| COMMITMENTS AND CONTINGENCIES | The
Company leases its corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable
operating lease agreement expiring on October 31, 2021. The lease terms require base rent payments of approximately $7,260 plus
sales tax per month for the first twelve months commencing in September 2018, with a 3% escalation each year. Included in other
assets is a required security deposit of $18,100. The
right of use asset and lease liability is as follows as of March 31, 2019:
Assets
Right-of-Use
Asset $ 225,536
Liabilities
Operating
lease liability, current $ 84,472
Operating
lease liability, net of current portion 141,064
Total
operating lease liability $ 225,536 The
Company’s non-lease components are primarily related to property maintenance and other operating services, which varies
based on future outcomes and is recognized in rent expense when incurred and not included in the measurement of the lease liability.
The Company did not have any variable lease payments for its operating lease for the three months ended March 31, 2019. The
maturity of the Company’s operating lease liability is as follows as of March 31, 2019:
2020 $ 94,799
2021 97,643
2022 49,668
Total
undiscounted lease payments 242,110
Present
value adjustment (16,574 )
Total
net lease liability $ 225,536 The
following summarizes additional information related to the operating lease:
March 31,
2019
Weighted-average
remaining lease term 2.66
years
Weighted-average
discount rate 5.50 %
The
Company leased retail space for its product sales division at 4900 Linton Boulevard, Bay 17A, Delray Beach, FL 33445 under a two
long-term, non-cancellable lease agreement, which contained renewal options. The leases commenced in January 2017 and are in effect
for a period of five years. Minimum base rentals total approximately $6,000 per month, escalating 3% per year thereafter. The
Company also provided a $10,000 security deposit and prepaid $96,940 in future rents on the facility through the funding of certain
leasehold improvements. The Company discontinued all retail operations and has made a settlement with the landlord to terminate
the lease of approximately $55,000 which is included in accrued expenses. See Discontinued Operations Note 4. On
December 16, 2016, under the terms of the Asset Purchase Agreement, we acquired the assets constituting the Black Helmet apparel
business including various website properties and content, social media content, inventory and other intellectual property right.
We also acquired the right to assume the lease of their warehouse facility consisting of approximately 2,667 square feet. The
lease was renewed for a three-year term in April 2016 with an initial base rental rate of $1,641 per month, escalating at approximately
3% per year thereafter. The Company vacated the premises before March 31, 2019. See Discontinued Operations Note 4. For
the three months ended March 31, 2019 and 2018, rent expense in continuing operations was $29,409 and $33,303, respectively. For
the three months ended March 31, 2019 and 2018, rent expense included in discontinued operations was $37,042 and $30,787, respectively. Legal Effective July
18, 2018 we terminated the employment agreements with
each of Messrs. Harry G. Pagoulatos and George G. Rezitis for cause. Messrs . Pagoulatos
and Rezitis had been employed by us as chief operating officer and chief technology officer, respectively, of our DEM subs idiary since
our acquisition of that company in September 2017. Mr. Todd Speyer, our Vice President, Digital and a member of our board of directors , have
assumed operating responsibilities for DEM. While the malfeasance of Messrs. Harry G. Pagoulatos and George G. Rezitis giving
rise to their for-cause termination adversely affected our results of
operations for the second and third quarters, we do not expect that these terminations will result in any material, long-term change
in the operations of DEM. In
July of 2018,
Messrs. Pagoulato s and Rezitis , along
with a third party who had been a
minority owner in DEM prior to our acquisition
of that company, filed a Complaint in the U.S. District Court, District
of New Jersey (case number 2: l 8-cv-11357-ES-SCM)
against our Company and our Chief Executive Officer, seeking compensatory
and punitive damages and attorneys' fees , among
other items, and alleging , among other items , fraud
and breach of contract. We vehemently deny all allegation s in the complaint and
believe them to be without merit. We filed a Motion to Dismiss this case for
a multitude of reasons
including, but not restricted to,
failure to state a cause of action and jurisdictional and
venue arguments as the acquisition
and employment agreements provides that
any di s pute should be
heard in either the
state or local courts of Palm
Beach County, Florida. This Motion to Dismiss has been pending a decision since October
2018. At the appropriate juncture , we
also intend to serve a Rule 11 Motion for Sanctions
based upon the fact that the Complaint
contains frivolo us arguments
or arguments with no evidentiary support. In
connection with the DEM acquisition, the Company entered into three-year employment agreements with two
former members of the entity. Under these agreements,
the Company was obliged to pay base salaries
of $65,000 and $70,000, respectively to the employees with an increase to $75,000 each
in the second year of the agreement as well as bonuses
to be paid at the discretion of the board of directors. As discussed
in Note 8 , the principles of
DEM failed to disclose an obligation at closing. During the quarter ended March 31, 2019 the
Company reached a settlement with the collections lawyer to pay down the amount remaining in collections through equal monthly
payments through February 1, 2020. From
time-to-time, we may be involved in litigation or be subject to claims arising out of our operations or content appearing on our
websites in the normal course of business. Although the results of litigation and
claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a
material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on
our company because of defense and settlement costs , diversion
of management resources and other factors. Other
Commitments On
September 5 , 2018
the Company entered into a Master Services Agreement with Kubient , Inc.
