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BRAZIL INTERACTIVE MEDIA, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) Forward-looking Statements Statements in this report may be "forward-looking statements." Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this report, including the risks described under "Risk Factors" in our Form 8-K filed March 21, 2013 and any risks described in any other filings we make with the SEC. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report. -5- Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. Corporate History of the Company Brazil Interactive Media, Inc., is a publicly listed company quoted on the OTCQB under the symbol "BIMI." The Company is a Delaware corporation formed on September 24, 2001 under the name of Naturewell, Incorporated, which in the first quarter of 2013, became Brazil Interactive Media, Inc. through a merger that resulted in the Company becoming the owner of a Brazilian interactive television technology and television production company. Prior to 2013, the Company was formerly engaged in the research and development of healthcare products intended for a variety of conditions. On May 9, 2008, the Company completed the sale of essentially all of its assets, as a result becoming a shell company as defined under Rule 12b-2 of the Exchange Act. As described below, the Company ceased to be a shell company when it acquired a Brazilian television and interactive media technology company in March of 2013. Our Corporate Structure after the Merger On March 13, 2013, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), by which Naturewell, Incorporated became the parent company of Brazil Interactive Media, Inc. With the effectiveness of the merger, Brazil Interactive Media, Inc. changed its name to "BIMI, Inc." On May 16, 2013, pursuant to the Merger Agreement, Naturewell, Incorporated filed a certificate of amendment (the "Amendment") with the state of Delaware, changing its name to Brazil Interactive Media, Inc., effecting a reverse merger at a ratio of 8,484 to one, and decreasing the Company's authorized capital from 5,000,000,000 shares of common stock, par value $0.00001, and 15,000,000 shares of preferred stock, par value $0.01, to 100,000,000 shares of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.01. Subsequent to the merger, the former Brazil Interactive Media Shareholders now hold approximately 93.5% of the issued and outstanding Common Stock of the Company and the remaining 6.5% is owned by the Company's pre-merger shareholders. The Company applied for and received a new stock symbol, BIMI, which reflects the new name of the Company. BIMI, Inc. is a Delaware corporation formed on September 11, 2012 as Brazil Interactive Media, Inc. BIMI, Inc. is the parent of Brazil Interactive Media Participações, Ltda., a Brazilian holding company, which through its wholly-owned subsidiary, EsoTV Brasil Promoção Publicidade Licenciamento e Comércio Ltda. ("EsoTV"), combines live television broadcasts with interactive media technology and telecommunications components to create live, interactive television programming for the Brazilian viewing public. The Company's Brazilian subsidiary, EsoTV, was founded and commenced operations in 2008. Business and Operations of the Company With the merger on March 13, 2013, Brazil Interactive Media commenced the business of producing live TV shows using interactive media technology to generate revenue with an interactive telephone calling component using its own unique and proprietary television programs that include quiz shows, games, psychics and live chat formats. The Company's program content reaches the nationwide Brazilian television audience via an in-studio satellite signal uplink to a variety of Brazilian TV broadcast networks. At its production and administrative facilities in São Paulo, Brazil, the Company operates two modern television studios, producing and transmitting live television content via satellite to TV stations throughout Brazil. Brazil Interactive Media currently broadcasts throughout Brazil and has the capacity to broadcast its satellite signal throughout Latin America, if the Company should decide to expand business to countries outside of Brazil. -6- Through the negotiation and purchase of block television time for strategic times and networks, the Company distributes content directly to its target audience throughout Brazil. Brazil Interactive Media currently leases two satellite uplinks and produces three live shows daily, providing an average of 13 hours of live television program content every day. Brazilian television viewers participate in the shows in real time via telephone, calling into the Company's interactive voice response system to participate in the show formats, which, depending on the particular show, could include the chance to respond to a question live on the air, or participate in a presenter's conversation with other audience members. Audience participants calling in dial telephone numbers belonging to the Company's telecommunications partners. The Company's Brazilian telecommunications partners charge audience participants various per-minute rates for the incoming calls and share a portion of the revenue with the Company. The Company currently