Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - American Cannabis Company, Inc. | Financial_Report.xls |
| EX-10.2 - American Cannabis Company, Inc. | bimi102.htm |
| EX-10.3 - American Cannabis Company, Inc. | bimi103.htm |
| EX-10.4 - American Cannabis Company, Inc. | bimi104.htm |
| EX-10.5 - American Cannabis Company, Inc. | bimi105.htm |
| EX-10.6 - American Cannabis Company, Inc. | bimi106.htm |
| EX-10.1 - American Cannabis Company, Inc. | bimi101.htm |
| EX-32.2 - CFO 906 CERTIFICATION - American Cannabis Company, Inc. | ex32_2906cfocertification.htm |
| EX-32.1 - CEO 906 CERTIFICATION - American Cannabis Company, Inc. | ex32_1906ceocertification.htm |
| EX-31.2 - CFO 302 CERTIFICATION - American Cannabis Company, Inc. | ex31_2302cfocertification.htm |
| EX-31.1 - CEO 302 CERTIFICATION - American Cannabis Company, Inc. | ex31_1302ceocertification.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended September 30, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from ___________to ____________
Commission File Number 000-26108
BRAZIL INTERACTIVE MEDIA, INC.
(Exact name of small business issuer as specified in its charter)
| Delaware | 94-2901715 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
801 Brickell Avenue, Suite 900
Miami, FL 33131
(Address, including zip code, of principal executive offices)
305-789-6621
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| x | Yes | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer |
| Non-accelerated filer | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | x | No |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 14, 2013, the issuer had 45,236,314 shares of common stock issued and outstanding.
Table of Contents
BRAZIL INTERACTIVE MEDIA, INC.
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
BRAZIL INTERACTIVE MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION, BUSINESS & OPERATIONS
Corporate History of Our Company
Brazil Interactive Media, Inc., is a publicly listed company quoted on the OTCQB under the symbol "BIMI." We are 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 2008, 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, we ceased to be a shell company and 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 our 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.
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. Brazil Interactive Media, Inc., Brazil Interactive Media Participações, Ltda. and EsoTV shall be collectively referred to herein as “Brazil Interactive Media”, “we”, “our”, or “the Company”. Our Brazilian subsidiary, EsoTV, was founded and commenced operations in 2008.
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 got a new stock symbol, BIMI, which reflects the new name of the Company.
Business and Operations of Our 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 our production and administrative facilities in São Paulo, Brazil, we operate 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 we have the capacity to broadcast our satellite signal throughout Latin America, if the Company should decide to expand business to countries outside of Brazil.
Through the negotiation and purchase of block television time for strategic times and networks, the Company distributes content directly to our 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, which are broadcast on our programs. 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. An anchor of our business model is our expertise in negotiating advantageous terms for the pre-purchase of block media time on channels with the audience access and available time slots that best match our audience viewing habits, and coincide with the technical and geographical capacities of our various telecommunications co-billing partners. Our programs are broadcast on the television networks where we have 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 our return on investment for our media budget.
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 customize our live programming and 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 shows. 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 software systems operated by our technical and production teams to create and maintain a constantly updated database of comprehensive information regarding our clientele. This database allows the Company to match the style and content of our production to the preferences of our clients.
The Company receives revenue through co-billing arrangements with the Brazilian telecommunications partners whose numbers we broadcast on our live television programs, for audience access to our voice systems. As a result of events during the third quarter of 2013, we expanded the number of telecommunications partners with whom we operate in order to reduce the risk of underpayment due to technical and accounting issues within the telecommunications partners we employ. During this quarter, the Company monetized more than 90% (ninety percent) of the sale of its services to the public through primarily one co-billing partner, Brasil Telecom (operating in Brasil under the brand name “Oi”). In the beginning of the fourth quarter, the Company switched providers for the majority of its telecom co-billing, and currently generates approximately 10% (ten percent) of its income from Oi. We increased the amount of revenue we run through other telecom co-billing partners in order to increase our future per-minute revenue share on more advantageous payment terms, and in response to third quarter underpayment issues caused by technical and accounting problems within Oi’s telecom billing systems. Currently, in addition to Oi, we work with IP Corp., through which we currently generate approximately 90% (ninety percent) of our revenue. We intend to add further telecom partners in the future.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Brazil Interactive Media, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.
