EDGAR 10-K Filing

Company CIK: 1568385
Filing Year: 2023
Filename: 1568385_10-K_2023_0001628280-23-009609.json

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ITEM 1. BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS
This business description should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto appearing elsewhere in this Annual Report on Form 10-K, which are incorporated herein by this reference.
Unless specifically set forth to the contrary, when used in this Annual Report on Form 10-K the terms “Bright Mountain,” the “Company,” “we,” “our,” “us,” and similar terms refers to Bright Mountain Media, Inc., a Florida corporation, and our subsidiaries.
Business Overview
Organization and Nature of Operations
Bright Mountain Media, Inc. is a holding company which focuses on digital publishing and advertising technology. The Company is engaged in content creation and advertising technology development that helps customers connect with, and market to, targeted audiences in high quality environments using a variety of digital advertising ("ad") formats.
Digital Publishing
Our digital publishing division focuses on developing content that attracts an audience and monetizes that audience through advertising. The current portfolio of owned and operated websites is focused on moms, parenting, families, and more broadly, women. The portfolio consists of popular websites including Mom.com, Cafemom.com, LittleThings.com, and MamasLatinas.com. This demographic is highly sought after by brands and their advertising agencies. We use internal and external technologies to constantly improve the effectiveness and efficiency of the content we create. Our publishing division monetizes its audiences through both direct and programmatic advertising sales.
Advertising Technology
Our advertising technology division focuses on delivering targeted ads to audiences on owned and operated sites as well as third party publishers in a cost-effective manner through the deployment of proprietary technologies. Through acquisitions and organic software development, we have consolidated and plan to further condense key elements of the prevailing digital advertising supply chain by eliminating industry “middlemen” and/or costly redundancy of services via our ad exchange. By developing our own proprietary technology stack, we are able to pass along efficiencies to both the demand and supply side of the ecosystem. Our goal is to enable and support a streamlined, end-to-end advertising model that addresses both demand (buy side) and publisher supply (sell side) programmatic sales and delivery of digital advertisements using an array of audience targeting tools and advertising formats (display, audio, video, CTV, in-app). Programmatic advertising relies on artificial intelligence powered software programs that leverage data and proprietary algorithms to match the optimal selection of an ad with a bid price offered by advertisers.
The Company generates revenue through sales of advertising services which generate revenue from advertisements placed on the Company’s owned and managed sites, as well as from advertisements placed on partner websites, for which the Company earns a share of the revenue. Additionally, we also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers known as DSPs and sellers known as SSPs.
Market Challenge:
Current Advertising Model Reliant on Digital Advertising Supply Chain
According to eMarketer's report, "US Ad Spending 2022", total ad spending for 2022 in the U.S. was expected to reach approximately $345.99 billion, a 13.2% increase over 2021. We believe this estimate reflects the growth opportunities in areas such as search advertising and social ad spending beyond 2022.
According to eMarketer, U.S. digital ad spending has surpassed traditional media spending 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 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 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.
The Solution:
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.
Building Our Platform
Since our founding in 2010, Bright Mountain Media has operated as a digital media holding company for websites in a variety of areas and sectors including the military and public safety sectors, curated entertainment, and parenting and families. 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. The current portfolio of owned and operated websites is focused on moms, parenting, families and more broadly women. 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 publishing and advertising technology and solutions company. Since August 2019, we have completed and vertically integrated three acquisitions as part of our business plan:
•Slutzky & Winshman Ltd. d/b/a/ S&W Media Group, which we subsequently rebranded as Oceanside Media (acquired in 2019);
•News Distribution Network, Inc., which we subsequently rebranded as MediaHouse (acquired in 2019); and
•CL Media Holdings LLC, d/b/a Wild Sky Media (acquired in 2020).
As consumers shift from traditional cable boxes to Internet-enabled devices and smart televisions, advertising budgets are following. CTV/Over-the-Top ("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/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; distributing 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 enables 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.
Industry Outlook
Impact on the U.S. Market
In April 2022, a report was published by Interactive Advertising Bureau ("IAB") titled "Internet Advertising Revenue Report, Full-Year 2021 Results," the report reflected that digital advertising experienced strong growth in 2021. During 2021, the industry was able to capitalize on the resurgence of marketing budgets throughout the year and the influx of isolated consumers who relied on digital media as their primary connection during the COVID-19 pandemic. Overall, U.S. digital ad revenue increased to approximately $189.0 billion or 35.4% between 2020 to 2021, the highest growth since 2006. The growth is nearly three times larger than the previous year's growth of 12.2% in 2021.
The IAB report states that the programmatic growth trend continued in 2021 as it grew 39.0% year over year and increased its share of overall non-search ad revenue to 89.2% (from 88.0% in 2020).
Per the IAB report, the digital advertising ecosystem is increasingly vulnerable to evolving consumer privacy regulations and the decreasing ability to address audiences, which may slow the growth of ad monetization. Increased regulations, the evolution of new business and technical requirements, and ad platform upgrades by technology companies are decreasing both the size of addressable audiences and the ability to measure performance.
Impact on the Worldwide Market
In January 2023, eMarketer published a report titled "Worldwide Digital Ad Spending 2023". The report stated that global ad spending growth significantly declined in 2022, due to decreased consumer spending, but the results were not as
negative as expected. The decline in ad spending primarily impacted social media, particularly Meta, and heavily challenged markets such as Western Europe and China.
According to eMarketer's report, digital ad spending growth has significantly declined but is expected to reach 10.5% growth year over year in 2023. eMarketer estimated ad buyers spent approximately $37.0 billion less in 2022 than they predicted in previous forecasts. This was believed to be a result of reductions in social media spending, particularly Meta, and cutbacks in markets such as Western Europe and China. Total media ad spending worldwide is expected to increase by 6.9% year over year in 2023.
eMarketer estimated that advertisers will increase outlays by nearly $60.0 billion in 2023, and total spending remains on track to reach $1.0 trillion for the first time in 2024. It is expected that 99.2% of this new ad spending worldwide will go to digital, as set forth in the Digital Ad Spending Worldwide, 2021-2026 chart below.
Digital Ad Spending Worldwide, 2021-2026
billions, % change and % of total media ad spending
Note: includes advertising that appears on desktop and laptop computers as well as mobile phones, tablets, and other internet-connected devices, and includes all the various formats of advertising on those platforms; excludes SMS, MMS, and P2P messaging-based advertising
Source: eMarketer, Oct 2022
279253 www.eMarketer.com
Intellectual Property
We currently rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information.
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.
Competition
The digital publishing and advertising industries 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, Dot Dash Meredith, and Future PLC, among others.
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.
Customers
Our customers are advertisers, advertising agencies and advertising service organizations seeking to have their respective advertisements placed on one of the many platforms serviced by the Company.
Regulatory Environment
Interest-based advertising, or the use of data to draw inferences about a user’s interests and deliver relevant advertising to that user, has come under increasing scrutiny by legislative, regulatory, and self-regulatory bodies in the U.S. and abroad that focus on consumer protection or data privacy. In particular, this scrutiny has focused on the use of cookies and other technology to collect or aggregate information about Internet users’ online browsing activity. Because we, and our clients, rely upon large volumes of such data collected primarily through cookies, it is essential that we monitor developments in this area domestically and globally, and engage in responsible privacy practices, including providing consumers with notice of the types of data we collect and how we use that data to provide our services.
We provide this notice through our privacy policy, which can be found on our website at www.brightmountainmedia.com. As stated in our privacy policy, our technology platform does not collect information, such as name, address, or phone number, that can be used directly to identify a real person, and we take steps not to collect and store such personally identifiable information from any source. Instead, we rely on IP addresses, geo-location information, and persistent identifiers about Internet users and do not attempt to associate this data with other data that can be used to identify real people. This type of information is considered personal data in some jurisdictions or otherwise may be the subject of future legislation or regulation. The definition of personal data varies by country and continues to evolve in ways that may require us to adapt our practices to avoid violating laws or regulations related to the collection, storage, and use of consumer data. For example, some European countries consider IP addresses or unique device identifiers to be personal data subject to heightened legal and regulatory requirements. As a result, our technology platform and business practices must be assessed regularly in each country in which we do business.
There are also several 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 the European Union (the "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 EU. 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 EU 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 EU is expected to replace the EU Cookie Directive governing the use of technologies to collect consumer information with the EU ePrivacy Regulation. The EU ePrivacy Regulation proposes burdensome requirements around obtaining consent and imposes fines for violations that are materially higher than those imposed under the EU Cookie Directive.
The United Kingdom’s (the "UK") decision to leave the EU 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.
Additionally, our compliance with our privacy policy and our general consumer privacy practices are also subject to review by the Federal Trade Commission and state regulators, which may bring enforcement actions to challenge allegedly unfair and deceptive trade practices, including the violation of privacy policies and representations therein. Certain State Attorneys General may also bring enforcement actions based on comparable state laws or federal laws that permit state-level enforcement. Outside of the U.S., our privacy and data practices are subject to regulation by data protection authorities and other regulators in the countries in which we do business.