broadcasts its programs on a variety of Brazilian television networks. The Company's programs are broadcast on the television networks where it has purchased blocks of time, generally in the daytime slot, from 11 am until 4 pm, and in the early morning slot, from 12 am until 6 am. Programming channels and time slots vary from time to time as the Company negotiates the purchase of block media times in advance and introduces new programs periodically in order to best reach its target audience and optimize its return on investment for its media purchasing budget. Results of Operations Revenues for the two years ended December 31, 2013 and December 31, 2012 We had revenue of $7,767,779 and $3,949,624 for the two years ended December 31, 2013 and 2012, respectively, a growth of more than 96%. The growth in our revenues can be attributed to increased air time due to a variety of TV shows and increased volume of telecom minute calls due to increased audience participation. Additionally, we increased the amount of revenue we run through other telecom co-billing partners at a per-minute revenue share that is substantially higher, and we expect to see increased revenue in the future as a result of these changes. Cost of revenues for the two years ended December 31, 2013 and December 31, 2012 Cost of revenues for the two years ended December 31, 2013 and 2012 were $6,667,446 and $2,518,980, respectively. Cost of revenues consists primarily of cost of media time, television production contractors and prize payouts. The increase in the cost of revenues was directly related to higher media costs due to competitive market pricing demands by the local television stations. Operating expenses for the two years ended December 31, 2013 and December 31, 2012 Operating expenses for the two years ended December 31, 2013 and 2012 were $5,160,060 and $1,017,224, respectively. The expenses were mainly composed of TV studio rent and maintenance costs, depreciation of equipment, non-TV subcontractor costs, investor relation costs, legal and professional fees, security, traveling expenses, and $3,144,536 of compensation expense from issuance of stock. The increase in operating expenses is a result of the growth in revenues from the various TV shows run by the company. Net (Loss) Income for the two years ended December 31, 2013 and December 31, 2012 Net Loss for the two years ended December 31, 2013 and 2012 were $4,500,294 and $329,260. Our losses were was attributed to the suspension of one of the company's TV shows and lower gross profits from the TV shows throughout the year due to technical issues with our primary telecom provider's billing platform, along with compensation expense from common stock issuance related to refinance agreement with a third party. We have subsequently transitioned to a new telecom provider with a different billing platform and higher per-minute revenues for the Company. Our experience with our previous telecom provider resulted in lower revenues and gross profits which were not sufficient to cover our operating expenses. -7- Liquidity and Capital Resources for the nine months ended December 31, 2013 and December 31, 2012 Cash flows provided and used in operating activities were $55,217 and $194,127, respectively, for the two years ended December 31, 2013 and 2012, respectively. The cash provided for 2013 was due mainly increase in customer collections but offset by a decrease in other related party payables. The cash used in 2012 was due primarily an increase and prepayments and advances, which were, however, offset by an increase in Accounts Payable and Accrued expenses. Cash flows used in investing activities were $47,806 and $8,450 for the two years ended December 31, 2013 and 2012, respectively. This was mainly attributed to the purchase of TV studio equipment during both years. Cash flows provided by financing activities for the two years ended December 31, 2013 and 2012 were $36,975 and $173,334, respectively. The $31,705 provided in 2013 was attributed mainly to issuance of stock for cash, offset by repayment of loans to third party. The $173,334 provided in 2012 was mainly attributed to proceeds from notes payable from a related party. Capital Expenditures Overall, we have funded our cash needs from inception through December 31, 2013 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on our operations and financial condition. We had cash of $270,449 on hand as of December 31, 2013. Currently, we have enough cash to fund our operations for the next 6 months. This is based on current positive cash flows from operation and potential funding from investor capital groups. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future, this could affect our ability to purchase media in advance and at a discount. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us. On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. Our current capital and revenues are insufficient to fund such expansion. If we choose to launch such an expansion campaign, we will require substantially more capital. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected and we will have to significantly modify our plans. Our success will be dependent upon implementing our plan of operations and the risks associated with our business plan. Our strategy is to purchase TV media in advance and discounted prices which also affect our gross profit. We plan to strengthen our position in our market. Settlement and Refinancing of Loan Payable and Advances from Third Parties Until September 3, 2013, we had a loan payable in the principal amount of $170,000, with interest compounded at 24% per annum payable in 12 monthly installments and secured by certain depreciable assets of the Company. That previous loan payable was refinanced as part of a settlement agreement, pursuant to which the previous note payable in the amount of $170,000 and other liabilities in the amount of $220,000 were forgiven in return for the new note payable of $200,000 and cash payments of $150,000. In exchange for forgiveness of the 2012 note in the amount of $170,000 and the 2012 media advances in the amount of $220,000, the Company issued a new note in the amount of $200,000, agreed to pay $150,000 in cash, and issued one million restricted common shares, subject to transfer restrictions pursuant to a two-year lock up leak out agreement, valued at $0.30 per share. The new $200,000 note payable carries interest at 10% per annum and is payable in 24 monthly installments, and the $150,000 cash payment was made as a $100,000 lump sum and five monthly installments of $10,000, without interest. -8- Off-balance sheet arrangements The Company does not have any off-balance sheet arrangements and it is not anticipated that the Company will enter into any off-balance sheet arrangements. Intellectual Property In order to protect its proprietary television program formats and designs, the Company has applied for several trademarks with the Brazilian patent and trademark office. Customer Base Our overall target audience consists of members of the Brazilian television viewing public who use cellular telephones. During the third quarter of 2013, we began a focused effort to identify and categorize our client base, to allow us to better customize our live programming to maximize viewer participation, as well as prepare for the addition of advertising to our revenue model and better inform the creative process of our new product development. Previously, our business model, where income flows from third-party telecommunications providers who bill the Company's customers directly, did not allow us access to detailed information regarding the Company's customers. Beginning in the third quarter of 2013 the Company employs new systems operated by our technical and production teams to create and maintain a constantly updated database of comprehensive information regarding our customers. This database allows the Company to match the style and content of our production to the preferences of our clients. Employees The Company contracts with thirty-six independent technical television engineers, television production staff, financial staff, and clerical and administrative support persons on an on-going as-needed basis. The majority of our third-party contractors are members of a Brazilian television industry labor union, in accordance with Brazilian law. There are no employment agreements. Facilities The Company does not own any real estate. The Company leases its principal office in the U.S.A. at 801 Brickell Avenue, Suite 901, Miami, Florida 33131. The Company's subsidiary in Brazil leases approximately 25,000 square feet of offices and television studios in the city of São Paulo, Brazil. Current monthly rent in Miami is $290 and in Brazil is $10,000. The Company has no plans to acquire any property in the immediate future. The Company believes that its current facilities are adequate for its needs through the next twelve months, and that, should it be needed, suitable additional space will be available to accommodate expansion of the Company's operations. -9- Outlook This Outlook section, and other portions of this document, include certain "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, including, among others, those statements preceded by, following or including the words "believe," "expect," "intend," "anticipate" or similar expressions. These forward-looking statements are based largely on the current expectations of management and are subject to a number of assumptions, risks and uncertainties. Our actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include those discussed in our Form 8-K filed March 21, 2013 as well as: · Economic downturns in foreign countries or geographic regions where we have significant operations, such as Brazil; · Economic tensions between governments and changes in international trade and investment policies, including imposing restrictions on the repatriation of dividends, especially between the United States and Brazil; · Foreign regulations restricting our ability to market our products in those countries; · Differing labor regulations and union relationships; · Consequences from changes in tax laws; · Difficulties in obtaining financing in foreign countries for local operations; and · Political and economic instability, natural calamities, war, and terrorism. The effects of these risks may, individually or in the aggregate, materially adversely affect our business. In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this Form 10-Q will in fact occur. |