Interim financial statements
The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended December 31, 2012, included in the Company’s Form 10-K filed for the year ended December 31, 2012. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations. The operating results for the three months ended September 30, 2013 are not necessarily indicative of the results to be expected for any other interim period of a future year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Brazil Interactive Media, Inc. and its wholly owned subsidiary EsoTV Brasil Promoção Publicidade Licenciamento e Comércio Ltda. (“EsoTV”) (collectively the “Company”). All significant inter-company accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain items in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation in the current period’s presentation. These reclassifications have no effect on the previously reported income (loss).
Use of Estimates
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivables, inventories, income taxes and the estimation on useful lives of property, plant and equipment. Actual results could differ from these estimates.
Generally Accepted Accounting Principles (“GAAP”)
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Such accounting principles differ in certain respects from accounting principles generally accepted in Brazil (“Brazilian GAAP”), which is applied by the Company for its annual consolidated financial statement preparation. Unless otherwise specified, all references in these financial statements to (i) “reais,” the “real” or “R$” are to the Brazilian real (singular), or to the Brazilian reais (plural), the legal currency of Brazil, and (ii) “U.S. dollars” or “$” are to United States dollars.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiary.
All significant inter-company balances and transactions within the Company and subsidiary have been eliminated upon consolidation.
Accounting Method
The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year-end.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Concentration of Credit Risk
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. As of September 30, 2013 and 2012, the Company did not record an allowance for uncollectible accounts.
Fixed Assets - net
Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| Depreciable life | Residual value | |||||
| Machinery and Equipment | 5 years | 5 | % | |||
| Furniture and fixture | 7 years | 5 | % | |||
Expenditures for maintenance and repairs that do not make the fixed asset more useful or prolong its useful life are expensed as incurred.
Fair Value for Financial Assets and Financial Liabilities
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at September 30, 2013 and December 31, 2012 nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date ended September 30, 2013 and December 31, 2012, respectively.
Revenue Recognition
In accordance with guidance by paragraph 605-10-S99-1 of the FASB ASC for revenue recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
The Company produces live TV shows including quiz shows, games, psychics and live chat formats, which are transmitted via satellite to the Company’s television broadcaster distribution channels. The Company currently leases two satellite uplinks and produces three daily live shows, providing 13 hours of live television program content daily. Members of the television audiences participate in in the shows in real time via telephone, calling into the Company’s voice system to participate in the show formats, dialing 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. Revenue is recognized by the Company when the minutes of calls from audiences are determined by the local telecommunications providers.
Cost of Revenues
Cost of revenues consists primarily of media cost, leasing expenses related to satellite uplinks and other costs directly attributable to the provision of services.
Income Taxes
Income taxes are determined in accordance with Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company conducts its primary business in Brazil and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority. As of September 30, 2013 and December 31, 2012, the Company had outstanding income and other taxes due with the tax authority in Brazil in the amounts of $490,642 and $631,238, respectively. A portion of the income tax due for 2012, or $355,503, will be paid over time pursuant to an installment plan entered into by the Company and the tax authority in Brazil.
Earnings per share
The Company reports earnings (loss) per share in accordance with FASB Accounting Standards Codification 260 “Earnings per Share” (“ASC 260”). This statement requires dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the earnings (loss) per share computations. Basic earnings per share amounts are based on the weighted average shares of common outstanding. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Accordingly, this presentation has been adopted for the periods presented. There were no adjustments required to net income for the periods presented in the computation of diluted earnings per share. There were no common stock equivalents (CSE) necessary for the computation of diluted earnings per share.
Comprehensive income
The Company adopted FASB Accounting Standards Codification 220 “Comprehensive Income” (ASC “220”) which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during the year from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated balance sheets consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Foreign currency translation
The functional currency of the Company is the Brazilian Real. The Company maintains its consolidated financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, the consolidated financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Current assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates of the year while fixed assets and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity. The exchange rates in effect as of September 30, 2013 and 2012 were US$1 for R$2.23 and R$2.02, respectively. The average exchange rates for the three months ended September 30, 2013 and 2012 were R$2.28 and R$2.02 respectively, while the average exchange rates for the nine months ended September 30, 2013 and 2012 were US$1 for R$2.12 and R$1.92, respectively. There is no significant fluctuation in exchange rate for the conversion of Brazilian Real to US dollars after the balance sheet date.