Beyond laws and regulations, we are also members of self-regulatory bodies that impose additional requirements related to the collection, use, and disclosure of consumer data, including the IAB, the Digital Advertising Alliance, the Network Advertising Initiative, and the Europe Interactive Digital Advertising Alliance. Under the requirements of these self-regulatory bodies, in addition to other compliance obligations, we provide consumers with notice via our privacy policy about our use of cookies and other technologies to collect consumer data, and of our collection and use of consumer data to deliver interest-based advertisements. We also allow consumers to opt-out from the use of data we collect for purposes of interest-based advertising through a mechanism on our website, linked through our privacy policy as well as through portals maintained by some of these self-regulatory bodies. Some of these self-regulatory bodies have the ability to discipline members or participants, which could result in fines, penalties, and/or public censure (which could in turn cause reputational harm). Additionally, some of these self-regulatory bodies might refer violations of their requirements to the Federal Trade Commission or other regulatory bodies.
Human Capital
Because of the service nature 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 December 31, 2022, we had 57 employees, of which 36 were employed in the U.S. and 21 outside of the U.S., in Thailand and Israel. As of the filing of this Form 10-K our headcount was reduced to 52 employees. See Note 22, "Subsequent Events" of the consolidated financial statements.
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 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 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 business needs 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, 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.
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 publishing and advertising technology 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 Media in the digital publishing area consistent with our strategy to focus on the advertising segment.
Available Information
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 periodic 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 our website is not incorporated by reference in, or considered part of, this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Our business, financial condition, results of operations, prospects and the prevailing market price and performance of our common stock may be adversely affected by a number of factors, including the factors discussed below. You should carefully consider the risk factors set forth below and elsewhere in this Annual Report on Form 10-K, together with all the other information included in this Annual Report on Form 10-K. The risks and uncertainties described in this Annual Report on Form 10-K or in any document incorporated by reference herein are not the only risks and uncertainties that we face. Additional risks that are not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business. If any of the following risks and uncertainties develop into actual events, our business, financial condition, results of operations, prospects or the prevailing market price and performance of our common stock 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 significant net losses for the years ending December 31, 2022, and 2021, and at December 31, 2022, we had a significant accumulated deficit. 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. The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of factors. The Company is currently exploring all strategic alternatives, including restructuring or refinancing its debts, seeking additional debt, such as borrowings under the Centre Lane Senior Secured Credit Facility or equity capital. The ability to access the capital market is also dependent on the stock volume and market price of the Company's stock, which cannot be assured. The Company may need to pursue other measures including reducing or delaying certain business activities, reducing general and administrative expenses, and reducing its headcount.
Our cash could be adversely affected if the financial institutions in which we hold our cash fail.
The Company maintains domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks. The domestic bank deposit balances may exceed the FDIC insurance limits. Also, in the foreign markets we serve, we also maintain cash deposits in foreign banks, some of which are not insured or partially insured by the FDIC or other similar agency. These balances could be impacted if one or more of the financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets.
We are dependent upon sales of equity securities and borrowings under the Centre Lane Senior Secured Credit Facility to provide operating capital.
We do not generate sufficient gross profit to pay our operating expenses and we reported a net loss in 2022 and 2021. During 2022 and 2021, we were dependent on borrowing under the Amended and Restated Centre Lane Senior Secured Credit Facility (the "Centre Lane Senior Secured Credit Facility") to support our working capital needs. 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. If we are not able to raise sufficient additional working capital as needed, and absent a significant increase in our revenue, 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.
Some 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, demands for refunds or future credit 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 the year ended December 31, 2022, one customer represented 37.7% of our revenue, and for the year ended December 31, 2021, the same one customer represented 8.6% of our revenue. The loss of this customer could have a material adverse impact on our results of operations in future periods. There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible for us to predict the future level of demand for our services that will be generated by this customer. In addition, revenues from this customer may fluctuate from time to time based on the commencement and completion of projects, the timing of which may be affected by market conditions or other facts, some of which may be outside of our control. If this customer experiences declining or delayed sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our services or we could lose a major customer. Any such development could have an adverse effect on our margins and financial position and would negatively affect our revenues and results of operations and/or trading price of our Common Stock.
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 advertising spending. 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 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.
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.
Online security breaches or other disruptions of our information technology systems could harm our business.
The efficient operation of our business depends on our information technology systems. We collect, process, store, and share. We rely on encryption and authentication technology to effect secure transmission of such information. These systems may be susceptible to damage, disruptions or shutdowns due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches.
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. We frequently update and improve our information security environment and assess and adopt new methods, devices, and technologies, but our policies and information security controls may not keep pace with emerging threats. Additionally, we may not have a timely remedy against a hacker who is able to penetrate our network security. Threats to
information security evolve constantly and are increasingly sophisticated and complex, which makes detecting and successfully defending against them more difficult. Undetected vulnerabilities may persist in our network environment over long periods of time and could come from or spread to the networks and systems of our suppliers and customers. 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. In addition, government regulators may impose fines, penalties, and other civil or criminal consequences for security breaches and inadequate information security.
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 could 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 the 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 U.S. 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 14 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.
If we are unable to respond to rapid technological change, our products and services could become obsolete, and our reputation could suffer.
The markets for our products and services are characterized by rapidly changing technology, evolving industry standards and increasingly sophisticated customer requirements. The introduction of products embodying new technology and the emergence of new industry standards can negatively impact the marketability of our existing products and can exert price pressures on existing products. Additionally, 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. It is critical to our success that we are able to anticipate and react quickly to changes in technology or in industry standards and to successfully develop, introduce, and achieve market acceptance of new, enhanced and competitive products and services on a timely basis and cost-effective basis. 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. There can be no assurance that we will successfully develop new products and services or enhance and improve our existing products and services, that new products and services and enhanced and improved existing products and services will achieve market acceptance or that the introduction of new products and services or enhanced existing products and services by others will not negatively impact us. Our inability to develop products and services that are competitive in technology and price and that meet end-user needs could have a material adverse effect on our business, financial condition or results of operations.
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.
The loss of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations.
Our success depends to a significant degree upon the continued contribution of our key executive officers, including Matthew Drinkwater, our chief executive officer. Mr. Drinkwater has significant experience in the media business, and if
we should lose Mr. Drinkwater, such loss could have a material adverse effect on our business, financial condition, and results of operations. Moreover, we do not maintain key man life insurance with respect to any of our executives.
We must hire, integrate and/or retain qualified personnel to support our business.
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 negatively impact our reputation and 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 result in a loss of users, customers, and business partners, which could have a material adverse effect on our business, financial condition and results of operations.
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 failures 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 their 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 have a material adverse effect on 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 and outside of our control. Any of these system failures could harm our business, financial condition and results of operations.
We are unable to predict the impacts of COVID-19 and any other future pandemic or outbreak of disease on our business.
Our business and operations could be adversely affected by future health pandemics or outbreak of disease, including the COVID-19 pandemic, impacting the markets and communities in which we, our third-party vendors and customers operate. Because our Company operates in the digital advertising industry, unlike a brick and mortar-based company, predicting the impact of the COVID-19 pandemic or other future health pandemics on our Company is difficult.
The COVID-19 pandemic has affected our operations in the past and may continue to do so in the future. For example, with the COVID-19 pandemic, we experienced a pause in marketing campaigns by a limited number of clients and an adverse impact from several of suppliers. We also experienced interruptions in our daily operations, including financial reporting process, as a result of certain policies and actions put into place to mitigate the effects of the COVID-19 pandemic. 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 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.
In addition, we cannot predict the impact any future pandemic or outbreak of a disease, or a catastrophic event will have on our business partners and third-party vendors, and we may be adversely impacted as a result of the adverse impact our third-party vendors suffer. We 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. To the extent a pandemic or other catastrophic event adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. Any of the foregoing factors, or other cascading effects of the pandemic that are not currently foreseeable, could adversely impact our business, financial performance and condition, and results of operations.
Privacy concerns could impair our business.
We have a policy against using personally identifiable information obtained from users of our websites without the user’s permission. In the past, the Federal Trade Commission has investigated companies that have used personally identifiable information without permission or in violation of a stated privacy policy. If we use personal information without permission or in violation of our policy, we may face potential liability for invasion of privacy for compiling and providing information to our corporate customers and electronic commerce merchants. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify internet users that the data may be used by marketing entities to direct product promotion and advertising to the user. Other countries and political entities, such as the EU, have adopted such legislation or regulatory requirements. The U.S. may adopt similar legislation or regulatory requirements in the future. If consumer privacy concerns are not adequately addressed, our business, financial condition and results of operations could be materially harmed.
