NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN
Nature of Business and History of the Company
Digital Brand Media & Marketing Group, Inc. (f/k/a RTG Ventures, Inc.) is an OTC:QB listed company. The Company was organized under the laws of the State of Florida on September 29, 1998.
In 2006, the Company identified a business in digital technology, social media marketing and online global payment systems in the UK which lent itself to both organic growth and growth by acquisition. From that time, we had been evolving the Business Plan to maximize the opportunities and minimize the risks inherent in a challenging economic environment. Initially, all of these efforts were conducted under the contractual requirements of a Share Exchange Agreement. On March 20, 2007, we entered into a Share Exchange Agreement (the "Agreement") with Atlantic Network Holdings Limited ("ANHL"), New Media Television (Europe) Limited ("NMTV"), and Certain Outside Stockholders to acquire all of the outstanding shares of NMTV. ANHL was 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 filing by the Company of all reports required to be filed by it under the Exchange Act and the satisfactory completion of the audit of ANHL/NMTV's financial statements for each of its past three fiscal years. The conditions of closing were not met by ANHL/NMTV et al and the agreement was rescinded via 8-K/A on March 30, 2010.
Digital Brand Media & Marketing Group, Inc. (f/k/a RTG Ventures, Inc.) (the Company) 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 Digital Brand Media & Marketing Group, Inc. (f/k/a 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 were able to convert the preferred shares into common stock using the average share price of the 30 days preceding September 3, 2011 which provides a share price of $0.016083. The methodology provides for a valuation of 4X net profit. All preferred stock was held by Digital Brand Media & Marketing Group's transfer agent for the 12 month period ending September 3, 2011. All voting shares are held by management.
In August, 2009, Digital Brand Media & Marketing Group, Inc. (f/k/a RTG Ventures, Inc.) signed a Letter of Intent with International Financial Systems Ltd. (IFS) a private company, to include iPayu, which became a joint venture with RTG Ventures (Europe) Ltd in April, 2010.
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 built up over the year in the music arena as well as build on the early stage development of its CloudChannel product by bringing the technology in-house following product development disappointments of the technology being developed in Ukraine. Within this shift, it was agreed that a new, more appropriate name be given to the services and technology offered by Digital Brand Media & Marketing Group, Inc. that reflected the change and would allow the building of brand value in its own right. Pulse Station reflected that change.
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.
7
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As a further result of the review, the Company has 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 work force augmented to the technology offering would position 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.
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 Companys 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 Companys 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.
Going Concern
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis. The Company has an accumulated deficit of approximately $10,626,000 and a negative working capital at May 31, 2013 of approximately $1,965,000. The Company has incurred a net loss of approximately $420,000 for the nine months ended May 31, 2013. The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and to generate profitable operations in the future. Management plans to continue to provide for its capital requirements by seeking long term financing which may be in the form of additional equity securities and debt. The outcome of these matters cannot be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results.
These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These unaudited financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
Basis of Presentation
The interim consolidated financial statements of Digital Brand Media & Marketing Group, Inc. (we, us, our, DBMM or the Company) are unaudited and contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full year or for previously reported periods due in part, but not limited to, availability of capital resources, the timing of acquisitions, and the sensitivity of our business to economic conditions.
The accompanying unaudited consolidated financial statements have been prepared, in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. You should read these interim financial statements in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended August 31, 2012.
8
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary RTG Ventures (Europe), Ltd. All significant inter-company transactions are eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in banks. The Company considers cash equivalents to include all highly liquid investments with original maturities of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are presented net of allowance for doubtful accounts.
The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At May 31, 2013 and August 31, 2012, the Company recognized $0 and $0 as allowance for doubtful accounts, respectively.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets (primarily three to five years).
Revenue Recognition
The Company follows the guidance of ASC Topic 605, formerly, SAB 104 for revenue recognition. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.
Revenues from services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectability is probable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.
Income Taxes
The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
9
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (loss) per common share
The Company utilizes the guidance per FASB Codification ASC 260 "Earnings Per Share". Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive. Such securities have been excluded from the per share computations as of May 31, 2013 and 2012.