Off-balance sheet arrangements
The Company does not have any off-balance sheet arrangements.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20, related parties include: a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s consolidated financial position, consolidated results of operations or consolidated cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the quarters ended September 30, 2013 or 2012.
Subsequent Events
The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.
Recently issued accounting standards
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
In May 2011, FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures.
In September 2011, FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company is reviewing ASU 2011-05 to ascertain its impact on the Company’s financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.
In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, which allows, but does not require, an entity when performing its annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created in ASU 2011-08, the calculation of a reporting unit’s fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that fair value of the reporting unit is less than its carrying amount. If it is less, the quantitative impairment test is then required. ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 during the first quarter of fiscal 2013. The adoption of ASU 2011-08 did not impact the Company’s results of operations or financial condition.
In December 2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial condition.
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”. The guidance allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.
ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, before determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period.
ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is in the process of evaluating the guidance and the impact ASU 2012-02 will have on its consolidated financial statements.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable was comprised of the following amounts as of September 30, 2013 and December 31, 2012:
| 2013 | 2012 | |||||||
| Gross trade accounts receivable from customers | $ | 863,624 | $ | 484,982 | ||||
| Allowance for doubtful customer accounts | 0 | 0 | ||||||
| Accounts receivable, net | $ | 863,624 | $ | 484,982 | ||||
There were no bad debt expenses recognized during the quarters ended September 30, 2013 and 2012 in the accompanying consolidated income statements.
NOTE 4 - FIXED ASSETS
Fixed assets were comprised of the following as of September 30, 2013 and December 31, 2012:
| 2013 | 2012 | |||||||
| Cost: | ||||||||
| Machinery and equipment | $ | 465,723 | $ | 439,560 | ||||
| Furniture and fixtures | 4,014 | 8,059 | ||||||
| Total cost | 469,737 | 447,619 | ||||||
| Less: Accumulated depreciation | (32,732 | ) | 0 | |||||
| Property and equipment, net | $ | 437,005 | $ | 447,619 | ||||
Depreciation expense recorded for three months ended September 30, 2013 and 2012 were $10,930 and $0, respectively, while depreciation expense for the nine months ended September 30, 2013 and 2012 were $32,732 and $0 respectively for fixed assets placed in service for depreciation purpose.
Certain of the Company’s depreciable assets, machinery and equipment, are pledged as collateral in the event of default on the note payable. See note 7.
NOTE 5 - BANK LOANS PAYABLE
The Company has an unsecured loan with HSBC at interest rates ranging from 1.08% to 6% per month. The balance of this loan was $11,494 as of September 30, 2013 and $22,621 as of December 31, 2012, respectively. Accordingly, the Company recorded interest expense of $11,950 and $8,850 during the quarters ended September 30, 2013 and 2012, respectively, while the Company recorded interest expense of $17,560 and $28,304 for the nine months ended September 30, 2013 and 2012, respectively.
NOTE 6 - TAX INSTALLMENTS PAYABLE
In 2012, an installment plan was entered into by the Company and the tax authority in Brazil, pursuant to which the following taxes will be paid over time. As of September 30, 2013, the outstanding balance on the tax installments payable was $355,503.
| Type of tax | Balance as of September 30, 2013 | |||
| Cofins Payable - Tax on Service | $ | 88,580 | ||
| PIS Withheld Payable – Tax on Services | 17,446 | |||
| Social Contribution Payable – Social Security Tax | 68,979 | |||
| Income Tax Payable | 180,498 | |||
| Total | $ | 355,503 | ||
NOTE 7 - NOTE PAYABLE
The company has a loan payable bearing yearly interest of 10% as of September 30, 2013. The balance of this loan was $244,884 as of September 30, 2013 and carries a guaranty from the Company. The effect of accrued interest for the three months ended September 30, 2013 and 2012 were $10,523 and $0, respectively. The effect of accrued interest for the nine months ended September 30, 2013 and 2012 were $31,392 and $0, respectively. Until September 3, 2013, we had a loan payable in the principal amount of $170,000, with interest compounded at 2% per month, 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 Cellcast a new note in the amount of $200,000, agreed to pay $150,000 in cash, and issued to Cellcast one million restricted common shares, subject to transfer restrictions pursuant to a two-year lock up leak out agreement. 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.