We are subject to several regulatory risks, and any failure to comply with the various regulations could adversely impact our business.
We are subject to a number of domestic and, to the extent our operations are conducted outside the U.S., foreign laws and regulations that affect companies conducting business on the internet and through other electronic means, many of which are still evolving and could be interpreted in ways that could harm our business. U.S. and foreign regulations and laws potentially affecting our business are evolving frequently. We currently have not developed our internal compliance program, nor do we have policies in place to monitor compliance. Instead, we rely on the policies of our publishing partners. If we are unable to identify all regulations to which our business is subject and implement effective means of compliance, we could be subject to enforcement actions, lawsuits and penalties, including but not limited to fines and other monetary liability or injunction that could prevent us from operating our business or certain aspects of our business. In addition, the evolving and at times overlapping regulatory regimes to which the Company is subject may change at any time. Any changes to existing laws or regulations, or the adoption of new laws or regulations, 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.
In the ordinary course of business, we may be involved in lawsuits and regulatory actions with customers, employees and others. We are also subject to lawsuits filed by patent holders alleging patent infringement. Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may be difficult to ascertain. These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract management’s attention from core business operations and impact operating results, particularly if a lawsuit results in an unfavorable outcome, or could harm the Company’s reputation with customers, employees, investors and others. 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. We presently do not have any material pending litigation or regulatory matters affecting us.
RISKS RELATING TO OUR INDEBTEDNESS
Our secured indebtedness may limit our ability to operate our business.
As of December 31, 2022, and 2021, we had $33.1 million and $26.3 million outstanding secured indebtedness under the Centre Lane Senior Secured Credit Facility, respectively. The instruments governing our existing secured indebtedness may inhibit our ability to incur additional debt and require significant payments from the proceeds of any debt or equity sale without the 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.
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 audited 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 $114.3 million at December 31, 2022. Our independent registered public accounting firm’s report on our audited financial statements includes an explanatory paragraph related to substantial doubt about the Company’s ability to continue as a going concern. Our audited 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 internal 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 U.S. 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 years ended December 31, 2020 and December 31, 2021. On March 6, 2023, the Board of Directors of the Company, upon the recommendation of the Audit Committee, determined that the Company’s previously issued unaudited consolidated financial statements as of and for each of the interim quarterly periods ended June 30, 2022 and September 30, 2022, should no longer be relied upon due to material errors contained in those financials statements primarily relating to the understatement of interest payable and interest expense under the Centre Lane Senior Secured Credit Facility and filed a Form 8-K to report such non-reliance.
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 and has taken steps to resolve the material weaknesses by enhancing its accounting and finance department, implementing a new organization wide enterprise resource planning 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, par value $0.01 per share, (the "Common Stock") are currently quoted for trading on the OTCQB 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 and outstanding interest we pay affiliates.
As of December 31, 2021, we had one series, Series “E", of preferred stock outstanding that paid cash dividends and was owned by Mr. W. Richard Rogers, a former member of our Board. During the years ended December 31, 2022, and 2021, we paid cash dividends of $5,000 each year to Mr. Rogers. During the year ended December 31, 2022, Mr. Rogers converted his shares of Series “E" preferred stock to shares of Common Stock. As a result, as of December 31, 2022, no Series "E" preferred stock remained outstanding, and no further dividends payments will be required.
As of December 31, 2022, preferred stock dividends owed to Mr. Kip Speyer, our chairman of the Board, totaled $691,000. Mr. Speyer's preferred stock was converted to common stock during the year ended December 31, 2021.
At December 31, 2022 and 2021, accrued unpaid preference dividends due to Mr. Speyer was $691,000 and $691,000, respectively, amounts for 2021 included $242,000 due within that year.
As of December 31, 2022, outstanding interest payable on the 10% convertible promissory notes (the "Convertible Notes") due to Mr. Speyer totaled $31,000. The outstanding Convertible Notes of $80,000 and interest are due to be repaid by November 2023.
The payment of these cash dividends, outstanding principal and interest payments reduces the amount of capital we have available to devote to the growth of our Company.
We have outstanding, convertible notes, options and warrants to purchase approximately 29% of our outstanding Common Stock.
As of December 31, 2022, we had 149,619,461 shares of Common Stock outstanding, with options, and warrants outstanding to purchase an aggregate of 42,515,976 shares of Common Stock. As of December 31, 2021, we had 148,985,208 shares of Common Stock and 125,000 shares of preferred stock outstanding, with options, and warrants outstanding to purchase an aggregate of 37,238,543 shares of Common Stock. The conversion or possible exercise of the preferred stock, warrants and/or options, would increase the total outstanding shares of Common Stock by approximately 29% at December 31, 2022 and 25% at December 31, 2021, which will have a dilutive effect on our existing shareholders.
Some provisions of our charter documents and Florida law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders and may prevent attempts by our shareholders to replace or remove our current management.
Provisions in our amended and restated articles of incorporation, as amended (the "Articles of Incorporation") and our amended and restated bylaws (the "Bylaws"), as well as provisions of Florida law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our shareholders, or remove our current management. These include provisions that:
•permit our Board 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, including as a result of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
•provide that shareholders seeking to present proposals before a meeting of shareholders or to nominate candidates for election as directors at a meeting of shareholders must provide advance notice in writing, and also satisfy requirements as to the form and content of a shareholder’s notice;
•not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of Common Stock entitled to vote in any election of directors to elect all of the directors standing for election; and
•provide that special meetings of our shareholders may be called only by the Board or by the holders of at least 40% of our securities entitled to notice of and to vote at such meetings.
These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our Board, who are responsible for appointing the members of our management. Section 607.0902 of the Florida Business Corporation Act provides provisions which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our shareholders. As permitted under Florida law, we have elected not to be governed by this statute. Any provision of our Articles of Incorporation, our Bylaws or Florida law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of Common Stock or warrants, and could also affect the price that some investors are willing to pay for our shares of Common Stock or warrants.
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, 2022, Mr. W. Kip Speyer, our Chairman of the Board, together with members of our Board and a principal shareholder, beneficially own approximately 26.7% of our total outstanding shares of Common Stock and preferred stock. As a result of the concentrated ownership of the Company's stock, Mr. Kip Speyer and our Board may be able to control all matters requiring shareholder approval, including the election of directors and approval of mergers and other significant corporate transactions. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our Company. It could also deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our Company and it may affect the market price of our Common Stock.
We do not 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, 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. Therefore, there can be no assurance that any dividends on our Common Stock will ever be paid. 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 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. Our Board is empowered, without shareholder 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 Stock shareholders. As of the filing of this Annual Report on Form 10-K, there are no outstanding preferred stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate offices in Boca Raton, Florida under a long-term non-cancellable lease agreement that expired on October 31, 2021 (as amended, the "Lease"). On June 14, 2022, the Company signed a second lease addendum (“Second Addendum”) to the Lease with a lease term for five (5) years beginning upon completion of
improvements to the office space by the landlord, which was completed on September 12, 2022. The annual base rent is $100,000, with a provision for a 3% increase on each anniversary of the rent commencement date. The Company has the option to renew the Lease for one additional five-year term.
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.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We have settled our previously disclosed material legal proceedings and are not currently a party to any legal proceedings that, in the opinion of our management, would have a material adverse effect on our business, financial condition, operating results or cash flows.
Synacor Litigation
In 2020, Synacor, Inc. (“Synacor”) commenced an action against MediaHouse, LLC, Inform, Inc. and the Company, alleging approximately $230,000 was owed based on invoices issued in 2019 in respect to that certain Content Provider & Advertising Agreement with MediaHouse. During January 2022, the Company entered into a settlement agreement related to the legal proceedings with Synacor totaling $184,000. 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. The Company previously reserved approximately $245,000 towards this litigation, and following the settlement, the Company recognized an adjustment of $61,000 included in litigation settlement on the consolidated statements of operations for the year ended December 31, 2022.
At December 31, 2022, the Company paid $144,000 in connection with the Synacor settlement agreement, leaving an outstanding balance of $40,000. This amount is included in other liabilities on the consolidated balance sheet at December 31, 2022.
MediaHouse Defamation
A former employee of the Company filed a suit against the Company, MediaHouse, LLC, and Gregory A. Peters, a former Executive, (the “Defendants”) alleging two counts of defamation.
On August 2, 2022, the parties engaged in mediation, which resulted in a settlement of the lawsuit on August 4, 2022. The Company agreed to pay $62,500 over a 12-month period, with the first payment commencing on September 8, 2022, and final payment due on August 1, 2023. Approximately $42,000 was outstanding at December 31, 2022. This amount is included in other liabilities on the consolidated balance sheet at December 31, 2022.
Slutzky & Winshman - Default on Obligations
Bright Mountain has been sued by plaintiffs Joey Winshman, Eli Desatnik and Nadav Slutzy (“Plaintiffs”) in a lawsuit filed in the United States District Court for the Southern District of Florida on December 17, 2021 (the “Lawsuit”). Plaintiffs allege that Bright Mountain 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.