pursuant to which it will provide its programmatic technology platform to us on a nonexclusive basis for the purpose of managing
our programmatic business partners. The Company did not pay anything to Kubient , Inc.
for the year ended March 31, 2019 for its platform. The Company has provided advertising services to Kubient and at March 31,
2019 the Company is owed $108,817 and a note receivable of $75,000 and we have reserved a total of $136,000 against these balances. On
September 28 , 2018 Bright Mountain Media , Inc.
entered into a non-binding letter of intent
with Kubient , Inc . pursuant
to which we may acquire Kubient , Inc . in an
all stock transaction. The Company has completed the due diligence process and has made
a determination that it will not pursue the acquisition of Kubient, Inc. On
September 6 , 2017
Bright Mountain Media , Inc . entered
into a five- year Consulting Agreement with the Spartan
Capital Securities , LLC ( " Spartan
Capital"), which became effective on September 28 , 2018 and, accordingly,
Spartan Capital was engaged to provide advisory services .
The consulting agreement calls for payments of $5,000 per month for a term of 60 months to be prepaid upon the effective date
of the agreement. In addition , the Company issued
Spartan Capital 1,000,000 shares of our common stock (the "Consulting Shares")
in accordance with the consulting agreement. On
September 6 , 2017 we also entered into
a five-year M&A Advisory Agreement with Spartan Capital which became effective on September 28, 2018 for sixty months. Under
the terms of the agreement, Spartan Capital will provide consulting services to
us related to potential mergers or acquisitions. As consideration for the M&A advisory service we paid Spartan Capital a fee
of $500,000 on the effective date of the agreement. Consulting
fees consisting of $300 , 000 in cash and 1,000 , 000
shares of common stock valued at $750,000 as well as the $500,000 M&A advisory fee are considered prepaid expenses. Total
prepaid service/consulting fees, net were $1,472,500 , of
which $310,000 is considered short-term and
is included in prepaid expenses and other current assets as of December 31, 2018. These prepaid expenses are being amortized over
60 months, the term of the respective agreements. The amortization expense was $77,500 for the three months ended March 31, 2019. The
Company granted the purchasers in the offering demand and piggy-back
registration rights with respect to the share s of
our common stock included in the Units and the shares of common stock issuable upon the exercise of the Private Placement Warrants.
In addition , the Company agreed to file a resale
registration statement within 120 days following
the final closing of this offering covering the shares of common stock issuable upon the exercise of the Private Placement Warrants
included in the Units. If the Company should fail to timely file this resale registration statement, then
within five business days of the end of month we will pay the holders an amount in cash, as of
the date the deficiency is cured or the expiration of six months from filing deadline . The
Company will keep any such registration statement effective
until the earlier of the date upon which all such securities may be sold without registration under Rule 144 promulgated under
the Securities Act or the date which is six months after the expiration date
of the Private Placement Warrants. We are obligated to pay all costs associated with this registration statement , other
than selling expenses of the holders . On April 25, 2019 we filed the Registration Statement
and included in accrued expenses $88,020 for the liquidated damages due at March 31, 2019. On
December 11, 2018 we entered into an Uplisting Advisory and Consulting Agreement with Spartan Capital pursuant to which Spartan
Capital will provide (i) advice and input with respect to strategies to accomplish an uplisting of our common stock to the Nasdaq
Capital Market or NYSE American LLC or another national securities exchange, and the implementation of such strategies and making
introductions to facilitate the uplisting, (ii) advice and input with respect to special situation and restructuring services,
including debtor and creditor advisory services, and (iii) sell-side advisory services with respect to the sale and disposition
of non-core businesses and assets, including facilitating due diligence and identifying potential buyers and strategic partners
and positioning these businesses and assets to maximize value. We paid Spartan Capital a fee of $200,000 for its services under
this agreement which is for a 12 month term beginning on the closing date of the offering. The agreement also provides that we
will reimburse Spartan Capital for reasonable out-of-pocket expenses, which we must approve in advance. The Company has included
the uplisting fee in prepaid expense at March 31, 2019 and December 31, 2018 of $150,000 and $200,000, respectively and it is
amortized over a twelve-month period. For the three months ended March 31, 2019 and 2018 the Company recognized $50,000 and $0,
respectively. |