See Part 2, Item 5 for more detailed disclosure on the refinancing of this note payable.
Principal maturities of the loan payable as of September 30, 2013 are as follows:
| Amount | ||||||
| 2013 | $ | 244,884 | ||||
| Total | $ | 244,884 | ||||
NOTE 8 - LOANS FROM DIRECTORS AND OFFICERS
| Amount | ||||||
| 2013 | $ | 101,000 | ||||
| Total | $ | 101,000 | ||||
The company received $101,000 in loans from the company directors and officers. The loans had a maturity date of October 1, 2013 and paid interest at a rate of 5% per annum. Half of the loans were paid prior to the maturity date, the remaining loans in the amount of $50,000.00 are past due.
NOTE 9 - CAPITAL STRUCTURE
Series H Convertible Preferred Stock
The Company is authorized to issue 30,000 shares of Series H Convertible Preferred Stock, $0.01 par value. As of September 30, 2013, there were 2,500 shares issued and outstanding.
Common Stock
On July 25, 2013, 39,707,460 shares of Common Stock were issued in conversion of the 3,970,746 issued and outstanding shares of Series G Convertible Preferred Stock, and at September 30, 2013, there are no shares of Series G Convertible Preferred Stock issued and outstanding. In accordance with a condition to the closing of the Merger Agreement, the Company has required that the Common Stock newly issued upon the conversion of the Series G Convertible Preferred Stock be subject to Lock Up and Leak Out Agreements that restrict the transferability of that Common Stock.
On September 3, 2013, 1,000,000 shares of Common Stock were issued as part of 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, the Company issued Cellcast a new note in the amount of $200,000, agreed to pay $150,000 in cash, and issued to Cellcast one million restricted common shares, subject to transfer restrictions pursuant to a two-year lock up leak out agreement, compensation expense of $440,000 was recognized due to the fair value of the shares in excess of the per share settlement price.
As of September 30, 2013, the Company is authorized to issue 100,000,000 shares of common stock, $0.00001 par value. As of September 30, 2013, there were 41,000,377 shares issued and outstanding. As of November 14, 2013, there were 45,236,314 shares issued and outstanding.
NOTE 10 – STOCK OPTIONS/WARRANTS
During the three months ended March 31, 2013, the Company issued warrants to Dutchess Global Strategies Fund, LLC and Dutchess Opportunity Fund LP for the purchase of 41,667 and 166,667 of common stock, respectively at an exercise price of $0.60 per share. The warrants may be exercised any time after issuance through and including the fifth (5th) anniversary of its original issuance. During the three months and nine months ended September 30, 2013 and 2012, respectively, no stock options or warrants were exercised.
| Stock Warrants and Options Stock warrants/options outstanding and exercisable on September 30, 2013 are as follows: | ||||||||||
Exercise Price per Share | Shares Under Option/warrant | Remaining Life in Years | ||||||||
| Outstanding | ||||||||||
| $ | 0.60 | NONE | NA | |||||||
| Exercisable | ||||||||||
| $ | 0.60 | 41,667 | 5.00 | |||||||
| $ | 0.60 | 166,667 | 5.00 | |||||||
NOTE 11 - COMMITMENT AND CONTINGENCIES
Office Leasing
The Company leases its office space under non-cancelable operating lease agreements. The lease ends in December 2015. Based on the current rental lease agreement, the future 3 years minimum rental payments required as of September 30 are as follows:
| Lease payment | ||||||
| Year ended, December 31, 2013 | $ | 29,329 | ||||
| 2014 | $ | 117,318 | ||||
| 2015 | $ | 127,060 | ||||
| Total | $ | 273,707 | ||||
The two satellite uplink leases are on a month to month basis with no future operating lease commitments.