On September 6, 2022, the Company’s Board of Directors approved a settlement of $650,000 payable over a 50-month period commencing January 2023. The amount is included in other liabilities on the consolidated balances sheets. See Note 10, "Oceanside Share Exchange Loan" to the accompanying consolidated financial statements for further information.
Other Litigation
Other litigation is defined as smaller claims or litigation that are neither individually nor collectively material. It does not include lawsuits that relate to collections.
The Company is party to various other legal proceedings that arise in the ordinary course of business, separate from normal course accounts receivable collections matters. Due to the inherent difficulty of predicting the outcome of these
litigations and other legal proceedings, the Company cannot predict the eventual outcome of these matters, and it is reasonably possible that some of them could be resolved unfavorably to the Company. As a result, it is possible that the Company’s results of operations or cash flows in a particular fiscal period could be materially affected by an unfavorable resolution of pending litigation or contingencies. The outcome is not determinable as of the issuance of these financial statements.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of August 19, 2022, the Company's Common Stock is currently quoted for trading on the OTCQB Market under the symbol "BMTM." Prior to August 19, 2022, the Company’s Common Stock was quoted for trading on the OTC Expert Market tier of the OTC Markets under the symbol “BMTM” from September 30, 2021 through August 18, 2022, quoted for trading on the OTC Pink Market under the symbol "BMTM" from July 1, 2021 to September 30, 2021, and quoted for trading on the OTCQB Market under the symbol “BMTM” from December 27, 2013 to June 30, 2021.
There was little to no trading of our common stock between January 1, 2022 to July 4, 2022, except for April 22, 2022, as the Company was in the process of restating its results for the year ended December 31, 2020, which resulted in the untimely filing of its results for the year ended December 31, 2021 and the subsequent interim quarter ended March 31, 2022.
The Company’s Common Stock trades at very low volumes. The approximate number of holders of record of the Company’s Common Stock as of March 22, 2023, was 404. The closing price of our Common Stock as reported on the OTCQB Market on December 30, 2022, was $0.16 per share.
The following table sets forth the high and low bid prices per share of our Common Stock as reported by the OTC Markets for the periods indicated. The following quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
December 31, 2022
High Low
1st Quarter (1)
$ - $ -
2nd Quarter (2)
$ 0.001 $ 0.001
3rd Quarter $ 0.40 $ 0.40
4th Quarter $ 0.16 $ 0.16
December 31, 2021
High Low
1st Quarter $ 2.00 $ 2.00
2nd Quarter $ 0.45 $ 0.45
3rd Quarter $ 0.23 $ 0.23
4th Quarter (1)
$ - $ -
(1) No trading as Company was in restatement period.
(2) Limited trading as Company was in restatement period.
Dividend Policy
The Company has paid or accrued dividends on shares of preferred stock pursuant to the terms of such preferred stock. The Company has never declared nor paid any cash dividends on its Common Stock, and we do not expect to pay any cash dividends 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. The decision whether to pay cash dividends on our Common Stock will be made within the sole discretion of the Board, and will depend on the Company’s financial condition, results of operations, capital requirements and other factors that the Board considers significant. There can be no assurance that any dividends on our Common Stock will ever be paid. In addition, 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.
Recent Sales of Unregistered Securities
None.
Repurchases of Equity Securities
None.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 2022, and 2021 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.
Overview
Organization and Nature of Operations
Bright Mountain Media, Inc. is a holding company which focuses on digital publishing and advertising technology. The Company is engaged in content creation and advertising technology development that helps customers connect with, and market to, targeted audiences in high quality environments using a variety of digital advertising ("ad") formats.
Digital Publishing
Our digital publishing division focuses on developing content that attracts an audience and monetizes that audience through advertising. The current portfolio of owned and operated websites is focused on moms, parenting, families, and more broadly, women. The portfolio consists of popular websites including Mom.com, Cafemom.com, LittleThings.com, and MamasLatinas.com. This demographic is highly sought after by brands and their advertising agencies. We use internal and external technologies to constantly improve the effectiveness and efficiency of the content we create. Our publishing division monetizes its audiences through both direct and programmatic advertising sales.
Advertising Technology
Our advertising technology division focuses on delivering targeted ads to audiences on owned and operated sites as well as third-party publishers in a cost-effective manner through the deployment of proprietary technologies. Through acquisitions and organic software development, we have consolidated and plan to further condense key elements of the prevailing digital advertising supply chain by eliminating industry “middlemen” and/or costly redundancy of services via our ad exchange. By developing our own proprietary technology stack, we are able to pass along efficiencies to both the demand and supply side of the ecosystem. Our goal is to enable and support a streamlined, end-to-end advertising model that addresses both advertiser demand (buy side) and publisher supply (sell side) programmatic sales and delivery of digital advertisements using an array of audience targeting tools and advertising formats (display, audio, video, connected television (CTV), in-app). Programmatic advertising relies on artificial intelligence powered software programs that leverage data and proprietary algorithms to match the optimal selection of an ad with bid price offered by advertisers.
The Company generates revenue through sales of advertising services which generate revenue from advertisements placed on the Company’s owned and managed sites, as well as from advertisements placed on partner websites, for which the Company earns a share of the revenue. Additionally, we also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers, known as demand side platforms ("DSPs) and sellers known as supply side platforms ("SSPs").
Key Factor Affecting Our Performance
Seasonal Fluctuations. Typically advertising technology companies report a material portion of their revenues during the third and fourth calendar quarter as a result of back to school and holidays related advertising spend. Our experience since transitioning to focus solely on advertising 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.
Limited Number of Customers. During the years ended December 31, 2022, and 2021, one customer represented 37.7% and 8.6% of revenue, respectively. The loss of this customer could have a material adverse impact on the results of operations in future periods.
Key Operating and Financial Metrics
We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. The following are the key financial and operational metrics for the years ended December 31, 2022, and 2021:
December 31,
($ in thousands) 2022 2021
Revenue $ 19,580 $ 12,925
Cost of revenue 10,493 6,350
Gross Margin 9,087 6,575
General and administrative expenses 14,249 18,482
Total financing income (expense) (2,963) (93)
Net loss $ (8,125) $ (12,000)
Adjusted EBITDA (1) $ (2,463) $ (7,678)
(1) For a reconciliation of net loss to Adjusted EBITDA see “Use of Non-GAAP Financial Measures” below.
Revenue
The Company generates revenue through sales of advertising services which generate revenue from advertisements placed on the Company’s owned and managed sites, as well as from advertisements placed on partner websites, for which the Company earns a share of the revenue. Additionally, we also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers, known as DSPs and sellers known as SSPs.
Revenue increased $6.7 million or 51% in the year ended December 31, 2022 when compared to the same period in 2021. See below for a detailed analysis of revenue for the years ended December 31, 2022, and 2021.
Cost of Revenue
Cost of revenue includes payment to third parties for services performed to drive revenue, which include revenue share paid for ad exchange on third party sites, advertising fees, fees paid for content creation, influencers, writers and sales commission.
Costs of revenue increased approximately $4.1 million or 65% for the year ended December 31, 2022 compared to 2021. See below for a detailed analysis of cost of revenue for the years ended December 31, 2022, and 2021.
General and Administrative Expenses
General and administrative expenses consist primarily of (i) personnel and related costs for our executive, finance and accounting, human resources, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation; (ii) legal, accounting, and other professional service fees; (iii) other corporate expenses; (iv) information technology costs; and (v) facility costs.
General and administrative expenses decreased approximately $4.2 million or 23% for the year ended December 31, 2022 compared to the year ended December 31, 2021. See below for a detailed analysis of general and administrative expenses for the years ended December 31, 2022 and 2021.
Results of Operations
The following is our analysis of the results of operations for the years ended December 31, 2022, and 2021. This analysis 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.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Net loss from operations for the year ended December 31, 2022 was $8.1 million as compared to a net loss of $12.0 million for the year ended December 31, 2021. The following is our analysis for the period.
Year Ended December 31,
($ in thousands) 2022 2021 Change % Change
Revenue $ 19,580 $ 12,925 $ 6,655 51 % increased
Cost of revenue 10,493 6,350 4,143 65 % increased
Gross margin 9,087 6,575 2,512 38 % increased
General and administrative expense 14,249 18,482 (4,233) (23) % decreased
Loss from operations (5,162) (11,907) 6,745 (57) % decreased
Financing income (expense) (2,963) (93) (2,870) 3086 % increased
Net loss $ (8,125) $ (12,000) $ 3,875 (32) % decreased
Gross margin % 46 % 51 % (5) % (10) % decreased
Revenue
The Company focuses on digital publishing and advertising technology.