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of May 31, 2013, which consist of convertible instruments and rights to shares of the Companys common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
During the nine months ended May 31, 2013, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. Accordingly, the Company has recognized a derivative liability in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter and in determining which valuation is most appropriate for the instrument (e.g., Black Scholes), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate.
Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, or ASC 820, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Companys financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
| |
|
|
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
|
| |
|
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data
|
| |
|
|
Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entitys own assumptions.
|
The Company did not have any Level 2 or Level 3 assets or liabilities as of May 31, 2013, with the exception of its convertible notes payable and derivative liability. The carrying amounts of these liabilities at May 31, 2013 approximate their respective fair value based on the Companys incremental borrowing rate.
10
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments (continued)
Cash is considered to be highly liquid and easily tradable as of May 31, 2013 and therefore classified as Level 1 within our fair value hierarchy.
In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for Accounting for Derivative Instruments and Hedging Activities.
Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as The Meaning of Conventional Convertible Debt Instrument.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when Accounting for Convertible Securities with Beneficial Conversion Features, as those professional standards pertain to Certain Convertible Instruments. Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815-40 provides that, among other things, generally, if an event is not within the entitys control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Stock Based Compensation
We account for the grant of stock options and restricted stock awards in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation.
11
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
Assets and liabilities of subsidiaries operating in foreign countries are translated into U.S. dollars using both the exchange rate in effect at the balance sheet date or historical rate, as applicable. Results of operations are translated using the average exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are included in a separate component of stockholders equity (accumulated other comprehensive loss), while gains and losses resulting from foreign currency transactions are included in operations.
Business Combinations
In accordance with Accounting Standards Codification 805, "Business Combinations" ("ASC 805") the Company records acquisitions under the purchase method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. The Company utilizes management estimates and, in some instances, may require an independent third-party valuation firm to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.
Recently Issued Accounting Pronouncements
A variety of accounting standards have been issued or proposed by FASB that do not require adoption until a future date. We regularly review all new pronouncements that have been issued since the filing of our Form 10-Q for the quarter ended May 31, 2013 to determine their impact, if any, on our financial statements. The Company does not expect the adoption of any of these standards to have a material impact once adopted.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
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|
|
May 31,
|
|
August 31,
|
|
Estimated life
|
|
2013
|
|
2012
|
Computer and office equipment
|
3 to 5 years
|
|
$
|
8,796
|
|
$ 8,379
|
Less: Accumulated depreciation
|
|
|
|
(6,189
|
)
|
(4,092)
|
|
|
|
$
|
2,607
|
|
$ 4,287
|
Depreciation expense amounted to $2,098 and $1,496 for the quarters ended May 31, 2013 and 2012 respectively.
NOTE 4 - LOANS PAYABLE
|
|
May 31,
|
|
August 31,
|
|
|
2013
|
|
2012
|
Loans payable
|
|
$
|
554,000
|
|
$
|
269,500
|
In July 2010 an officer of the Company sold $140,000 of debt to a shareholder. The debt was due on demand and bears no interest.
During the year ended August 31, 2011 a shareholder loaned the Company $30,500. The debt is due on demand and bears no interest. The loan was assumed by an officer of the Company and simultaneously contributed to capital.
12
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
During the year ended August 31, 2011 an officer of the Company sold $450,000 of debt to the same shareholder. The debt is due on demand and bears no interest. During the year ended August 31, 2011, the Company issued approximately 308,177 shares as partial payment of the loan valued at $434,392, in which $367,500 related to the principal portion and $66,892 was recorded as a loss on debt settlement. The balance remaining to the shareholder is $253,000 as of August 31, 2011.
During the year ended August 31, 2012, $30,500 of the loan payable was assumed by an officer and $100,000 was assigned to a nonaffiliated third party. In addition this shareholder purchased $150,000 of debt that was owed to an officer of the Company and funded the Company $225,500. As of August 31, 2012, the Company has issued 1,489,375common shares as a partial repayment of the debt amounting to $228,500 and made cash payments of $10,000. The balance remaining amounted to $269,500 which is due on demand and bears no interest.
During the nine months ended May 31, 2013 a shareholder loaned the Company $104,500. The debt is due on demand and bears no interest. On April 30, 2013, the Company repaid $10,000 of principal and $2,000 of interest relating to the outstanding loans.