For the three months ended September 30, 2013 and 2012, the Company had rental expenses of $27,961 and $19,257, respectively. For the Nine months ended September 30, 2013 and 2012, the Company had rental expenses of $110,889 and $80,805, respectively.
The Company had no contingencies existing as of September 30, 2013 and 2012.
NOTE 12 - CONCENTRATION AND RISK
Major Customers
The Company had one customer from which the Company generated 95% and 100% revenues during the three months ended September 30, 2013 and 2012, respectively. The Company had one customer from which the Company generated 90% and 100% revenues during the nine months ended September 30, 2013 and 2012, respectively.
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.
As of September 30, 2013 and December 31, 2012, substantially all of the Company’s cash and cash equivalents were held by financial institutions located in Brazil, which the Company’s management believes are of high credit quality.
The Company’s operations are carried out in Brazil. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in Brazil and by the general state of the local economy. The Company’s operations in Brazil are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company’s results may be affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
In addition, the Company is subject to risks common to companies in its industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.
NOTE 13 - SEGMENTS
The Company determined that it do not operate in any material, separately reportable operating segments as of September 30, 2013 and December 31, 2012.
NOTE 14 - SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to September 30, 2013 to the date these consolidated financial statements were issued. In addition to the transactions disclosed below, the Company does not have other material subsequent events to disclose in these financial statements:
Change in major customer
As a result of events during the third quarter of 2013, we expanded the number of telecommunications partners with whom we operate in order to reduce the risk of underpayment due to technical and accounting issues within the telecommunications partners we employ. During the third quarter, the Company monetized more than 90% (ninety percent) of the sale of its services to the public through primarily one co-billing partner, Brasil Telecom (operating in Brazil under the brand name “Oi”). We increased the amount of revenue we run through other telecom co-billing partners in order to increase our future per-minute revenue share on more advantageous payment terms, and in response to third quarter underpayment issues caused by technical and accounting problems within Oi’s telecom billing systems. In the beginning of the fourth quarter, the Company switched providers for the majority of its telecom co-billing, and currently generates approximately 10% (ten percent) of its income from Oi.
Beginning on the first of October, 2013, in addition to Oi, we work with IP Corp., through which we currently generate approximately 90% (ninety percent) of our revenue. With Oi, the Company receives $0.19 per minute on client telephone calls, and with IP Corp., the Company receives $0.50 per minute. No new agreements were signed. We intend to add further telecom partners in the future.
Issuance of Common Stock
On October 1, 2013, the Company issued 360,000 shares of common stock in payment for professional services, and 3,875,000 shares of common stock in pursuant to conditions of the Merger Agreement.
Loans from Directors
On October 9, 2013, the company received $20,000 in loans from the company directors. The loans have a maturity date of December 8, 2013 and pay interest at a rate of 5% per annum.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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 got 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.
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 three and nine month periods ended September 30, 2013 and 2012
We had revenue of $1,788,754 and $909,740 for the three months ended September 30, 2013 and 2012, respectively. Our revenues for the nine months ended September 30, 2013 and 2012 were $6,028,891 and $2,870,370, respectively. 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. However, during the three months ended September 30, 2013 our revenue levels were lower than anticipated due to problems with our primary telecom provider’s billing platform. In response, we have transitioned the majority of our billing to an alternate telecom provider with a different telecom billing platform. We expanded the number of telecommunications partners with whom we operate in order to reduce the risk of underpayment due to technical and accounting issues within the telecommunications partners we employ. 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 fourth quarter as a result of these changes.
Cost of revenues for the three and nine month periods ended September 30, 2013 and 2012
Cost of revenues was recorded at $1,740,445 and $643,515 during the three months ended September 30, 2013 and 2012, respectively. Cost of revenues for the nine months ended September 30, 2013 and 2012 were $4,926,249 and $2,284,399, respectively. Cost of revenues consists primarily of cost of media time, television production contractors and prize payouts. The increase in the cost of revenues is directly attributed to the increase in airtime and audience participation which resulted in increase in subcontractor expenses for TV shows and cost of media, as well as an increase in prize payouts.