Digital Publishing
Our digital publishing division focuses on developing content that attracts an audience and monetizes that audience through advertising. The current portfolio of owned and operated websites is focused on moms, parenting, families, and more broadly, women. The portfolio consists of popular websites including Mom.com, Cafemom.com, LittleThings.com, and MamasLatinas.com. This demographic is highly sought after by brands and their advertising agencies. We use internal and external technologies to constantly improve the effectiveness and efficiency of the content we create. Our publishing division monetizes its audiences through both direct and programmatic advertising sales.
Advertising Technology
Our advertising technology division focuses on delivering targeted ads to audiences on owned and operated sites as well as third party publishers in a cost-effective manner through the deployment of proprietary technologies. Through acquisitions and organic software development, we have consolidated and plan to further condense key elements of the prevailing digital advertising supply chain by eliminating industry “middlemen” and/or costly redundancy of services via our ad exchange. By developing our own proprietary technology stack, we are able to pass along efficiencies to both the demand and supply side of the ecosystem. Our goal is to enable and support a streamlined, end-to-end advertising model that addresses both demand (buy side) and publisher supply (sell side) programmatic sales and delivery of digital advertisements using an array of audience targeting tools and advertising formats (display, audio, video, CTV, in-app). Programmatic advertising relies on artificial intelligence powered software programs that leverage data and proprietary algorithms to match the optimal selection of an ad with a bid price offered by advertisers.
The Company generates revenue through sales of advertising services which generate revenue from advertisements placed on the Company’s owned and managed sites, as well as from advertisements placed on partner websites, for which the Company earns a share of the revenue. Additionally, we also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers known as DSPs and sellers known as SSPs.
Revenue for the year ended December 31, 2022, increased $6.7 million or 51% compared to the same period for 2021. The increase was largely attributable to digital publishing revenue which increased $5.1 million or 178%. This growth has been driven by our ability to leverage our digital publishing assets to attract top advertisers, which in turn has allowed us to onboard direct premium publishers, especially in the CTV market. This led to an increase in volume, as well as rates and overall revenue.
Approximately 43% of the Company’s revenue for the year ended December 31, 2022 was generated from our digital publishing customers compared to 22% for the year ended December 31, 2021.
Advertising technology revenue increased $1.5 million or 15% for the year ended December 31, 2022 compared to the same period for 2021. In 2022, approximately 90% of advertising technology revenue was generated in the U.S. and 10% was generated from our business in Israel, compared to 87% and 13% in the U.S. and Israel for the same period in 2021, respectively.
Cost of Revenue
Costs of revenue increased $4.1 million or 65% for the year ended December 31, 2022, compared to the same period for 2021. These costs include revenue share payments to media providers and website publishers. The increase was largely attributable to revenue share payments which increased $4.1 million. The Company started expanding its usage of ad exchange on a third party’s site which is also associated with the increase noted in revenue as discussed above.
Gross Margin
Our gross margin increased $2.5 million or 38% for the year ended December 31, 2022, when compared to the same period for 2021.
General and Administrative Expenses
Year Ended December 31,
($ in thousands) 2022 2021 Change % Change
Personnel cost $ 6,622 $ 8,945 $ (2,323) (26) % decreased
Legal fees 231 520 (289) (56) % decreased
Professional fees 3,276 4,574 (1,298) (28) % decreased
Insurance 599 540 59 11 % increased
Depreciation and amortization 1,597 1,639 (42) (3) % decreased
Other 1,923 2,264 (341) (15) % decreased
Total $ 14,248 $ 18,482 $ (4,234) (23) % decreased
Gross margin as a percentage of general and administrative expense 64 % 36 % 28 % 78 % increased
General and administrative expenses decreased $4.2 million or 23% for the year ended December 31, 2022, compared to the same period in 2021. The reduction is due to a combination of factors as discussed below.
Personnel Cost
Personnel cost decreased approximately $2.3 million or 26% compared to the year ended December 31, 2021. This change is mainly driven by a reduction in head count of 23 employees or 29%. We had 57 total employees as of December 31, 2022 compared to 80 total employees as of December 31, 2021.
Legal Fees
Legal fees is a combination of legal fees and litigation settlement amounts. During the year ended December 31, 2022, the Company incurred costs of $589,000 in legal fees offset by $357,000 in a litigation settlement, resulting in a net decrease of $289,000 or 56% compared to the year ended December 31, 2021. The credit in litigation settlement is mainly
attributable to the reversal of a previous accrual related to the Slutzky & Winshman and Synacor litigation, as discussed in Note 15, "Commitment and Contingencies."
Professional Fees
During the year ended December 31, 2022, professional fees decreased $1.3 million or 28% when compared to the same period, 2021. The amount for 2021 was higher due to the costs incurred for audit and consultant fees which represented 66% of professional fees in 2022 compared to 82% for 2021. This expense was in connection with the Company’s restatement of its financial results for the period January 1, 2019 to December 31, 2021.
Financing (Expense) Income
Year Ended December 31,
($ in thousands) 2022 2021 Change % Change
Interest expense $ 4,262 $ 2,267 $ 1,995 88 % increased
Gain on forgiveness of PPP loan (1,137) (2,172) 1,035 (48) % decreased
Other expense (income) (162) (2) (160) 8000 % increased
Total financing expense (income) $ 2,963 $ 93 $ 2,870 3086 % increased
Financing expense increased $2.9 million or 3086% for the year ended December 31, 2022, compared to the same period 2021. This increase was largely attributable to a $2.0 million increase in interest expense related to the Centre Lane Senior Secured Credit Facility, which reflected higher principal and fees due to the Centre Lane Senior Secured Credit Facility amendments during the year ended December 31, 2022. This increase was offset by a reduction in the Paycheck Protection Program ("PPP") loan forgiveness amount, which was $1.1 million in 2022 compared to $2.2 million for the same period in 2021, resulting in a higher expense for 2022.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. The following table summarizes total current assets, total current liabilities and net working capital (deficit) as of December 31, 2022 as compared to December 31, 2021.
December 31,
($ in thousands) 2022 2021
Total current assets $ 4,501 $ 5,257
Total current liabilities 17,851 23,070
Net working capital deficit $ (13,350) $ (17,813)
As of December 31, 2022, we had a cash balance of $316,000 compared with a cash balance of $781,000 as of December 31, 2021. During 2021, we implemented policies and procedures around cash collections to prevent the aging of accounts receivables, and we have continued following such policies and procedures in 2022. Cash collection efforts are improving, and we believe we have appropriately reserved for uncollectible amounts as of December 31, 2022.
During the year ended December 31, 2022, the Company received $3.1 million in debt financing from Centre Lane Partners Master Credit Fund II, L.P. (“Centre Lane Partners"). The use of the funds was for general working capital needs. During the period from May 26, 2021 to December 31, 2021, the Company received $5.1 million in debt financing from Centre Lane Partners. The use of the funds was for general working capital needs.
Going Concern
Historically, the Company has incurred losses, which has resulted in an accumulated deficit of approximately $114.3 million as of December 31, 2022. Cash flows used in operating activities were $3.1 million and $5.9 million for the years
ended December 31, 2022, and 2021, respectively. As of December 31, 2022, the Company had a working capital deficit of approximately $13.3 million, inclusive of $316,000 in cash and cash equivalents.
The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of factors. The Company is currently exploring all strategic alternatives, including restructuring or refinancing its debts, seeking additional debt, such as borrowings under the Centre Lane Senior Secured Credit Facility or equity capital. The ability to access the capital markets is also dependent on the stock volume and market price of the Company's stock, which cannot be assured. Other measures include reducing or delaying certain business activities, reducing general and administrative expenses, and a further reduction in headcount. The ultimate success of these plans is not guaranteed.
In considering our forecast for the next twelve months, the Company's current cash and working capital, as of the filing of this Annual Report on Form 10-K, the Company’s available cash will not be sufficient to fund its anticipated level of operations. As a result, such matters create a substantial doubt regarding the Company’s ability to meet its financial needs and continue as a going concern.
The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about the Company’s ability to continue as a going concern.
Subsequent Event
On February 28, 2023, the Company reduced its headcount from 57 employees to 52 employees. There were no executive officers included in this reduction. See Note 22, "Subsequent Events", to the accompanying consolidated financial statements for further information.
Financing Arrangement Summary
Centre Lane Senior Secured Credit Facility
Effective June 1, 2020, the Company entered into a membership interest purchase agreement to acquire 100% of Wild Sky Media (the “Purchase Agreement”). To finance this acquisition, the Company obtained a first lien senior secured credit facility from Centre Lane Partners in the amount of $16.5 million, comprising $15.0 million of initial indebtedness, repayment of Wild Sky’s existing accounts receivable factoring facility of approximately $900,000 and approximately $500,000 of expenses.
