UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: August 31, 2013
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 333-85072
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
(Name of small business issuer in its charter)
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Florida | 59-3666743 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
747 Third Avenue, 2nd FL.
New York, NY 10017
(Address of principal executive offices)
(646) 722-2706
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class | | Name of exchange on which registered |
None | | None |
Securities registered under Section 12(g) of the Exchange Act:
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Title of each class | | Name of exchange on which registered |
None | | None |
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [x]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [x]
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. Yes [x] No [ ]
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 submit and post such files). Yes [ ] No [x]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| 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 [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
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Common Stock, par value $.001 per share: | | 199,819,885 |
(Class) | | (Outstanding as of December 12, 2013) |
DOCUMENTS INCORPORATED BY REFERENCE
None.
The accompanying consolidated August 31, 2013 financial statements are in the process of being audited by the Company’s independent registered public accounting firm, RBSM, LLP, in accordance with SEC Regulation S-X and, therefore, contain only pre-audit numbers. There was considerable additional work because of a re-audit requirement of previous years which caused a delay. Once the August 31, 2013 consolidated financial statement have been audited and confirmed by the Company’s independent registered public accounting firm, the Company shall file and include the accountants audit report and financial statements by amendment on SEC Form 10-K/A. It is anticipated the audited financials for fiscal year 2013 shall be available shortly.
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FORM 10-K For the Fiscal Year Ended August 31, 2013 TABLE OF CONTENTS |
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PART 1 | | |
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Item 1. | Description of Business | 4 |
Item 1A. | Risk Factors | 10 |
Item 1B. | Unresolved Staff Comments | 10 |
Item 2: | Description of Property | 10 |
Item 3. | Legal Proceedings | 10 |
Item 4. | Reserved | 10 |
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PART II | | |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 11 |
Item 6. | Selected Financial Data | 13 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operation | 13 |
Item 8. | Consolidated Financial Statements and Supplementary Data (Unaudited) | 20 |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 37 |
Item 9A (T). | Controls and Procedure | 37 |
Item 9B. | Other Information | 37 |
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PART III | | |
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Item 10. | Directors and Executive Officers of the Registrant | 38 |
Item 11. | Executive Compensation | 40 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 41 |
Item 13. | Certain Relationships and Related Transactions | 42 |
Item 14. | Principal Accountant Fees and Services | 42 |
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PART IV | | |
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Item 15. | Exhibits | 43 |
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Signatures | | 44 |
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Unaudited Annual Report contains forward-looking statements. These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of, among other factors, risks related to the large amount of our outstanding term loan; history of net losses and accumulated deficits; reliance on third parties to market, sell and distribute our products; future capital requirements; competition and technical advances; dependence on the oil services market for pipe and well cleaners; ability to protect our patents and proprietary rights; reliance on a small number of customers for a significant percentage of our revenues; and other risks. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report will in fact occur.
Item 1. Description of Business
General
Digital Brand Media & Marketing Group, Inc. (“we”, “us”, “our”, “DBMM”, “DBMM Group”, the “Company”) f/k/a RTG Ventures, Inc. (“RTG”) is an OTC:QB listed company. The Company was organized under the laws of the State of Florida on September 29, 1998.
On March 20, 2007, we entered into a Share Exchange Agreement (the "Agreement") with Atlantic Network Holdings Limited, New Media Television (Europe) Limited ("NMTV"), and Certain Outside Stockholders to acquire all of the outstanding shares of NMTV. Atlantic Network Holdings Limited is a Guernsey company limited by shares and NMTV is a United Kingdom private company limited by shares. The transaction was subject to the fulfillment of certain conditions, including the satisfactory completion of the audit of NMTV's financial statements for each of its past three fiscal years. The conditions of closing were not met by ANHL and the agreement was rescinded via 8-K/A on March 30, 2010.
DBMM entered into a Share Exchange Agreement (the “Exchange Agreement”), on March 31, 2010, with Cloud Channel Limited which was subsequently re-named as RTG Ventures (Europe) Limited in July 2010 (“RTG Ventures (Europe)”). Pursuant to the Exchange Agreement, the Company acquired 100% of the outstanding capital stock of RTG Ventures (Europe) from its stockholders for consideration consisting of Convertible Preferred Shares of RTG Ventures, Inc. according to the derivative valuation methodologies outlined in the Share Exchange Agreement of Stylar Limited, a/k/a Digital Clarity. RTG Ventures (Europe) has been valued 12 months forward “notionally” one year hence. An 8-K/A was filed in September 2010 containing audited financials of the acquisition of Stylar Limited which completed the transaction. Shareholders converted the preferred shares into common stock using the average share price of the 30 days preceding September 3, 2011 which provided a share price of $0.016083. The methodology provided a valuation of 4X net profit. All preferred stock was held by DBMM's transfer agent for the 12 month period ending September 3, 2011. All voting shares were held by management.
Subsequent to the close of the fiscal year 2011 following substantial investment, the Company conducted a structural review of its total product and services offering. The review was carried out by the Board of Directors. The result was to bring technology development being outsourced directly into the Company to steward on a daily basis and any activities which were not revenue generating in the near term were eliminated. Certain business lines were eliminated from the Business Plan immediately. In October, 2011 the joint venture with iPayu was mutually withdrawn and in December, 2011 the acquisition of Bitemark Ltd. was rescinded. The companies reverted to the same position each held prior to the contracts. The rescission of the Bitemark Ltd. share purchase agreement was included as an exhibit to the filing for the 2011 fiscal year even though it constituted a subsequent event at the time.