Operating expenses for the three and nine month periods ended September 30, 2013 and 2012
We had operating expenses of $876,009 and $133,574 for the three months ended September 30, 2013 and 2012, respectively, while the operating expenses for the nine months ended September 30, 2013 and 2012 were $1,861,739 and $395,816, 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 $440,000 of compensation expense from issuance of stock as part of a refinance agreement with a third party. 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 three and nine month periods ended September 30, 2013 and 2012,
We had net loss of $702,868 and net income of $27,763 for the three months ended September 30, 2013 and 2012, respectively, while we experienced a net loss of $692,035 and $135,498 for the nine months ended September 30, 2013 and 2012, respectively. The loss for the three months ended September 30, 2013 was attributed to the suspension of one of the company’s TV shows and lower gross profits from the TV shows 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. While the net income for the three months ended September 30, 2012 were attributed to higher level profits generated from Telecom calls related to TV shows. The net loss of $692,035 for the nine months ended September 30, 2013 was attributed mainly to the technical issues related to our Telecom provider’s billing platform which resulted in lower revenues and gross profits which were not sufficient to cover our operating expenses. The loss of $135,498 for the nine months ended September 30, 2012 was attributed to elevated corporate income taxes due to the Brazilian tax authorities as a result of the company’s tax treatment election for 2012.
Liquidity and Capital Resources for the nine months ended September 30, 2013 and September 30, 2012
Cash flows provided and used in operating activities were $9,468 and $164,025, respectively, for the nine months ended September 30, 2013 and 2012, respectively. The $9,468 cash provided for 2013 was due to an increase in accounts payable and accrued expenses, offset by an increase customer receivables and a net loss for the nine months. The $164,025 cash used in 2012 was due primarily to an increase in customer receivables based on payment terms in effect during 2012.
Cash flows used in investing activities were $22,118 and $6,363 for the nine months ended September 30, 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 nine months ended September 30, 2013 and 2012 were $126,734 and $6,880, respectively. The $126,735 cash provided in 2013 was attributed mainly to loans from officers and directors, while the $6,880 cash provided for 2012 was mainly attributed mainly to the capitalization of debt to preferred and common stock as part of the company’s reverse merger agreement as well proceeds from bank borrowings.
Capital Expenditures
Overall, we have funded our cash needs from inception through September 30, 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 $110,027 on hand as of September 30, 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 to Cellcast 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.
See Part 2, Item 5 for additional information on the refinancing of the note payable.
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.
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.
Item 3. Quantitative & Qualitative Disclosures about Market Risks
Not applicable.
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for the Company. The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this Report was prepared.
Evaluation of Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1943, as amended, reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.
As of September 30, 2013, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Controls
There have been changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
For the reasons described below, the Company increased its internal controls regarding its Brazilian subsidiary, to improve financial reporting, translation of financial statements from Brazilian GAAP to U.S. GAAP, and provide greater oversight over financial reporting throughout the Company.
On April 29, 2013, the Company filed an 8-K advising that the Company had decided to restate its financial statements from December 31, 2012, that were originally published in the Company’s Current Report on Form 8-K filed on March 21, 2013, regarding the financial statements of the Company’s newly-acquired Brazilian operating subsidiary.
The Company determined that the restatement of the Company’s previously issued financial statements to reflect the correction of a material misstatement, announced in the Company’s Form 8-K filed April 29, 2013, was an indicator of a material weakness in the Company’s internal controls over financial reporting. To address the weakness, the Company carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting as of December 31, 2012. Based on this assessment, management believes that, as of December 31, 2012, we did not maintain effective controls over the financial reporting control environment with regards to the Company’s Brazilian subsidiary EsoTV.
The Company acquired EsoTV in a merger transaction entered into on March 13, 2013 and made effective on March 27, 2013 (the “Merger”). Due to the limited size of EsoTV’s administrative support staff, the financial constraints on the Company, and the inherent difficulties associated with the review, consolidation and translation of financial statements from a foreign financial system into US GAAP in collaboration with local third-party accounting providers, management was not able to develop or implement controls related to the segregation of duties for purposes of financial reporting prior the time of the Merger. Additionally, the Company has identified that a material weakness existed prior to the time of the Merger resulting from a lack of expertise in accounting for foreign-based transactions. Because of these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2012, or as of March 27, 2013, based on the criteria established in the “Internal Integrated Framework” issued by COSO.