Centre Lane Partners subsequently loaned the Company an additional $8.2 million to provide liquidity to fund operations beginning in April 26, 2021 (as amended, the “Centre Lane Senior Secured Credit Facility”). This Centre Lane Senior Secured Credit Facility has been determined to qualify as a related party transaction as shares were issued to Centre Lane Partners as part of the transaction, resulting in Centre Lane Partners holding 10% of the shares issued and outstanding at December 31, 2022. A related party is a party that can exercise significant influence over the Company in making financial and/or operating decisions.
The note issued under the Centre Lane Senior Secured Credit Facility bears interest at a rate of 6.0% per annum and matures June 30, 2025, with payments of 2.5% of outstanding principal beginning on June 30, 2023. The interest rate was increased to 10.0% pursuant to the first amendment with interest payable-in-kind (“PIK Interest”) in lieu of cash payment.
Commencing with the ninth amendment, the interest rate was increased to 12% on all subsequent draws with 8% payable quarterly in cash and 4% payable-in-kind in lieu of cash payment. These draws are known as the "last in first out loans," totaling $2.8 million inclusive of exit fees at December 31, 2022, due and payable on June 30, 2023.
For a full description of the Centre Lane Senior Secured Credit Facility, see Note 9, "Centre Lane Senior Secured Credit Facility" of our accompanying notes to the consolidated financial statements.
10% Convertible Promissory Note
During November 2018, the Company issued 10% convertible promissory notes (the "Convertible Notes") in the amount of $80,000 to the Chairman of the Board, a related party. The Convertible Notes are unsecured and mature in November 2023. The Convertible Notes are convertible at the option of the holder into shares of Common Stock at any time prior to maturity at a conversion price of $0.40 per share. Approximately $118,000 is due and payable by November 2023, consisting of outstanding principal and interest.
For a full description of the Convertible Notes, see Note 11, "10% Convertible Promissory Notes" of our accompanying notes to the consolidated financial statements.
Summary of Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the year ended December 31, 2022, and 2021:
Year Ended December 31,
($ in thousands) 2022 2021
Total cash (used in) provided by:
Operating activities $ (3,115) $ (5,933)
Investing activities (14) -
Financing activities 2,664 5,978
(Decrease) increase in cash and cash equivalents $ (465) $ 45
Operating Activities
For the year ended December 31, 2022, cash used in operating activities was $3.1 million. The primary factors affecting our operating cash flows during the period were our net loss of $8.1 million, adjusted for non-cash charges of $1.6 million for amortization of intangible assets, $1.2 million of amortization of debt discount, $144,000 of stock-based compensation expense, $89,000 of stock compensation for Oceanside shares, $84,000 for the provision of bad debt, $1.1 million from the gain on forgiveness of the PPP loan and a $229,000 net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $698,000 increase in other liabilities and a $695,000 increase in prepaid and other current assets, offset by a $596,000 decrease in accounts payable and accrued expenses, a $465,000 decrease in interest payable on Centre Lane Senior Secured Credit Facility and a $426,000 decrease in deferred revenue.
For the year ended December 31, 2021, cash used in operating activities was $5.9 million. The primary factors affecting our operating cash flows during the period were our net loss of $12.0 million, adjusted for non-cash charges of $1.6 million for amortization of intangible assets, $578,000 of amortization of debt discount, $207,000 of stock-based compensation expense, $281,000 of stock compensation for Oceanside shares, $74,000 for the provision of bad debt, $2.2 million from the gain on forgiveness of PPP loan and a $5.7 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $3.0 million increase in accounts receivable, a $1.3 million increase in interest payable on Centre Lane Senior Secured Credit Facility, and a $816,000 increase in deferred revenue, offset by a $426,000 decrease in prepaid and other current assets.
Investing Activities
Cash used in investing activities of $14,000 and $0 for the year ended December 31, 2022, and 2021, respectively, was due entirely to the purchase of property and equipment.
Financing Activities
During the year ended December 31, 2022, the Company raised $3.1 million of debt financing from Centre Lane Senior Secured Credit Facility, which was used primarily to fund our working capital.
During the year ended December 31, 2021, the Company raised $5.1 million of debt financing from Centre Lane Senior Secured Credit Facility and $1.1 million from the PPP Loan, which were used primarily to fund our working capital.
Contractual Obligations and Commitments
The following table represents our contractual obligations as of December 31, 2022, aggregated by type:
Total Due in less than 1 year Due 1-3 years Due 3-5 years More than 5 years
($ in thousands)
Operating lease $ 357 $ 38 $ 236 $ 83 $ -
10% Convertible Promissory Notes 80 80 - - -
Interest payable - 10% Convertible Promissory Notes 38 38 - - -
Centre Lane Senior Secured Credit Facility 31,109 4,860 26,249 - -
Interest payable - Centre Lane Senior Secured Credit Facility 11,237 588 10,649 - -
$ 42,821 $ 5,604 $ 37,134 $ 83 $ -
Use of Non-GAAP Financial Measures
Non-GAAP results are presented only as a supplement to the financial statements and for use within management's discussion and analysis based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader's understanding of the Company's financial performance, but non-GAAP measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP.
All of the items included in the reconciliation from net loss to EBITDA and from EBITDA to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles, stock-based compensation, etc.) or (ii) items that management does not consider to be useful in assessing the Company's ongoing operating performance (e.g., M&A costs, income taxes, gain on sale of investments, loss on disposal of assets, etc.). In the case of the non-cash items, management believes that investors can better assess the Company's operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect the Company's ability to generate free cash flow or invest in its business.
We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company's operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.
Because not all companies use identical calculations, the Company's presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the Company's performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures.
A reconciliation of net loss before taxes to EBITDA and Adjusted EBITDA is as follows:
Year Ended December 31,
($ in thousands) 2022 2021
Net loss before tax plus: $ (8,125) $ (12,000)
Depreciation expense 38 48
Amortization expense 1,558 1,591
Amortization of debt discount 1,199 578
Other interest expense 13 90
Interest expense - Centre Lane Senior Secured Credit Facility and Convertible Promissory Notes- related party 3,051 1,600
EBITDA (2,266) (8,093)
Stock compensation expense 233 488
Nonrecurring professional fees 657 1,766
Gain on forgiveness of PPP loan (1,137) (2,172)
Non-restructuring severance expense 50 333
Adjusted EBITDA $ (2,463) $ (7,678)
Critical Accounting Policies
Critical Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of our consolidated financial statements as well as reported amounts of revenue and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.
Significant estimates included in the accompanying consolidated financial statements include revenue recognition, the fair value of acquired assets for purchase price allocation in business combinations, valuation of goodwill and intangible assets, estimates of amortization period for intangible assets, estimates of depreciation period for fixed assets, the valuation of equity-based transactions, and the valuation allowance on deferred tax assets.
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:
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No. 606, Revenue from Contracts with Customers, (ASC 606). The Company recognizes revenues at a point-in-time when control of services is transferred to the customer. Cash received by the Company prior to when control of services is transferred to the customer is recorded as deferred revenue.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the advertising services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the advertising services promised within each
contract and determines those that are performance obligations and assesses whether each promised advertising service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation based on relative fair values, when (or as) the performance obligation is satisfied.
The Company recognizes revenue primarily from delivering digital advertisements on its owned and operated publishing websites, as well as advertising on partner websites, mobile apps and digital streaming services such as CTV (Connected Television) channels.
Advertising revenues are generated by audiences seeing or clicking on digital advertisements utilizing several advertiser partners. Revenues are recognized net of adjustments based on the number of advertisements delivered and are billed monthly.
There are no significant initial costs incurred to obtain contracts with customers, and no contract assets or contract liabilities recorded in our consolidated financial statements.
Deferred Revenue
The Company records deferred revenue when cash payments are received in advance of performance obligations. The Company expects to recognize the deferred revenue in the following period when it transfers its services and, therefore, satisfies its performance obligation to the customers.
Leases
We determine whether an arrangement contains a lease at inception in accordance with FASB Accounting Standards Codification No. 842, Leases, (ASC 842). Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease right-of-use (“ROU”) liability on our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We do not include options to extend or terminate the lease term unless it is reasonably certain that we will exercise any such options. We recognize rent expense under our operating leases on a straight-line basis. Variable lease costs such as operating costs and property taxes are expensed as incurred.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represent receivables from customers in the ordinary course of business and are recorded in accordance with FASB Accounting Standards Codification No. 310, Receivables, (ASC 310). Receivables are recorded at the invoice amount on the date revenue is recognized and are presented net of the allowance for doubtful accounts in the accompanying consolidated balance sheets. Receivables are subjected to adjustments from traffic settlements that are deducted from open invoices. Our receivables are not interest bearing and not collateralized.
The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts. We regularly review our receivables that remain outstanding past their applicable payment terms and establish an allowance for potential write-offs by considering factors such as historical experience, credit quality, age of the accounts receivable balances, and current and forecasted economic conditions that may affect a customer’s ability to pay.
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 is exhausted, the determination for charging off uncollectible receivables is made.