As a further result of the review, the Company also agreed to strategically focus on developing the business of its wholly owned and revenue generating online marketing services company, Digital Clarity. With deep DNA in its operating market, blending the services of an experienced professional workforce, leveraging a technology offering positions the Company in a strong, forward looking structure. Digital Clarity operates in the growing area of digital marketing that helps companies make the most the digital economy focusing on areas such as Search
Engine Marketing (Google, Yahoo! & Bing), Social Media (Twitter, Facebook & LinkedIn) and Internet Strategy Planning including Design, Analytics and Mobile Marketing.
During the last quarter of fiscal 2012, the Company entered into an agreement with BrandEntertain. Digital Brand Media & Marketing Group, Inc. (f/k/a RTG Ventures, Inc.) and Brand Entertain have agreed to restructure their agreement retroactively to June 11, 2012. BrandEntertain is a partnership and there were certain issues with partnership financials which suggested the business combination be construed as a collaboration/cooperative venture, rather than an acquisition. Upon analysis, one year following the initial transaction, the agreement was rescinded and no consideration was received by BrandEntertain.
On March 5, 2013, Digital Brand Media & Marketing Group, Inc. filed a Certificate of Amendment to its Articles of Incorporation to change its name from “RTG Ventures, Inc.” to “Digital Brand Media & Marketing Group, Inc.” In connection with the name change, the Company’s trading symbol changed from “RTGV” to “DBMM” (the “Symbol Change”). The Amendment was effective as of March 20, 2013. The Name Change and Symbol Change have been reflected in the Company’s ticker symbol as of April 8, 2013.
Also on March 5, 2013, Digital Brand Media & Marketing Group, Inc. received approval from the Financial Industry Regulatory Authority (FINRA) for its 100 to 1 reverse stock split.
A summary of the business is: DBMM Group crafts, designs and executes digital marketing strategies across multiple ad platforms and social media networks for a broad array of clients to help each of them establish a uniform brand identity across the digital universe. The product offering is a unique value proposition of intelligent analytics provided by an experienced digital marketing and technology team. Therefore DBMM Group is a blend of data, strategy and creative execution.
Digital Clarity is a trading brand for Stylar Limited, a wholly owned company of DBMM, through its office in London, England. The Company is a multi-service digital marketing agency which specializes in creating effective strategies and campaigns for clients across a range of vertical markets, working in three key areas:
§ SearchEngine Marketing – for search engines like Google, Yahoo etc.
§ WebDesign – building sites for web, mobile and tablet devices
§ SocialMedia – planning and measuring social metrics digitally in order to diagnose strategy
DBMM Group can leverage its team’s experience in digital media and provide leading strategy, deployment and measurement to its core markets in many industry sectors, from creative to traditional corporate. Entertainment, Fashion and Sports industries, as well as Automotive and Ecommerce are target markets.
The Company is rolling out the services of both the technology and marketing service offering of the business from its current base in London, England, and during 2013 into larger markets in the United States, namely Los Angeles and New York. The intent in fiscal year 2014 is to grow into many geographic areas through partnerships in order to develop multiple revenue streams following the model developed this year.
Fiscal year 2013 reflected the Company’s continued progress in making inroads into the United States by being awarded contracts for a number of clients in the search marketing sector. One of the successful contract models the Company utilized, leveraged its expertise in the web design arena by building a website with a media partner that it intends to expand globally and build upon in 2013 and beyond. This is an example of developing an ongoing relationship with a client which allows our Company to grow in tandem with a client company.
Sales and Marketing
Our sales team focuses on adding new advertisers to our business, while our business development and partnership initiatives focuses on adding new reseller partnerships, selectively adding new distribution partnerships and servicing existing partnerships. Our marketing department focuses on promoting our services through online customer acquisition, affiliate relationships, press coverage, strategic marketing campaigns and industry exposure. Advertising and promotion of our services is broken into four main categories: direct sales, reseller partnerships, online acquisition, and referral agreements. The Directors also take an active role in business development.
Research and Development
The Company has a strong forward looking focus in building out a robust and lean platform that will provide revenue generation through the business model described.
There is a current need for investment in building out the development team and creating a proprietary infrastructure to scale and evolve the technology platform and to market to end users.
Employees
In fiscal 2013, the Company had five full-time employees.
Competition
There is strong competition in the digital marketing arena, though with the right level of investment and marketing, Digital Clarity has a confident outlook in using its experience to win new business in both local and international markets. DBMM has significant business relationships in place.
DBMM Group’s Current Markets
§ Entertainment/Fashion/Sports/Automotive/Ecommerce Technology Solutions
§ Digital Marketing Strategic Consulting Services
The Growth of Social Technology and Search
THE MARKET ENVIRONMENT – SEARCH
Businesses now spend 24% of total marketing budget on paid search
Digital Marketing Services
Digital Clarity is a specialist Digital Marketing Agency that has been at the forefront of online marketing. The company is a multi-service digital marketing agency who specialize in creating effective strategies and campaigns for clients and agencies across a wide range of verticals.