Subsequent to the Merger, the Company hired a Chief Financial Officer with considerable international, and specifically Latin American, financial reporting and consolidation experience. The errors were identified in April 2013, during the initial supervisory visit to the subsidiary by the Company’s new CFO, as part of a review for the implementation of a top-down evaluation of internal financial reporting controls in the newly merged and consolidated corporate structure of the Company.
As a result of the identification of the errors and the restatement of the Company’s financials, we believe the entity-level controls implemented by the Company post-Merger in regards to its newly-acquired subsidiary were sufficiently capable of detecting the material misstatement that resulted in the need to file a restatement. In the second quarter of 2013, the Company implemented a processing and control system that involves integrating accounting and bookkeeping service environments in a secure web-based platform that we believe provides transparency and oversight to how transactions are initiated, authorized, processed, and recorded internally. The Company has also implemented internal accounting controls to in an attempt to eliminate the risk of management override.
As a result of the Company’s evaluation and subsequent remedial steps as outlined above, the Company believes that its management now has a sufficient level of detail and degree of assurance that transactions are recorded as necessary to permit the preparation of financial statements in conformity with generally accepted accounting principles. Further, management believes that the likelihood of the occurrence of future material weaknesses that could result in misstatements is remote.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives. The Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.
The Company is not currently a party to any pending legal proceedings. We may be involved from time to time in various legal proceedings in the normal course of business but are currently not a party to any material pending legal proceedings. In addition, we are from time to time party to disputes that arise in the ordinary course of business. There are no current “ordinary course” matters that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on our operations, financial condition or cash flow. We will disclose the nature of any such matter or discussion if we determine that (i) it is probable an adverse party will assert a claim against us, (ii) there is a reasonable possibility the outcome (assuming assertion) will be unfavorable, and (iii) the resulting liability would be material to our financial condition.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
None.
Item 3. Defaults upon Senior Securities:
None.
In April of 2013, we were approached by an advisor to Cellcast UK Limited (“Cellcast”), to engage in discussions about a cooperative business association between Cellcast UK Limited and the Company’s Brazilian subsidiary, EsoTV Brasil Promoção Publicidade Licenciamento e Comercio Ltd. (“EsoTV”) that took place between November, 2012 and January, 2013, prior to the acquisition of EsoTV by the Company. During that business association, Cellcast loaned EsoTV the amount of $170,000 and also advanced media buying funds in the amount of $220,000, in return for television production and broadcast services performed by EsoTV. The loan of $170,000 was secured by a promissory note issued to Cellcast by EsoTV, with interest of 24% per annum, payable in 12 monthly installments. The Company disagreed with Cellcast regarding the terms of repayment of the Note, the spending of the media buying funds and the nature of the business association. On September 3, 2013, pursuant to negotiations with Cellcast, we entered into a Confidential Settlement Agreement and Mutual Release (the “Settlement Agreement”) with Cellcast resolving this disagreement, pursuant to which the parties mutually released each other from liability and Cellcast agreed to restructure EsoTV’s debt to Cellcast. 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 Cellcast a new note in the amount of $200,000, agreed to pay $150,000 in cash over six months, and issued to Cellcast 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.
10.1 Settlement Agreement dated September 3, 2013
10.2 Promissory Note dated August 30, 2013, Loan from Director and Officer
10.3 Promissory Note dated August 30, 2013, Loan from Director
10.4 Promissory Note dated August 30, 2013, Loan from Director
10.5 Promissory Note dated October 9, 2013, Loan from Director
10.6 Promissory Note dated October 9, 2013, Loan from Director
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BRAZIL INTERACTIVE MEDIA, INC. | ||||
| (Registrant) | ||||
| Dated: November 14, 2013 | By | /s/ Themistocles Psomiadis | ||
| Themistocles Psomiadis, Chief Executive Officer (Principal Executive Officer) | ||||
| Dated: November 14, 2013 | By | /s/ Jesus Quintero | ||
| Jesus Quintero, Chief Financial Officer (Principal Financial Officer) | ||||