
On April 14, 2022, the Board of Directors adopted and approved a new 2022 Stock Option plan, subject to Stockholder approval at the next Annual Meeting. This new plan would eliminate all these prior plans (2011-2019) and the new plan adds 22.5M shares available for option awards which is approximately 15% of the outstanding shares of 151m. See 8-K in April 2022.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related party transactions
Preferred stock purchases
In 2021 and 2020 we paid cash dividends on these outstanding shares of our 10% Series E Convertible Preferred Stock and the three sub-series of our Series F Convertible Preferred Stock described below of $0 and $55,000, to Mr. Speyer, respectively.
Note Exchange Agreement
From time-to-time Mr. Speyer lent us funds for working capital under the terms of various convertible promissory notes. On November 7, 2019 we entered into a Note Exchange Agreement with Mr. Speyer pursuant to which we exchanged:
|●||$1,075,000 principal amount and accrued but unpaid interest due Mr. Speyer under 12% Convertible Promissory Notes maturing between September 26, 2021 and April 10, 2022 for 2,177,233 shares of our newly created Series F-1 Convertible Preferred Stock in full satisfaction of those notes:|
|●||$660,000 principal amount and accrued but unpaid interest due Mr. Speyer under 6% Convertible Promissory Notes maturing between April 19, 2022 and July 27, 2022 for 1,408,867 shares of our newly created Series F-2 Convertible Preferred Stock in full satisfaction of those notes: and|
|●||$300,000 principal amount and accrued but unpaid interest due Mr. Speyer under 10% Convertible Promissory Notes maturing between August 1, 2022 and August 30, 2022 for 757,197 shares of our newly created Series F-3 Convertible Preferred Stock in full satisfaction of those notes.|
During November 2019, we issued and sold Mr. Speyer two five-year unsecured convertible notes in the aggregate principal amount of $80,000. These notes, which are convertible at the option of the holder at any time at a conversion price of $0.40 per share, will automatically convert into shares of our common stock on the fifth anniversary of the date of issuance. We used the proceeds from these notes for working capital.
Messrs. Lichtman, Schulman, Parizek and Tibbits are considered “independent” within the meaning of Section 802 of the NYSE American Company Guide.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table shows the fees for professional audit services and other services rendered by WithumSmith+Brown, PC for the audit of the Company’s annual financial statements for the years ended December 31, 2021 and 2020, and fees billed for the other services rendered during those periods.
Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements or acquisition audits and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.
Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Audit Committee of the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Audit Committee. The audit and tax fees paid to the auditors with respect to 2021 and 2020 were pre-approved by the Audit Committee.