Specializing in Search Engine Marketing, Web Design, Social Media including Digital Analysis, the company works with both major brands and medium sized companies to help leverage online brand presence and new customer acquisition strategy. Digital Clarity also delivers consultancy and strategy planning for both client companies and advertising agency partners.
The Company Profile:
§ Revenue Generating Company
§ Cash Flow Positive
§ Experienced Team
§ Strong Client Base
§ Centers of Excellence Today – US & Europe
§ Future Geographic Reach – UAE & Asia
§ Reach to Celebrity & A-List Performers
§ Established Relationships with Media Groups like Google
§ Poised for the Growth in Digital Marketing & Advertising
Services Offered by Digital Clarity continue to grow with client relationships. Led by the Head of US Operations, Steve Baughman, the Company has begun to leverage with an objective to potentially integrate his music and entertainment contacts to help build on its existing service offering.
Pay per Click Advertising (PPC)
Pay per click (PPC) (also called Cost per click) is an Internet advertising model used to direct traffic to websites, where advertisers pay the publisher (typically a website owner) when the ad is clicked. With search engines, advertisers typically bid on keyword phrases relevant to their target market. Content sites commonly charge a fixed price per click rather than use a bidding system. PPC "display" advertisements are shown on web sites with related content that have agreed to show ads.
Search Engine Optimization (SEO)
Search engine optimization (SEO) is the process of improving the visibility of a website or a web page in search engines via the "natural" or un-paid ("organic" or "algorithmic") search results. In general, the earlier (or higher ranked on the search results page), and more frequently a site appears in the search results list, the more visitors it will receive from the search engine's users. SEO may target different kinds of search, including image search, local search, video search, academic search, news search and industry-specific vertical search engines.
As stated in Eric Siu, “24 Eye Popping SEO Statistics” in searchenginejournal.com and the Interactive Advertising Bureau’s “IAB Advertising Report” of October 2013, search engines are the most important tool today in website optimization. 93% of online experiences begin with a search engine and 82.6% of internet users use search. Furthermore, 88.1% of US internet users ages 14+ researched products online in 2012 and there are over 100 billion global searches being conducted each month.
Analytics
The measurement, collection, analysis and reporting of internet data for purposes of understanding and optimizing web usage.
Email Marketing
Description: Email marketing is a form of direct marketing which uses email as a means of communicating commercial or fund-raising messages to an audience. In its broadest sense, every email sent to a potential or current customer could be considered email marketing.
SMS Marketing
Users of an SMS service can exchange text messages either from mobile to mobile or through a specialist internet website to a handset about anything from promotional offers, to general information regarding a product or service. Messages are usually sent using a short code system. Short codes are around 5 or 6 digits in length and work by asking customers to text a certain keyword to a specific code. E.g. ‘Text WIN to 84841’.
Web Design & Development
To lead a highly competitive environment, the process of planning and creating a website requires both art and technology prowess. Text, images, digital media and interactive elements are used by Digital Clarity’s designers to produce the page seen on the web browser. As a whole, the process of web design can include conceptualization, planning, producing, post-production, research, and advertising. The site itself can be divided into it pages. The site is navigated by using hyperlinks commonly these are blue and underlined but can be made to look like anything the client wishes.
Item 1A. Risk Factors
Smaller reporting companies are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Description of Property
DBMM’s corporate address is 747 Third Avenue, 2nd FL, New York, NY 10017. The Company has a one year renewable lease. In April 2012, Stylar Limited entered in to a 5 year lease. Under the terms of the current lease the annual base rent is approximately $17,000. This office is located in the UK.
Item 3. Legal Proceedings
None
Item 4. Reserved
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently listed for quotation on the OTC:QB under the symbol "DBMM".
Per Share Market Price Data
The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share for our common stock, as reported by on PinkSheets.com. Such quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
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Year Ended August 31, 2013: | High | Low |
First Quarter | $0.06 | $0.05 |
Second Quarter | $0.035 | $0.035 |
Third Quarter | $0.02 | $0.02 |
Fourth Quarter | $0.018 | $0.01 |
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Year Ended August 31, 2012: | High | Low |
First Quarter | $0.0039 | $0.0039 |
Second Quarter | $0.0048 | $0.0035 |
Third Quarter | $0.004 | $0.0031 |
Fourth Quarter | $0.0015 | $0.001 |
The last reported sale price of our common stock on the OTC Electronic Bulletin Board on December 9, 2013 was $0.0013 per share. As of December 12, 2013, there were 130 holders of record of our common stock as well as over 1,200 shareholders under beneficial ownership through brokerage firms.
Dividends
We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our board of directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit our ability to pay dividends on our common stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.
Equity Compensation Plan Information
We did not issue any securities pursuant to equity compensation plans during the years ended August 31, 2013 or 2012.
Recent issuances of Unregistered Securities
In September, 2011, 65,000 shares of common stock were valued at $58,000 to consultants under the terms of the agreements for services.
In January 2012, 268,367 shares of preferred stock were issued to satisfy $228,929 in accrued salary due to an officer of the Company.
In January 2012, 471,345 shares of preferred stock were issued to three officers of the Company.
In March 2012, 97,596 shares of preferred stock were converted into 5,176,894 shares of common stock for the minority shareholders pursuant to the share exchange agreement with Stylar Limited a/k/a Digital Clarity.
In May 2012, the Company announced the appointment of an executive officer as Head, US Operations and issued him 50,000 shares of preferred stock as a sign on bonus.
During the year ended August 31, 2012, 3,797,719 shares of common stock were issued to satisfy approximately $250,499 of convertible notes payable and 119,215 shares of common stock were issued to satisfy $8,120 in accrued interest.
During the year ended August 31, 2012, 1,489,375 shares of common stock were issued to satisfy $228,499 of loans payable. These conversions resulted in a modification expense of $172,694.
In June 2012, the Company entered into a cooperative venture agreement with BrandEntertain. Under the terms of the agreement, 2,000,000 Series 2 preferred shares were issued for the officers of BrandEntertain.
In the quarter ended August, 2012 the Company partially converted a convertible debenture for $26,464 at an average price of $0.00065 and issued 47,000,000 shares.
In the quarter ended August, 2012, a note holder received 16,132,389 shares for $26,500 valued at an average price of $0.0017 per share in connection with the partial conversion of a loan payable.
In November 2012, 41,995 shares of Preferred Stock-Series 1 Designation were issued for an accrual to satisfy a debt of $35,824.
In November 2012, 433,637 shares of Preferred Stock-Series 1 Designation were issued to four officers of the Company in connection with compensation.
On March 5, 2013, Digital Brand Media & Marketing Group, Inc. received approval from the Financial Industry Regulatory Authority (FINRA) for its 100 to 1 reverse stock split. All shares have been retroactively adjusted to reflect the 100 to 1 reverse stock split.
In April 2013, 496,118 shares of Preferred Stock-Series 1 Designation were converted into 26,314,099 shares of restricted common stock by an officer of the Company.
In August 2013, 41,995 shares of Preferred Stock-Series 1 Designation were converted into 2,227,415 shares of restricted common stock by a consultant.
During the year ended August 31, 2013, 2,027,995 shares of restricted common stock were issued to satisfy $67,022 of convertible debt.
During the year ended August 31, 2013, 2,000,000 Preferred Shares-Series 2 were cancelled as a result of the termination of the arrangement with BrandEntertain. As a result the consideration associated with the transaction totaling $219,797 was reversed and reflected in the statement of operations as a reduction to expense.
Item 6. Selected Financial Data
As a “smaller reporting company”, as defined by Rule 10(f)(1) of Regulation S-K, the Company is not required to provide this information.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Readers are cautioned that certain statements contained herein are forward-looking statements and should be read in conjunction with our disclosures under the heading "Forward-Looking Statements" on page 1. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. This discussion also should be read in conjunction with the notes to our consolidated financial statements contained in Item 8. "Financial Statements and Supplementary Data" of this Report.
Background
DBMM is an OTC:QB listed company. Subsequent to the close of the fiscal year 2011 following substantial investment, the Company conducted a structural review of its total product and services offering. The review was carried out by the Board of Directors. The result was to bring technology development being outsourced directly into the Company to steward on a daily basis and any activities which were not revenue generating in the near term were eliminated. It was unanimously agreed that the company would adopt a lean approach that focused on the relationships and partnerships. To that end, the Company has added significant partnerships through Letters of Intent, Joint Ventures and various collaborative structures involving revenue sharing arrangements.
Operations Overview/Outlook
Operationally, 2013 has been important in continuing the direction of the Company and steering it toward a scaled, sustainable growth plan. The model developed in fiscal 2012 has been reinforced and is differentiating to clients, therefore, the model will continue into fiscal 2014.
Entertainment/Fashion/Sports/Automotive/Ecommerce Solutions
DBMM is taking its strengths including its relationships to build its business focus on a wide array of industries. The Company, under very competitive global market conditions and growing development needs, continues to identify partnership opportunities. Utilizing successful models with existing clients, the outlook remains strong for the future.
The heart of the business is the marketing consultancy. Understanding each client and developing the model to individualize the outlook has been essential. This kind of close relationship with the client resulted in Digital Clarity being considered a close professional advisor.
In fiscal year 2014, the Company will continue to focus on the positive results of the last year and use that model to expand geographic reach with existing and new partners.
Digital Marketing Services
2013 continues to see exponential growth in the adoption of Social Media as a communication, marketing and engagement avenues. An acceptance of change is driving revenue. The future growth in mobile search is on of the fastest growing ancillary businesses. It was clear that the direction, talent and growth of the Company is in its human capital and outside relationships which must be proactive in order to differentiate itself from competition
The clear opportunity is at the foundation of the Company, namely the need to expedite and encourage development in the digital marketing services sector. The marketing services product is labor intensive and thus the Company must jumpstart the growth by significant capital infusion in fiscal year 2014 to grow simultaneously in multiple geographies.
As a foundation, the financial review showed that Digital Clarity continued to be revenue generating and remained cash flow positive.
Key Milestones
During 2013, Digital Clarity continued to make inroads into established and emerging markets. In 2012, as part of this emphasis, that was greatly enhanced and supported by the Head of US Operations, Steven Baughman, the company won a major deal with a US based entertainment group. The group was seeking a seasoned agency that could fulfil its complex specifications and grow with its aggressive expansion plans throughout the US and beyond. Digital Clarity was awarded the contract, removing the competitors to win the design and development of the new website centered on an intelligent design as well as a strong understanding and execution of social media integration. This model became the template for contracts going forward.
DBMM signed a Letter of Intent with Video Media Holdings, Inc. (VMS) to become its reseller in Europe with other revenue streams being explored as well. The value proposition for VMS strengthens DBMM’s offering to its clients. VMS Holdings, Inc. develops a mobile application for sharing videos. Its mobile application allows companies and users to send and receive video content to and from a mobile phone; subscribe for a favorite celebrity, actor, TV-channel, or team and get video updates; and create your own channel and become a broadcaster, as well as serves as a tool for mobile marketing and sales. The company's mobile application is available for Android, BlackBerry, iPhone, and Symbian devices. It distributes its mobile application through distributors, and mobile device and application stores in Africa, Europe, Asia, North America, and South Africa. It serves mobile operators and media companies, government organizations and law enforcement agencies, premium content providers and retailers, sports clubs, and celebrities worldwide.
DBMM finalized an agreement with New York based digital marketing automation platform, BRANDmini LLC, to strategically broaden BRANDmini's delivery of its SaaS (Software as a Service) application; primarily looking after those larger clients seeking to leverage a more bespoke digital marketing service abroad. BRANDmini is a transactional marketing automation platform for creating, serving, and measuring marketing campaigns across multiple online channels and mobile devices. Our platform is integrated with leading ad networks, publishers, mobile platforms and social sites. BRANDmini's innovative In-Page technology empowers brands to engage and transact with consumers while they are browsing. Now anyone can build branded transactional ads, gadgets, social landing pages and run campaigns anywhere your customers are.
These two partnerships illustrate the execution of DBMM’s strategic direction which strengthens the Company through its revenue sharing relationships resulting in additional revenue streams.
Many clients in the UK such as Mercedes Benz, UK, Wharfside and Duvet & Pillow Warehouse have experienced increases in revenue and increases in conversion as a result of Digital Clarity’s strategic direction. These case studies are excellent resources for new clients.
Digital Clarity Named in Top Ten Best Social Media Marketing Firms in the UK for 2013
"Topseos.co.uk , an independent research firm, revealed the listing of the top 10 best social media marketing agencies in the UK based on their strength and competitive advantage. Social media marketing companies are put through a methodical analysis to ensure the rankings contain the absolute best companies the search marketing industry has to offer."
Digital Clarity was awarded a spot in the top 10. The process for researching and declaring social media marketing agencies in the UK is based on the use of a set of analysis criteria and learning more about their solutions and their communications with their customers through references. The teso.co.uk independent analysis team communicates directly with the clients in order to inquire about the solutions and achievement from the client's perspective.
Key Differentiators
2013 has been about establishing strong foundations by restructuring financially, continuing to streamline operations and assessing activities on a cost benefit basis while developing new partnerships and relationships. This focus has allowed the Company to enhance brand value for its clients. 2014 will continue to be about growth and outreach.
As the internet and mobile arena continues to mature, the need to make sense of and manage companies through this often complex market is clearly an area of massive growth. The company is confident that the talent and experience within the digital marketing team is poised for a major springboard in 2014, but must be expanded significantly in order to support the global reach intended.
Artist Collaboration, driven by Co-Chief Operating Officer and Head, US Operations, Steve Baughman, is an area that will see exponential growth in the coming 12 months and beyond. Artists and brands that look to leverage their celebrity status will look to companies such as Digital Clarity to help drive and develop their brand in the growing and complex arena of social media.
Market Reach
The Company has reach and experience across a large number of vertical markets including, but not limited to: Entertainment/Fashion/Sports/Automotive/Ecommerce.
Relationships and Industry Contacts
The team at Digital Clarity have professional and personal contacts, including some long-term relationships, at companies such as Google, Microsoft and Facebook, often being invited to attend strategic market briefings and insights.
Partnerships and agency management have allowed Digital Clarity to work on some of the biggest brands, sitting behind the agencies as a support and resource to deliver very high quality service and results to their clients.
Team Expertise
Examples:
§ PPC campaign experience especially Google AdWords existed
§ SEO evolution from aggressive link building and onsite SEO through to strategic marketing integration of inbound marketing
§ Website design and development based on results driven design and planning
§ Brand consultancy
§ Social media management and advertising. Several clients have been “won” directly via Digital Clarity’s internal social media strategy
§ Sales and account management experience from multi-disciplined backgrounds
Evolution and Flexibility
The market is continually changing. Digital Clarity has always remained ahead of the curve and given their clients peace of mind by remaining a true strategic partner.
Creative, Individualized Solutions and Customer Service
Case Studies and testimonials reflect the client-centric approach of Digital Clarity. Being selected over larger more established firms, support that we provide the client with skills that are differentiating. The Digital Clarity Brand is being established positively.
Growth opportunities in the Market
As the use of web mobile sites and applications grow, so do the complexities and challenges of using these sites and platforms commercially. Digital Clarity directs business through the maze of an often confusing and sophisticated set of barriers, to create a clear path for the customer to our clients product or service. As this market matures, the need for companies to rely on the services from Digital Clarity can only grow. Here we look at some of the growth areas in Digital Clarity’s arsenal.
Growth & Opportunities in Design
§ 644,275,754– number of active web pages 1st QTR 2012 - NetCraft
§ 6 million domains added in quarterly - Verisign
§ By 2015, Mobile Internet Usage Will Increase by Factor of 26 - CISCO
§ 665 million media tablets in use worldwide By end of 2016 - Gartner Group
Growth & Opportunities in Search
§ The North American Search industry will grow from $19.3 bn in 2011 to $26.8bn in 2013 - SEMPO
§ Revenue from Localized Mobile Ads to Reach $5.8 Billion in U.S. by 2016 - BIA/Kelsey
§ U.S. search spend grew by 11 percent Year over Year, while ROI improved by 26 percent - Adobe
§ 72% of Consumers Want Mobile-Friendly Sites - Google Research
§ 2million search queries are made on Google, every minute - Google
§ Growthin Corporate Search - 50% of Fortune 100 Companies have a Google+ Account
Growth & Opportunities in Social Media
Fortune Global 100 companies have more accounts on each platform than ever before with an average:
§ 10.1 Twitter accounts
§ 10.4 Facebook pages
§ 8.1 YouTube channels
§ 2.6 Google Plus pages
§ 2.0 Pinterest accounts
§ Seventy-four percent of companies studied have a Facebook page.
§ Ninety-three percent of corporate Facebook pages are updated weekly.
§ Forty-eight percent of companies are now on Google Plus.
§ Twenty-five percent of companies have Pinterest accounts.
§ Each corporate Facebook page has an average of 6,101 people talking about it.
The need for DBMM to reach Global Markets
It is clear that the economy continues its slow recovery from the global effect of market forces which impact on all areas of commerce and trade. As the markets remain volatile, the opportunity for a company like DBMM to approach new business with its proven track record, increases. The core markets remain US and English speaking European markets. Emerging markets are a target for 2014. BRIC countries (Brazil, Russia, India and China) will be the next targets from the emerging markets.
Internet usage is poised for explosive growth across Asia, driving massive consumer demand for digital content and services. The biggest challenge for businesses hoping to meet this demand is how to make money will while creating low-cost content. According to McKinsey & Co, India and China are driving the next digital revolution via new mobile devices.
The Company intends to further extend its services in the Middle Eastern market initially then review the successes using a lean methodology and continuous improvement along the way, and then roll out to the BRIC markets.
US
The US remains the center of the entertainment, technology and digital industries and as such the emphasis looking forward to 2014 and building on the recent success in the last quarter of the 2013 calendar year means that DBMM and its agency Digital Clarity are perfectly positioned to spring board into this market using the successful models established over the last two years.
The digital market continues to be focused on New York and Los Angeles therefore DBMM’s triangle of London/New York/LA is strategically sound. We are establishing a strong digital marketing presence in the Los Angeles area to cover the entertainment and music market and then plan to have the same model in New York. Our corporate offices are located in New York, however Los Angeles remains a key regional base from which to build and expand relationships, while a New York presence is equally important to serve and build relationships in the largest advertising market in the US.
The Asian American Market - An Unusually Attractive Opportunity
• Fast Growing: -Current Population - 13+ Million - 49% population growth 1990-2000; 29% growth 2000-2008.
• Educated & Affluent: -44% holding BA degree - vs. 28% of Non-Hispanic Whites -Median HH income almost $10K greater than Non-Hispanic Whites
• Geographically Concentrated: -More than 50% reside in 3 states alone: CA, NY, TX.
• Money to Spend:
• $509 billion in annual purchasing power.
• Entrepreneurial and Driven -Own and operate 1.1 million business nationally, generating $343 billion in annual revenue.
• Cost Efficient Reach -Almost 1,000 targeted media outlets reaching Asians nationally, with lowest CPMs of all consumer segments.
Europe
As the current base of the digital marketing agency is in London England, it is perfectly placed to reach out to the broader European market to replicate the Company’s model in the stronger economies in this region. As with the relationships mentioned in the US, opportunities were advanced with US partners to leverage Digital Clarity’s reach in this region and help take established US agencies into the European region.
In 2013, the execution of this aspect of the business plan is illustrated by the agreements with VMS and Brandmini to represent them outside the United States, initially in Europe.
Middle East
The Middle East is a fertile market for heritage based US and European brands looking for entry into this lucrative market. The fastest area for growth in this sector is to leverage on the luxury arena. Digital Clarity is already in discussions with a number of different luxury groups each with different brands within the group.
Given the complexity of the region as well as the enormous potential, it is important that Digital Clarity aligns itself with established players in local markets. With this in mind, Digital Clarity will look to collaborate with some digital agency partners where there is already a relationship and create a strategy that allows the company to look at the breakdown of current digital competence of these brands focusing on various touch points such as tablets, sites, mobile & social reach in the Middle East.
Our value proposition is very much about creating digital penetration of the Middle Eastern market for a particular group and how those brands would be positioned to create brand value – a byproduct of which would be sales.
Support for growth in the Middle East
§ Worldwide luxury goods continues double-digit annual growth; global market now tops €200 billion
§ Dubai commands around 30 per cent of Middle East luxury market and around 60 per cent of the UAE’s luxury market
§ The Dubai Mall accounts for around 50 per cent of Dubai’s luxury purchases
§ Each year, more “HENRYs” (High Earnings, Not Rich Yet) become potential customers, with ten times as many HENRYs as ultra-affluent individuals
§ The rise of the middle class in emerging countries is polarizing the competitive arena, becoming a “new baby-boom sized generation” for luxury brands to target.
Financial Overview/Outlook
DBMM began the 2013 fiscal year with significant challenges while continuing to streamline the Company which resulted in a reduction of 39% in operating expenses couple with a decrease in other expenses of 56%. While the Company is still operating at a loss, the loss was 46% less than 2012. The focus remains on the growth of digital marketing services and technology driven through Digital Clarity. The cost of sales has decreased by 19% while gross profit increased by 3%. DBMM is a marketing services company which is labor intensive in order to provide a differentiating product to its clients. As such, it is imperative to raise a significant amount of capital to hire professionals who can deliver profit to the Company within a quarter. The proven model carried in our financials is each new hire/client averages a margin of 35%-55%, straight line and simple. On that basis, our target is to recruit 10-20 new staff to represent a critical mass and scale up our revenues proportionately.
The Company restructured through a reverse stock split in early 2013 coincident with a name change and trading symbol change effective in April, 2013.
Unfortunately all of the corporate realignment took a significant portion of the fiscal year, thus a significant capital raise was deferred until 2014 in order to follow the fiscal year 2013 audit. In the interim, the Company relied on short-term financing, a practice which we do not expect to continue in 2014 when it will be replaced by long term financing.
However, the weakened share price remains a challenge to the Company. In the last two years having revenues of approximately $500,000 would suggest a conservative market multiple of x10-x16, the latter being the manufacturing average, the market cap of DBMM should be a minimum of $5,000,000. The multiples for media tend to be at the higher end of the spectrum, therefore, compared to other companies in this sector, DBMM is significantly undervalued. The issue will be addressed as a priority early in the 2014 fiscal year. Professional advisors suggested that in order to position the Company successfully with the long-term financial community, a restructuring was required. The Company concluded its reverse split and name change and post - fiscal year 2013
filing of the 10-K, will be in a good position to continue discussions with a number of target groups. In addition an investment bank in New York is collaborating with DBMM in the identification of a significant acquisition in our industry sector. Initial due diligence is now taking place.
In summary, DBMM’s financing efforts have always been in short term, small amounts of working capital. That is going to change in 2014. Going forward, DBMM intends to embark on a significant capital raise to allow the Company to scale up geographically and maximize our global reach through partnered relationships. This strategy is the most efficient and effective path to grow DBMM quickly into multiple revenue streams. We have proven the model in the last year. Our marketing services’ offering is a labor intensive endeavor, wherein human capital is a key differentiator of knowledge and/or relationships. What we have discussed here is organic growth which will be conducted in conjunction with concluding an acquisition in the digital technology/marketing services sector.
After a very difficult year, fraught with challenges and hurdles, we see 2014 as poised for growth on multiple fronts. With capital infusion, which will allow us to bring in new clients, grow existing successful clients and service them accordingly, coupled with an offer of a deferred tax asset to attract partners with significant revenue and expansion patterns, we will have a model in place which will be sustainable.
Off-Balance Sheet Arrangements
We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, could have a material effect on the accompanying financial statements.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.
Significant and Critical Accounting Policies
Our discussion of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities at the date of the financial statements. Management regularly reviews its estimates and assumptions, which are based on historical factors and other factors that are believed to be relevant under the circumstances. Actual results may differ from these estimates under different assumptions, estimates or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. See “Notes to Consolidated Financial Statements” for additional disclosure of the application of these and other accounting policies.
LIQUIDITY AND CAPITAL RESOURCES
After the Board’s strategic review post-2011 fiscal year, we have migrated the technology in-house and are concentrating on activities which will grow Digital Clarity organically and by acquisition. We spent fiscal year 2012 establishing a client model for existing and new customers which can be exported geographically.
FISCAL YEAR 2013
We had $0 cash at August 31, 2013, though we had substantial cash in the first week of fiscal 2014. Our working capital deficit amounted to approximately $2.2 million at August 31, 2013.
During fiscal 2013, we used cash in our operating activities amounting to approximately $334,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $670,000 adjusted for the following:
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| · | Fair value of shares issued of approximately $28,000 |
| · | Amortization of debt discount of approximately $248,000 |
| · | Change in fair value of derivative liability of approximately $51,000 |
| · | Bad debt expense of approximately $7,000 |
| · | Depreciation of approximately $3,000 |
Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activity:
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| · | An increase in our accounts payable and accrued expenses of approximately $119,000, resulting from slower payment processing due to our financial condition. |
| · | An increase in our accrued salaries of approximately $144,000, resulting from partial payments made due to our financial condition. |
| · | A decrease in our accounts receivable of $33,000 resulting from a decrease in sales coupled with the Company’s ability to successfully collect its fees. |
During fiscal 2013, we used cash from investing activities of approximately $600, for purchase of fixed assets.
During fiscal 2013, we generated cash from financing activities of $307,000, which consist of the proceeds from the issuance of loans and convertible notes offset by principal repayments on such debt amounting to approximately $55,000.
FISCAL YEAR 2012
We had $78,131 cash at August 31, 2012. Our working capital deficit amounted to approximately $1.5 million at August 31, 2012.
During fiscal 2012, we used cash in our operating activities amounting to approximately $489,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $1.3 million adjusted for the following:
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| · | Fair value of shares issued of approximately $319,000; |
| · | Amortization of debt discount of approximately $264,000; |
| · | Change in fair value of derivative liability of approximately $51,000; |
| · | Bad debt expense of approximately $25,000; |
| · | Interest related to modification of conversion price of debt of approximately $173,000; |
| · | Depreciation of approximately $2,000; |
Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activity:
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| · | An increase in our accounts payable and accrued expenses of approximately $1,000, resulting from slower payment processing due to our financial condition as well as an increase in expenditures of RTG Ventures (Europe). |
| · | An increase in our accrued salaries of approximately $92,000, resulting from partial payments made due to our financial condition. |
| · | A decrease in our accounts receivable of $7,000 resulting from sales made by acquisition. |
During fiscal 2012, we used cash from investing activities of approximately $2,000, for purchase of fixed assets.
During fiscal 2012, we generated cash from financing activities of approximately $509,000, which consist of the proceeds from the issuance of loans, convertible notes, and capital contributions of approximately $548,000 offset by principal repayments on such debt amounting to approximately $40,000.
RESULTS OF OPERATIONS
Comparison of the Results for the Years Ended August 31, 2013 and 2012
We currently generate revenue through our Pay-Per-Click Advertising, Search Engine Marketing, Search Engine Optimization Services, Web Design, Social Media, Digital analytics and Advisory Services.
Revenue for the years ended August 31, 2013 and 2012 was approximately $409,000 and $458,000, respectively. In 2013 our primary sources of revenue are the Per-Click Advertising, Web Design Fee Income and Search Engine Optimization Services. These primary sources amounted to greater than 84% of our revenues or approximately $343,000. Our secondary sources of revenue are SMS Fee Income, Social Fee Income, Email Media Income and SMS Media. These secondary sources amounted to approximately 16% of our revenues or approximately $50,000. In 2012 our primary sources of revenue are the Per-Click Advertising, Web Design Fee Income and Search Engine Optimization Services. These primary sources amounted to greater than 88% of our revenues or approximately $405,000. Our secondary sources of revenue are SMS Fee Income, Social Fee Income, Email Media Income and SMS Media. These secondary sources amounted to approximately 11% of our revenues or approximately $50,000.
We recognize revenue upon the completion of our performance obligation, provided that: (1) evidence of an arrangement exists; (2) the arrangement fee is fixed and determinable; and (3) collection is reasonably assured.
Cost of sales for the years ended August 31, 2013 and 2012 was approximately $234,000 and $288,000, respectively. In 2013, 100% of cost of sales included advertising, salaries and media spend. This resulted in gross margins of approximately $174,000 for the fiscal year 2013. In 2012, 100% of cost of sales included advertising, salaries and media spend. This resulted in gross margins of approximately $170,000 for the fiscal year 2012.
General and administrative costs decreased 12% to approximately $212,000 from approximately $242,000 for the fiscal years ended August 31, 2013 and 2012, respectively. This is primarily attributable to the streamlining of overhead in the parent company in the US resulting in a decrease in expenditures.
Payroll increased in 2013 by 13% to approximately $232,000 as a result of the Company’s increase in the number of employees as well as a full year of partial accrued compensation relating to one of the Company’s Co Chief Operating Officer.
Professional fees (which include accounting/auditing, consulting and legal fees) decreased by approximately $460,000 for the fiscal year ended August 31, 2013. This decrease is primarily attributable to the decreased consulting and legal fees in 2013 as well as the reversal of the consideration associated with the BrandEntertain agreement totaling $219,797.
Amortization and depreciation for the years ended August 31, 2013 and 2012 was approximately $251,000 and $266,000 respectively. The decrease is due to the full amortization of existing notes as well as the decrease in the number of new convertible notes.
Interest expense for the years ended August 31, 2013 and 2012 was approximately $176,000 and $92,000 respectively. An increase of approximately $85,000 or 92% which is the result of interest associated with the notes payable issued in 2013 and 2012 which were not converted and continue to accrue interest.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company”, as defined by Rule 10(f)(1) of Regulation S-K, the Company is not required to provide this information.
EXPLANATORY NOTE
The accompanying consolidated August 31, 2013 financial statements are in the process of being audited by the Company’s independent registered public accounting firm, RBSM, LLP, in accordance with SEC Regulation S-X and, therefore, contain only pre-audit numbers. There was considerable additional work because of a re-audit requirement of previous years which caused a delay. Once the August 31, 2013 consolidated financial statement have been audited and confirmed by the Company’s independent registered public accounting firm, the Company shall file and include the accountants audit report and financial statements by amendment on SEC Form 10-K/A. It is anticipated the audited financials for fiscal year 2013 shall be available shortly.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
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Consolidated Balance Sheets (Unaudited) | F-1 |
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Consolidated Statements of Operations (Unaudited) | F-2 |
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Consolidated Statements of Cash Flows (Unaudited) | F-3 |
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Consolidated Statement of Stockholders' Deficit (Unaudited) | F-4 |
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Notes to Consolidated Financial Statements (Unaudited) | F-5 – F-16 |