During the nine months ended May 31, 2013, the Company and an issuer of two convertible debentures totaling $110,000 and accrued interest of $4,570 restructured the convertible notes to a non-convertible loan totaling $185,000. The Company recorded the additional $70,430 as interest expense. On May 16, 2013, the Company repaid $5,000 relating to this loan.
NOTE 5 CONVERTIBLE NOTES PAYABLE
At May 31, 2013 and August 31, 2012 convertible debentures consisted of the following:
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|
|
May 31, 2013
|
|
|
August 31, 2012
|
|
|
(Unaudited)
|
|
|
Convertible notes payable
|
|
$
|
333,957
|
|
$
|
388,351
|
Unamortized debt discount
|
|
|
(91,739)
|
|
|
(137,709)
|
Total
|
|
$
|
242,218
|
|
$
|
250,642
|
In March, 2010, the Company issued a convertible debenture in the amount of $25,000 at 0% interest. The note matured in September 2010 and was convertible into shares of the Companys common stock at $.01 per share.
In March 2011, the Company received $81,653 from a non-affiliated third party in the form of a convertible debenture at 0% interest and is due on demand. This note is convertible into approximately 80,000 shares of common stock.
Effective September 1, 2010 the Company adopted (FASB ASC 815-40-15-5) ("ASC 815") "
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock
" which outlines new guidance for being indexed to an entity's own stock and the resulting liability or equity classification based on that conclusion. The adoption of ASC 815 affects the accounting for convertible instruments with provisions that protect holders from declines in the stock price ("down - round" provisions).
In March, April, May and July 2011, the Company entered into agreements with a third party non-affiliate to four 8% interest bearing convertible debentures for $203,000 due in nine months (The 8% Convertible Notes), with the conversion features commencing 6 months after the loan issuance date. The loans are convertible at an average share price computed on the 30 days prior to conversion. In connection with these debentures, the Company recorded a $207,705 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note was converted or repaid. As of August 31, 2012 these notes have been converted into 2,663,719 shares of common stock which were sold into the public market under Rule 144 completed April 2012. The Company has recorded amortization expense amounting to $100,533 for the year ended August 31, 2012.
During the year ended August 31, 2012, the Company entered into convertible loans with third party non-affiliates in which $100,000 of debt was assigned from a shareholder and $248,156 was received in cash. These loans bear interest ranging from 0% - 15% and mature in one year or less. They are convertible in six months or less at a discount based on average share prices ranging between 10 and 30 days. As a result the Company recorded $300,758 in debt discount related to the beneficial conversion feature. In connection with these debentures, the Company has recorded amortization expense amounting to $263,585 for the years ended August 31, 2012 with $137,709 net discount balance remaining. As of August 31, 2012, $250,500 of debt was converted into 3,797,719 shares of common stock and $29,625 has been paid in cash. As of August 31, 2012, the balance of the Companys convertible debt amounts to $250,642, net of discount.
13
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 CONVERTIBLE NOTES PAYABLE
(continued)
During the nine months ended May 31, 2013, the Company and an issuer of two convertible debentures totaling $110,000 and accrued interest of $4,570 restructured the convertible notes to a non-convertible loan totaling $185,000.
During the nine months ended May 31, 2013, the Company entered into convertible loans with third party non-affiliates in which $125,000 was received in cash. These loans bear interest ranging from 5% - 12% and mature in one year or less. They are convertible in one year or less at a discount based on average share prices ranging between 10 and 30 days. As a result, the Company recorded $125,000 in debt discount related to the beneficial conversion feature in connection with these debentures, $45,000 of which was initially recorded as a derivative liability due to the variable convertible terms and $80,000 was recorded in additional paid in capital. During the nine months ended May 31, 2013, the Company has recorded amortization expense amounting to $170,967 for the nine months ended May 31, 2013 with $91,739 net discount balance remaining. As of May 31, 2013, the balance of the Companys convertible debt amounts to $242,218, net of discount.