Property and Equipment, Net
Property and equipment are recorded at cost, less accumulated depreciation in accordance with FASB Accounting Standards Codification No. 360, Property, Plant and Equipment, (ASC 360). Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements.
Goodwill
We account for Goodwill under FASB Accounting Standards Codification No. 350, Goodwill and Other, (ASC 350). Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. The Company categorizes Goodwill into two reporting units: “Owned & Operated” and “Ad Network”.
Goodwill is tested for impairment at the reporting unit level on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value, 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.
We perform our annual goodwill impairment test as of December 31, 2022 and 2021, we determined there were no events or circumstances which indicated that the carrying value of a reporting unit exceeded the fair value.
Intangible Assets
We account for intangibles under FASB Accounting Standards Codification No. 350, Goodwill and Other, (ASC 350). Intangible assets acquired in a business combination, or an asset acquisition are recorded at fair value on the date of acquisition and amortized over their estimated useful lives.
Intangible assets include trade name, customer relationships, IP/technology and non-compete agreements.
The Company’s trade name and customer relationships are amortized on a straight-line basis over a useful life of five years. IP/technology is amortized on a straight-line basis over a useful life of ten years. Non-compete agreements are amortized on a straight-line basis over the length of each agreement, typically between three to five 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
Long-lived assets, such as property, equipment, right-of-use assets, and intangible assets are reviewed 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. There were no impairment losses related to long-lived assets in any of the periods presented.
Cost of Revenue
Cost of revenue includes payment to third parties for services performed to drive revenue, including revenue share paid for ad exchange on third party sites, advertising fees, and fees paid for content creation, freelancers, writers and sales commissions.
Website Development Costs
The Company accounts for its website development costs in accordance with FASB Accounting Standards Codification No. 350, Website Development Costs (ASC 350). These costs, if any, are included in intangible assets in the
accompanying consolidated balance sheets. Upgrades or enhancements that add functionality are capitalized while other costs during the operating stage are expensed as incurred. The Company amortizes the capitalized website development costs over an estimated life of five years.
As of December 31, 2022, and 2021, all website development costs have been expensed. While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business.
Stock-Based Compensation
We account for stock based compensation in accordance with FASB Accounting Standards Codification No. 718, Compensation - Stock Compensation (ASC 718). ASC 718 addresses accounting for share-based awards, including stock options, restricted stock, performance shares and warrant. Stock-based compensation for stock options to employees and non-employees is based upon the fair value of the award on the date of grant. We record forfeitures as they occur. The compensation cost is recognized over the requisite service period, which is generally the vesting period, and is included in general and administrative expenses in the consolidated statements of operations.
The Company estimates the fair value of stock options using the Black-Scholes valuation model. The expected life represents the term the options granted are expected to be outstanding. The expected volatility was determined using the historical volatility of similar publicly traded companies. The risk-free interest rate is based on the U.S. Treasury rate in effect at the time of grant.
Income Taxes
We use the asset and liability method to account for income taxes. Under this method, deferred income taxes are determined based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements which will result in taxable or deductible amounts in future years and are measured using the currently enacted tax rates and laws in the period those differences are expected to reverse. A valuation allowance is provided to reduce net deferred tax assets to the amount that, based on available evidence, is more likely than not to be realized.
The Company follows the provisions of FASB Accounting Standards Codification No. 740, Income Taxes (ASC 740). 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 and comprehensive loss.
Segment Reporting
Consistent with FASB Accounting Standards Codification No. 280, Segment Reporting (ASC 280), our Chief Financial Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by the Chief Financial Officer, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, we determined we have one operating and reportable segment.
Off Balance Sheet Arrangements
As of December 31, 2022, there were no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.
Foreign Currency
We translate the financial statements of our foreign subsidiaries, which have a functional currency in the respective country’s local currency, to U.S. dollars using month-end exchange rates for assets and liabilities and actual exchange rates for revenue, costs and expenses on the date of the transaction. Translation gains and losses are included within “general and administrative expense” on the consolidated statements of operations. These gains and losses are immaterial to the financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this Item 7A to Form 10-K.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 of this Annual Report on Form 10-K for the years ended December 31, 2022, and 2021 are incorporated by reference in this Item 8.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 25, 2021, the Audit Committee of the Board (the “Audit Committee”) approved the dismissal of EisnerAmper LLP (“Eisner”), as the Company’s independent registered public accounting firm, effective August 24, 2021, and the engagement of WithumSmith+Brown, PC (“Withum”) as its new independent registered public accounting firm. Disclosure with respect to this Item 9 was previously included in our Current Report on Form 8-K filed on August 31, 2021 with the SEC. We are not aware of any transactions or events similar to those previously reported and described in our prior disclosure with respect to this Item, which were accounted for or disclosed in a manner different from that which our former accountants apparently would have concluded was required. Accordingly, the Company believes it is not required to make any further disclosure under Item 304(b) of Regulation S-K.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2022. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the period ended December 31, 2022, due to the existence of the material weaknesses in the Company’s internal control over financial reporting described below, the Company’s disclosure controls and procedures were not effective.
Management's Annual Report on Internal Control over Financial Reporting
Our senior management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board, senior management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based upon this assessment, because of the effect of the material
weaknesses described below, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022.
As set forth below, management will take steps to remediate the material weaknesses identified below. Notwithstanding the material weaknesses described below, we have performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this Form 10-K fairly present, in all material respects, our financial condition and results of operations as of and for the year ended December 31, 2022.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal controls 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. As of December 31, 2022, management identified the material weakness described below:
In conducting an analysis of the Centre Lane Senior Secured Credit Facility, errors were identified in connection with the accounting related to Amendments No. 8 - 15 of the Centre Lane Senior Secured Credit Facility, which resulted in the understatement of interest payable and interest expense for each of the interim quarterly periods ended June 30, 2022, and September 30, 2022 and the year-to-date 2022 period.
The Company has initiated a remediation plan to enhance controls relating to the accounting of its debt arrangements that includes the following:
•Internal interest calculations are to be prepared and compared to the model provided by the external evaluators, along with outstanding principal and carrying value;
•Quarterly statements are to be received from Centre Lane where the balances will be compared to internal schedules;
•Monthly journal entries for interest expense and supporting documentation will be reviewed by an individual independent of its preparation as part of the month end close; and
•Monthly reconciliations will be performed to support the month end close, which will be reviewed and evidenced by both preparer’s and reviewer’s signature to demonstrate independence and accountability.
Management had previously identified the following material weaknesses, which caused management to conclude that as of December 31, 2021 our internal controls over financial reporting 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; and
•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.
The Company has implemented a remediation plan to remediate the material weaknesses identified during the year ended December 31, 2021 as follows:
•We have hired a new Chief Financial Officer with extensive knowledge of implementing procedures to remediate material weaknesses in companies.
•We have expanded our finance department through the hiring of a certified public accountant with previous experience as an auditor and knowledge of SEC filings and technical issues. We believe this will strengthen our finance department as we work towards segregation of duties, strong internal controls and provide guidance to enhance our current staff. Management will further expand the accounting and finance function by hiring additional staff to ensure segregation of duties is enforced.
•We no longer rely on a third party consultant to prepare our SEC filings, and this is now being done internally.
•We have engaged a third party company to assist the Company with SOX compliance.
•As of our filing date, we are in the process of completing our information technology general controls ("ITGC") risk assessment and moving forward to document and implement controls over the revenue process.
We will continue to monitor and evaluate the effectiveness of our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
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 internal controls over financial reporting due to the exemption from such requirements established by rules of the SEC for smaller reporting companies.
Changes in Internal Control over Financial Reporting
Other than the matters set forth above, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 of Part III of Form 10-K will be set forth in our definitive proxy statement for our 2023 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2022, and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III of Form 10-K will be set forth in our definitive proxy statement for our 2023 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2022, and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Part III of Form 10-K will be set forth in our definitive proxy statement for our 2023 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2022, and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Part III of Form 10-K will be set forth in our definitive proxy statement for our 2023 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2022, and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 of Part III of Form 10-K will be set forth in our definitive proxy statement for our 2023 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2022, and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The financial statements and notes are listed in the Index to Consolidated Financial Statements on page of this Annual Report on Form 10-K and are included in Part II, Item 8 of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto listed in the Index to Consolidated Financial Statements, starting on page of this Annual Report on Form 10-K.
(a)(3) Exhibits
The following exhibits listed in the Exhibit Index below are filed as part of, and incorporated by reference into, this Annual Report on Form 10-K.
EXHIBIT INDEX
Incorporated by Reference Filed or
Furnished
No. Exhibit Description Form Date Filed Number Herewith
2.1 Share Exchange Agreement and Plan of Merger dated July 31, 2019 by and among Bright Mountain Media, Inc., Bright Mountain Israel Acquisition Ltd. (a to be formed entity), Slutzky & Winshman Ltd. and the shareholders of Slutzky & Winshman, Ltd.
8-K 8/1/19 2.1
2.2 Merger Agreement and Plan of Merger dated November 8, 2019 by and among Bright Mountain Media, Inc. BMTMZ, and News Distribution Network, Inc.
8-K 11/21/19 2.1
3.1 Amended and Restated Articles of Incorporation
10 1/31/13 3.3
3.2 Articles of Amendment to the Amended and Restated Articles of Incorporation
8-K 7/9/13 3.3
3.3 Articles of Amendment to the Amended and Restated Articles of Incorporation
8-K 11/16/13 3.4
3.4 Articles of Amendment to the Amended and Restated Articles of Incorporation
8-K 12/30/13 3.4
3.5 Articles of Amendment to the Amended and Restated Articles of Incorporation
10-K 3/31/14 3.5
3.6 Articles of Amendment to the Amended and Restated Articles of Incorporation
8-K 7/28/14 3.6
3.7 Articles of Amendment to the Amended and Restated Articles of Incorporation
10-K/A 4/1/15 3.5
3.8 Articles of Amendment to the Amended and Restated Articles of Incorporation
8-K 12/4/15 3.7
3.9 Articles Amendment to the Amended and Restated Articles of Incorporation
8-K 11/13/18 3.10
3.10 Amended and Restated Bylaws
10 1/31/13 3.2
4.1 Form of unit warrant 2018 private placement
10-K 4/2/18 4.1
4.2 Form of placement agent warrant 2018 private placement
10-K 4/2/18 4.2
4.3 Specimen common stock certificate
10-K 5/14/20 4.3
4.4 Form of unit warrant 2019 private placement
8-K 1/14/19 4.1
4.5 Form of placement agent warrant 2019 private placement
8-K 1/14/19 4.2
4.6 Description of Securities
X
10.1 2011 Stock Option Plan
10 1/31/13 10.1
10.2 2013 Stock Option Plan
10-Q 11/13/13 10.18
10.3 2015 Stock Option Plan
8-K 5/27/15 10.36
10.4 2019 Stock Option Plan
10-K 12/23/21 10.4
10.5 2022 Stock Option Plan
8-K 4/20/22 10.3
10.6 Letter Agreement dated September 19, 2017 with Vinay Belani
8-K 9/25/17 10.2
10.7 Consulting Agreement dated September 6, 2017 by and between Spartan Capital Securities, LLC and Bright Mountain Media, Inc.
8-K 10/4/18 10.45
10.8 M&A Advisory Agreement dated September 6, 2017 by and between Spartan Capital Securities, LLC and Bright Mountain Media, Inc.
8-K 10/4/18 10.46
10.9 Finder’s Agreement dated October 31, 2018 by and between Spartan Capital Securities, LLC and Bright Mountain Media, Inc.
10-Q 11/20/18 10.2
10.10 Uplisting Advisory and Consulting Agreement dated December 11, 2018 by and between Spartan Capital Securities, LLC and Bright Mountain Media, Inc.
8-K 1/14/19 10.1
10.11 Lease Agreement dated August 24, 2014 for registrant’s principal executive offices
10-Q 11/12/14 10.26
10.12 Addendum to Lease dated August 5, 2015 for registrant’s principal executive offices
10-Q 8/11/15 10.37
10.13 Amendment to Lease Agreement dated August 8, 2018 for registrant’s principal executive offices
10-Q 11/20/18 10.1
10.14 Executive Employment Agreement effective April 1, 2020 by and between W. Kip Speyer and Bright Mountain Media, Inc.
8-K 3/31/20 10.1
10.15 Letter Agreement dated February 8, 2023 by and between W. Kip Speyer and Bright Mountain Media, Inc.
8-K 2/10/23 10.1
10.16 Consulting Agreement effective January 1, 2021 between Greg Peters and Bright Mountain Media, Inc.
8-K 1/6/21 10.1
10.17 Amendment dated July 31, 2019 to Finder’s Fee Agreement by and between Bright Mountain Media, Inc. and Spartan Capital Securities, LLC
8-K 8/7/19 10.2
10.18 Promissory Note dated August 15, 2019 due to Joey Winshman
8-K 8/16/19 10.1
10.19 Promissory Note dated August 15, 2019 to Nadav Slutzky
8-K 8/16/19 10.2
10.20 Promissory Note dated August 15, 2019 to Eli Desatnik
8-K 8/16/19 10.3
10.21 Employment Agreement dated August 15, 2019 by and between Slutzky & Winshman Ltd. and Joey Winshman
8-K 8/16/19 10.8
10.22 Consulting Agreement dated August 15, 2019 by and between Bright Mountain Media, Inc., Slutzky & Winshman Ltd. and Nadav Slutzky
8-K 8/16/19 10.9
10.23 Membership Interest Purchase Agreement dated June 5, 2020 between Centre Lane Partners Master Credit Fund II and Bright Mountain Media, Inc.
8-K 6/8/20 10.1
10.24 Credit Agreement dated as of June 5, 2020 by and among CL Media Holdings, LLC, as the Borrower, the Financial Institutions thereto and Centre Lane Partners Master Fund II, L.P. as Agent
8-K 6/8/20 10
10.25 Form of Warrant for November 2019 Private Placement
8-K 2/4/20 10.2
10.26 First Amendment to an Amended and Restated Senior Credit Agreement dated April 26, 2021.
8-K 4/30/21 10.1
10.27 Second Amendment to an Amended and Restated Senior Credit Facility Agreement dated May 26, 2021.
8-K 6/2/21 10.1
10.28 Third Amendment to Amended and Restated Senior Credit Facility Agreement dated December 20, 2021
8-K 8/18/21 10.1
10.29 Fourth Amendment to Amended and Restated Senior Secured Credit Agreement dated August 31, 2021
8-K 9/7/21 10.1
10.30 Fifth Amendment to Amended and Restated Senior Secured Credit Agreement dated October 8, 2021
8-K 10/8/21 10.1
10.31 Sixth Amendment to Amended and Restated Senior Secured Credit Agreement dated November 5, 2021
8-K 11/5/21 10.1
10.32 Seventh Amendment to an Amended and Restated Senior Secured Credit Agreement dated December 23, 2021
8-K 12/29/21 10.1
10.33 Eighth Amendment to an Amended and Restated Senior Secured Credit Agreement dated January 26, 2022
8-K 1/20/22 10.1
10.34 Ninth Amendment to an Amended and Restated Senior Secured Credit Agreement dated February 11, 2022
8-K 2/17/22 10.1
10.35 Annex A to the Credit Agreement dated February 11, 2022
8-K 2/17/22 10.2
10.36 Tenth Amendment to an Amended and Restated Senior Secured Credit Agreement dated March 11, 2022
8-K 3/16/22 10.1
10.37 Annex A to the Credit Agreement dated March 11, 2022
8-K 3/16/22 10.2
10.38 Eleventh Amendment to an Amended and Restated Senior Secured Credit Agreement dated March 25, 2022
8-K 3/31/22 10.1
10.39 Annex A to the Credit Agreement dated March 25, 2022
8-K 3/31/22 10.2
10.40 Twelfth Amendment to an Amended and Restated Senior Secured Credit Agreement dated April 15, 2022
8-K 4/20/22 10.1
10.41 Annex A to the Credit Agreement dated April 15, 2022
8-K 4/20/22 10.2
10.42 Thirteenth Amendment to an Amended and Restated Senior Secured Credit Agreement dated May 10, 2022
8-K 5/16/22 10.1
10.43 Annex A to the Credit Agreement dated May 10, 2022
8-K 5/16/22 10.2
10.44 Fourteenth Amendment to an Amended and Restated Senior Secured Credit Agreement dated June 10, 2022
8-K 6/16/22 10.1
10.45 Annex A to the Credit Agreement dated June 10, 2022
8-K 6/16/22 10.2
10.46 Fifteenth Amendment to an Amended and Restated Senior Secured Credit Agreement dated July 8, 2022
8-K 7/13/22 10.1
10.47 Annex A to the Credit Agreement dated July 8, 2022
8-K 7/13/22 10.2
10.48 Sixteenth Amendment to an Amended and Restated Senior Secured Credit Agreement dated February 10, 2023
8-K 2/16/23 10.1
10.49 Annex A to the Credit Agreement dated February 10, 2023
8-K 2/16/23 10.2
10.50 Share Issuance Agreement between Spartan Capital Securities, LLC and Bright Mountain Media, Inc. dated September 22, 2021
8-K 9/28/21 10.1
21.1 List of subsidiaries
X
23.1 Consent of WithumSmith+Brown, PC
X
31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
X
31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
X
32.1* Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 1350
X
32.2* Certification of the Chief Financial Officer and Principal Financial and Accounting Officer pursuant to Section 1350
X
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101.CAL INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE X
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* Furnished herewith. This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.