NOTE 6 - DERIVATIVE LIABILITIES
The Company accounts for the embedded conversion features included in its convertible instruments. The aggregate fair value of derivative liabilities at May 31, 2013 and August 31, 2012 amounted to $126,213 and $112,828, respectively. In addition, for the nine months ended May 31, 2013 and 2012, the Company has recorded a gain (loss) related to the change in fair value of the derivative liability amounting to $31,615 and $(213,323), respectively. At each measurement date, the fair value of the embedded conversion features was based on the binomial and the Black Scholes method, respectively.
NOTE 7 ACCRUED PAYROLL
As of May 31, 2013 and August 31, 2012 the Company owes $803,469 and $716,475 respectively, in accrued salary to its employees. The amounts are non-interest bearing.
During the year ended August 2012, the Company and an officer agreed to end accruing the officers salary as of August 31, 2011. The officer was issued 268,367 shares of preferred stock to satisfy the accrued salary balance through August 31, 2011. The issuance of preferred stock may, if mutually agreed, continue annually in each fiscal year.
NOTE 8 - COMMON STOCK AND PREFERRED STOCK
In September, 2011, 65,000 shares of common stock were valued at $58,500 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 connection with compensation.
In March 2012, 97,596 shares of preferred stock were converted into 51,769 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.
14
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMON STOCK AND PREFERRED STOCK
In November 2012, 41,995 shares of preferred stock were issued for an accrual to satisfy a debt of $35,824.
In November 2012, 433,637 shares of preferred stock 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 series 1 preferred stock were converted into 26,314,099 shares of restricted common stock by an officer of the Company.
As of May 31, 2013 there are 2,000,000 shares authorized of $.001 par value series 1 preferred stock, of which 935,402 were outstanding.
As of May 31, 2013 there are 2,000,000 shares authorized of $.001 par value series 2 preferred stock, of which 0 were outstanding.
As of May 31, 2013 there are 1,000,000,000 shares authorized of $.001 par value common stock, of which 35,842,074 were issued and outstanding.
During the nine months ended May 31, 2013, 2,027,995 shares of restricted common stock were issued to satisfy $69,396 of loans payable.
During the nine months ended May 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 $219,798 was reversed and reflected in the statement of operations as a reduction to consulting expense.
NOTE 9 CAPITAL CONTRIBUTION
During the year ended August, 2011 an officer of the Company made contributions of $190,000 to assist with Company accounts payable and various professional fees. These contributed funds are considered paid in capital.
During the year ended August, 2012 an officer of the Company made contributions of $95,000 to assist with Company accounts payable and various professional fees. These contributed funds are considered paid in capital.
NOTE 10 - EMPLOYMENT AND CONSULTING AGREEMENTS
In April, 2010 a term sheet was agreed with a Company officer for annual remuneration of £100,000 ($160,000) for the Chairman and Director of the Company, Mr. Neil Gray. Mr. Gray may receive a bonus totaling 50-75% of his base salary after certain Company performance objectives are achieved following the first year of operation. In 2010, Mr. Gray as a sign on bonus received 3.0 million restricted shares. The term sheet is ongoing and renewable on an annual basis with accruals ceasing as of August 31, 2011. The issuance of preferred stock may, if mutually agreed continue annually in each fiscal year. Mr. Grey's term sheet was renewed on September 1, 2012.
In September 2010 a term sheet was agreed with a company officer for annual remuneration of $150,000 with Ms. Linda Perry for her role as a consultant and as Executive Director for US interface/oversight regarding external regulatory reporting requirements. In addition, she is lead executive for capital funding requirements and business development. The term sheet is ongoing and renewable on an annual basis. Ms. Perry's term sheet was renewed on September 1, 2012.
In April, 2011 a term sheet was agreed with a Company officer, Mr. Reggie James, where remuneration was split between his duties as Co-Chief Operating Officer, Senior Vice President and Executive Director of Digital Brand Media and Marketing Group, Inc. and Managing Director of Digital Clarity. The term sheet is ongoing and renewable on an annual basis. Mr. James's term sheet was renewed on September 1, 2012.
In June 2012, a term sheet was agreed with the Steven Baughman, Co-Chief Operating Officer and Head, US Operations with a sign on bonus of 50,000 preferred shares, further compensation is performance reflecting multiple projects and business development activities.
15
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS