DBMM 10-Q
Digital Brand Media & Marketing Group, Inc. (DBMM)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
For the transition period from to
Commission file number:
DBMM GROUP
WWW.DBMMGROUP.COM
(Exact name of small business issuer as specified in its charter)
(Address of principal executive offices)
State of incorporation
IRS Employer Identification No.
(
(Issuer's telephone number, including area code)
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such Files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☐
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | |
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Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date:
| Date | Shares Outstanding |
| July 17, 2023 | |
INDEX
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Page No |
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PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION - UNAUDITED |
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3 |
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Condensed Consolidated Balance Sheets as of May 31, 2023 (unaudited) and August 31, 2022 (audited) |
3 |
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4 |
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5 |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
15 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
30 |
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30 |
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PART II. OTHER INFORMATION |
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31 |
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31 |
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Item 2. Unregistered Sale of Equity Securities and Use of Proceeds |
31 |
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31 |
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32 |
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32 |
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32 |
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33 |
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
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DIGITAL BRAND MEDIA & MARKETING GROUP, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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(Unaudited) |
(Audited) |
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May 31, |
August 31, |
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2023 |
2022 |
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ASSETS |
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CURRENT ASSETS |
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Cash |
$ | $ | ||||||
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Accounts receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment - net |
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TOTAL ASSETS |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
$ | $ | ||||||
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Accrued interest |
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Accrued compensation |
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Derivative liability |
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Loans payable, net |
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Officers loans payable |
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Convertible debentures, net |
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Loan payable, net of short-term portion |
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TOTAL LIABILITIES |
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STOCKHOLDERS' DEFICIT |
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| Preferred stock, Series 1, par value shares; |
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| Preferred stock, Series 2, par value shares; |
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| Common stock, par value shares: |
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Additional paid in capital |
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Other comprehensive loss |
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Accumulated deficit |
( |
) |
( |
) |
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TOTAL STOCKHOLDERS' DEFICIT |
$ | ( |
) |
$ | ( |
) |
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
$ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
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DIGITAL BRAND MEDIA & MARKETING GROUP, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |
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For the Three Months Ended May 31, |
For the Nine Months Ended May 31, |
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2023 |
2022 |
2023 |
2022 |
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(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
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SALES |
$ | $ | $ | $ | ||||||||||||
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COST OF SALES |
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GROSS PROFIT |
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COSTS AND EXPENSES |
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Sales, general and administrative |
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TOTAL OPERATING EXPENSES |
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OPERATING LOSS |
( |
) |
( |
) |
( |
) |
( |
) |
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OTHER (INCOME) EXPENSE |
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Interest expense |
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Other income |
( |
) |
( |
) |
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Loss (gain) on settlement of debt |
( |
) |
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Change in fair value of derivative liability |
( |
) |
( |
) |
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TOTAL OTHER (INCOME) EXPENSES, NET |
( |
) |
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NET INCOME (LOSS) |
$ | $ | ( |
) | $ | ( |
) |
$ | ( |
) |
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OTHER COMPREHENSIVE LOSS |
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Foreign exchange translation |
( |
) |
( |
) |
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COMPREHENSIVE INCOME (LOSS) |
( |
) |
( |
) |
( |
) |
( |
) |
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NET LOSS PER SHARE |
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Basic |
$ | ( |
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$ | $ | ( |
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$ | ( |
) |
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Diluted |
$ | ( |
) |
$ |
$ |
( |
) | $ | ( |
) |
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WEIGHTED AVERAGE NUMBER OF SHARES |
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Basic |
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Diluted |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
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DIGITAL BRAND MEDIA & MARKETING GROUP, INC., AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT |
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For the Nine Months Ended May 31, |
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2023 |
2022 |
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(Unaudited) |
(Unaudited) |
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Series 1 |
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Preferred Stock |
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Shares, beginning and end of period |
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Preferred Stock |
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Balance, beginning and end of period |
$ | $ | ||||||
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Series 2 |
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Preferred Stock |
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Shares, beginning and end of period |
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Preferred Stock |
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Balance, beginning and end of period |
$ | $ | ||||||
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Common Stock |
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Shares, beginning of period |
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Issuance of shares under convertible debt settlement |
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Shares, end of period |
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Balance, beginning of period |
$ | $ | ||||||
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Issuance of shares under convertible debt settlement |
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Balance, end of period |
$ | $ | ||||||
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Additional paid-in capital |
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Balance, beginning of period |
$ | $ | ||||||
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Issuance of shares under convertible debt settlement |
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Balance, end of period |
$ | $ | ||||||
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Other Comprehensive Income (Loss) |
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Balance, beginning of period |
$ | $ | ( |
) |
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Other comprehensive income (loss) |
( |
) | ||||||
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Balance, end of period |
$ | $ | ||||||
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Accumulated Deficit |
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Balance, beginning of period |
$ | ( |
) |
$ | ( |
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Net loss |
( |
) |
( |
) |
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Balance, end of period |
$ | ( |
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$ | ( |
) |
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Total Stockholders' Deficit |
$ | ( |
) |
$ | ( |
) |
||
See Notes to Unaudited Condensed Consolidated Financial Statements.
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DIGITAL BRAND MEDIA & MARKETING GROUP, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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For the nine months ended |
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May 31, |
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2023 |
2022 |
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(Unaudited) |
(Unaudited) |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
$ | ( |
) |
$ | ( |
) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Change in fair value of derivative liability |
( |
) |
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Loss on extinguishment of debt |
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Changes in operating assets and liabilities: |
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Accounts receivable |
( |
) |
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Accounts payable and accrued expenses |
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Accrued interest |
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Accrued compensation |
( |
) |
( |
) |
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NET CASH USED IN OPERATING ACTIVITIES |
( |
) |
( |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of equipment |
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NET CASH USED IN INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from loans payable |
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Principal repayments loan payable |
( |
) |
( |
) | ||||
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Officers loans payable |
( |
) |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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EFFECT OF VARIATION OF EXCHANGE RATE OF CASH |
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HELD IN FOREIGN CURRENCY |
( |
) |
( |
) |
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NET INCREASE/(DECREASE) IN CASH |
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CASH - BEGINNING OF PERIOD |
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CASH - END OF PERIOD |
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Supplemental disclosures of cash flow information: |
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Cash paid for interest |
$ | $ | ||||||
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Cash paid for taxes |
$ | $ | ||||||
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Noncash investing and financing activities |
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Issuance of shares of common stock under convertible debt settlement |
$ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
NOTES TO UNAUDITED CONDENSED 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. (“The Company” or “DBMM”) is an OTC:PK listed company. The Company was organized under the laws of the State of Florida on September 29, 1998.
The Company strategically focuses 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 of 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.
Following the acquisition of Digital Clarity in 2011 the Company has been honing its business model to be the differentiating service provider in digital marketing space to its clients and prospective business as DBMM grows into one of the leaders in the industry going forward.
Today, 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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the nine months ended May 31, 2023 are not necessarily indicative of the results that may be expected for the year ending August 31, 2023. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended August 31, 2022.
Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. The financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.
The Company has outstanding loans and convertible notes payable aggregating $
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Stylar (DBA Digital Clarity). All significant inter-company transactions are eliminated. The Company has dissolved RTG Ventures (Europe) Limited, a dormant subsidiary during November 2022 and the subsidiary was removed from the United Kingdom Companies House in February 2023.
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. The Company had no cash equivalents as of May 31, 2023.
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 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. The Company had no allowance for doubtful accounts as of May 31, 2023.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets (primarily
Revenue Recognition
Revenue is recognized upon transfer of control of promised or services to customers in an amount that reflects the consideration we expect to receive in exchange for those services. We enter into contracts that can include various combinations of services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
Nature of Services
The Company generally provides its services to companies primarily located in Europe but with international exposure. The Company generally provides its services ratably over the terms of the contract and bills such services at a monthly fixed rate. Some of the services are billed quarterly. The Company’s services are sold without guarantees.
Significant Judgments
Our contracts with customers sometimes include promises to transfer multiple services to a customer. Determining whether services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine Standalone Selling Price (SSP) for each distinct performance obligation. The Company uses a single amount to estimate SSP for items that are not sold separately, including set-up services, monthly search advertising services, and monthly optimization and management.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.
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. Included in these estimates are assumptions about the collection of its accounts receivable, converted amount of cash denominated in a foreign currency, and estimated amounts of cash, the derivative liability could settle, if not in common shares. Actual results could differ from those estimates.
Income Taxes
The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.
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 for the nine months period ended May 31, 2023 and the three and nine-month periods ended May 31, 2022. During the three-month period ended May 31, 2023, the dilutive securities amounted to
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of May 31, 2023, which consist of convertible instruments and rights to shares of the Company’s 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 six-month period ended May 31, 2023 and 2022, 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., Binomial method), 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 Company’s 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 entity’s own assumptions. |
The Company did not have any Level 2 or Level 3 assets or liabilities as of May 31, 2023, with the exception of its derivative liability which are valued based on Level 3 inputs.
Cash is considered to be highly liquid and easily tradable as of May 31, 2023 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 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 provide 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 entity’s 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.
Foreign Currency Translation
Assets and liabilities of subsidiaries operating in foreign countries are translated into U.S. dollars using either 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.
Concentration of Risks
The Company’s accounts and receivable as of May 31, 2023 and August 31, 2022 and revenues for the nine-month period ended May 31, 2023 and 2022 are primarily from four customers.
Recently Issued Accounting Pronouncements
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed consolidated financial statements.
NOTE 3 – PROPERTY AND EQUIPMENT
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Estimated Life |
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May 31, 2023 |
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August 31, 2022 |
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Computer and office equipment |
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$ |
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$ |
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Less: Accumulated depreciation |
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( |
) |
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( |
) |
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$ |
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$ |
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NOTE 4 – LOANS PAYABLE
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May 31, 2023 |
August 31, 2022 |
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Loans payable |
$ | $ | ||||||
|
May 31, 2023 |
August 31, 2022 |
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|
Loans payable short-term |
$ | $ | ||||||
|
Loans payable long-term |
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| $ | $ | |||||||
The loans payables are generally due on demand and have not been called, are unsecured, and are bearing interest at a range of
The company may have to provide alternative consideration (which may be in cash, fixed number of shares or other financial instruments) up to amounts accrued to satisfy its fixed obligations under certain unsecured loans payable. The consideration hasn’t been issued yet and is included in accrued expenses and interest expense and was valued based on the fair value of the consideration at issuance.
The aggregate schedule maturities of the Company’s loans payable outstanding as of May 31, 2023 are as follows:
|
2024 |
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$ |
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NOTE 5 – CONVERTIBLE DEBENTURES
The Company’s convertible debentures consisted of the following:
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May 31, 2023 |
August 31, 2022 |
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The convertible debentures matured in 2015, and bear interest at ranges between
No convertible debentures have been issued since 2015 and none executed since 2016. Certain settlements with holders of convertible debentures have been agreed since 2018 to the benefit to the Company.
NOTE 6 – OFFICERS LOANS PAYABLE
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May 31, 2023 |
August 31, 2022 |
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The loans payables are due on demand, are unsecured, and are non-interest bearing.
NOTE 7 – DERIVATIVE LIABILITIES
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NOTE 8 – ACCRUED COMPENSATION
As of May 31, 2023, and August 31, 2022, the Company owes $
NOTE 9 – COMMON STOCK AND PREFERRED STOCK
Preferred Stock- Series 1 and 2
The designation of the Preferred Stock- Series 1 is as follows: Authorized
The designation of the Preferred Stock- Series 2 is as follows: Authorized
Common Stock
The Authorized Shares were increased to
The Company successfully reached an agreement with a holder of convertible debentures aggregating $
The Company successfully reached an agreement with a holder of convertible debentures aggregating $
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under non-cancellable operating leases which are renewable monthly. The leases have monthly base rents. The latest monthly base rent for the Company’s facilities ranges between $
Rental expense amounted to $
The Company successfully reached an agreement with one its lessors to reduce its liability by $
Consulting Agreement
The annual compensation of Linda Perry amounts to $
Legal Proceedings
From time to time, the Company has become or may become involved in certain lawsuits and legal proceedings which arise in the ordinary course of business. The Company intends to vigorously defend its positions. However, litigation is subject to inherent uncertainties and an adverse result in those or other matters may arise from time to time that may harm its financial position, or our business and the outcome of these matters cannot be ultimately predicted.
NOTE 11 – FOREIGN OPERATIONS
As of May 31, 2023, a majority of our revenues and assets are associated with subsidiaries located in the United Kingdom. Assets at May 31, 2023 and revenues for the nine-month period ended May 31, 2023 were as follows (unaudited)
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As of May 31, 2022, a majority of our revenues and assets are associated with subsidiaries located in the United Kingdom. Assets at May 31, 2022 and revenues for the nine-month period ended May 31, 2022 were as follows (unaudited)
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NOTE 12 – SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to May 31, 2023 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose with the exception of the following:
During June 2023, the Company issued
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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” above. 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.
OPERATIONS OVERVIEW/OUTLOOK
The Company developed a document called the Creds Deck which provides a description to prospective clients of Digital Clarity’s value proposition http://www.dbmmgroup.com/wp-content/uploads/2023/07/DBMM_Creds_Deck_2023.pdf
The fiscal year 2023 has focused on a slow return to normalcy though businesses have faced enormous challenges over the past few years, and DBMM's operating business Digital Clarity, is no exception. However, for context, it is worth reminding investors and shareholders, that Digital Clarity was acquired by DBMM as a cash-flow positive business with a great reputation and industry network, winning industry awards.
As stated in the MD&As for many years, the operating business is cash flow positive, but the costs of maintaining a public company far exceed the profit in those early days. That was expected. That is the digital business model, though many digital companies do not have any operating revenues while they build the business.
Though the post-pandemic era still leaves scars, there is also an opportunity for lean organizations to take advantage of the new and challenging landscape that will no doubt still impact the overall economy.
Most analysts are clear the challenges globally, though different from the pandemic, will continue to have an impact in 2023.
Businesses will have to deal with the after-effects of not only the global pandemic but new challenges. The backdrop as we enter 2023, it is clear that B2B leaders are bracing for economic upheaval. Concerns about inflation, higher interest rates, supply chain shortages, and the prospect of a looming recession are already forcing go-to-market leaders to rethink their growth strategies.
Though the general business sentiment is pessimistic, Digital Clarity has adapted its model to continually seek to focus on areas that will allow the business not only to survive during the turmoil but thrive as we come out of the challenging economic backdrop.
Digital Clarity has been pivoting during these challenging headwinds and working to build upon its experience in the B2B space and engaging with prospects in the SaaS and Tech market. The company is also looking to develop business in Web3 and Ai sectors as companies look to adapt to a changing business customer base.
WHY DIGITAL EXPERTS CONTINUE TO BE IN DEMAND
The world has changed. Digital is now within the fabric of everyday life. As consumer markets plateau and come under pressure, the move by Digital Clarity to meet the needs of the business-to-business sector, is both timely and has commercial growth potential.
The B2B buyer journey is complex. This is why experts like Digital Clarity need to be involved from the start.
Savvy communication experts like Digital Clarity produce ideas that shape perceptions and grow markets. There has never been a better time to navigate into the B2B Marketplace as demand for an experienced, safe pair of hands is required. This sector is growing rapidly and the demand for expertise and skill to help businesses in marketing their services and products is sought after. B2B digital ad spending is projected to reach $18.47 billion by 2024, it will account for nearly 50% of total B2B ad spending that year according to Insider Intelligence.
A hybrid approach to marketing in line with hybrid sales departments is expected to be the most dominant sales strategy by 2024 due to shifts in customer preferences and remote-first engagement according to McKinsey, The future of B2B sales Report 2022. Hybrid will drive up to 50 percent more revenue by enabling broader, deeper customer engagement and unlocking a more diverse talent pool than more traditional models.
Winning B2B organizations are shifting to a more hybrid sales force by implementing actions that support success.
To keep up with the ever-changing scene, digital marketing experts need to stay in step with the evolving tech trends. Social media marketing companies like ours work tirelessly to research consumers and what makes them engage with brands. We try to find the best online solutions that will cater to our client’s end-users queries in the easiest and most cost-efficient way possible -- be it by developing new technology or adapting to trends.
RELENTLESS DIGITAL GROWTH POSITIONS DIGITAL CLARITY AS A LEADER
The need for seasoned expertise and insight is in huge demand. Digital Clarity’s strength, heritage, and reach in digital marketing puts the DBMM brand in an excellent position for investment and growth. As the consumer-facing market becomes even more commoditized, the company’s move to serving the business sector (B2B) will see it leveraging experience for growth.
Though the pandemic is certainly not over, the business world entered into a period of recovery in 2022. In the process, it’s become apparent that even if the ongoing shift toward digital and mobile advertising in B2B might slow down to a degree, it’s not going to stop.
THE SHIFT TO DIGITAL IS PERMANENT
Despite slower growth, digital will continue to command a greater overall share as more B2B marketers make the permanent shift from traditional advertising to online activities.
One of the most pronounced effects the pandemic had on B2B marketing was exponentially accelerating its transition into digital. As the business world begins recovering from the pandemic and returning to more traditional models, this transition has slowed down. The past year has affirmed, however, that it will not stop.
HOW MACHINE LEARNING IS ENHANCING DIGITAL MARKETING STRATEGY
Digital Clarity applies strategy to algorithmic based machine learning tools. The launch of Google’s new machine learning tool, RankBrain which contributes to search engine results, left many people wondering what impact machine learning would have in the realm of Search Engine Optimization (SEO).
With the tech industry going crazy for all things Artificial Intelligence (AI), Natural Language Processing (NLP), machine learning, and chatbots – companies like Digital Clarity help brands make sense of this ever-changing landscape.
MACHINE LEARNING AND DIGITAL MARKETING
Because machine learning is being used to solve a huge set of diverse problems with the help of data, channels, content, and context, as marketers, Digital Clarity stands to benefit from this information and phenomenon as a whole. But, as the information we gather grows, digital marketing as we know it is set to change. Digital Clarity will be at the forefront of this change.
PAY PER CLICK (PPC) CAMPAIGNS
With Google launching new “smart” features such as Google Smart Bidding, Smart Display Campaigns, and In-Market Audience to help businesses maximize conversions, it is clear that the future of PPC lies in machine learning.
To become more strategic and take PPC campaigns to the next level for its clients, Digital Clarity:
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Get to grips with the metrics that are most valuable to your business |
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Understand obstacles that could get in the way of meeting your goals |
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Know the underlying performance drivers to make more strategic decisions |
SEARCH - OVERALL
Search makes up half (52%) of advertising spend, increasing on par at 15% to $4.3bn, next is non-video display at $1.73bn (+9%), then video display $1.2bn (40%). Classifieds remains at $949m and other remained at $53.3m.
DIGITAL CLARITY EMBRACE GOOGLE’S MACHINE LEARNING MARKETING SUITE
Machine learning and AI have grown at a rapid pace and are an integral part of day to day search advertising management and planning. Though machine learning has been an integral part of the ad world, what has been more significant has been the addition of Artificial Intelligence or AI. According to a recent report in The Harvard Business Review by Deloitte, AI in Digital Marketing is not just getting bigger, it’s getting far more persuasive
MIT researchers recently unveiled a chip that can perform inference using neural network computations three to seven times faster than previous chips, and with up to 95 percent less power consumption. Dozens of companies working on new generations of AI chips—for use both in and outside of data centers—are attracting significant investment. These companies raised more than $1.5 billion in funding last year, nearly twice the amount they raised the year before.
DIGITAL CLARITY PERFECTLY POSITIONED FOR THE FUTURE
According to Gartner's Digital Business Acceleration report: Where to Focus Now, Enterprises have the intention of becoming more digital due to COVID-19.
SALES ARE GOING DIGITAL
Disruptive buyer dynamics are rewriting the rulebook for B2B sales, demanding digital-first engagement with customers. The rise in digital sales will be driven by marketing that creates demand and trust in brands.
This doesn’t portend the eventual “death of the sales rep,” but it does signal drastic changes needed in the seller role. Sales leaders must deliver significant value through digital and omnichannel sales models, aided by sales professionals who can steer self-learning customers toward more confident decisions. Digital delivers this.
THE GROWTH OF THE DIGITAL OMNICHANNEL
Gartner research shows a steady shift of customer preferences from in-person sales interactions to digital channels. B2B buyers spend only 17% of the total purchase journey with sales reps.
Because the average deal involves multiple suppliers, a sales rep gets roughly 5% of a customer’s total purchase time. And 44% of millennials prefer no sales rep interaction at all in a B2B setting.
Sales leaders must deliver significant value through digital and omnichannel sales models, aided by sales professionals who can steer self-learning customers toward more confident decisions.
OMNICHANNEL IS THE STANDARD, NOT THE EXCEPTION
Digital Clarity can help organizations adopt the B2B Omnichannel. Eight in ten B2B leaders say that omnichannel is as or more effective than traditional methods, a sentiment that has grown sharply in the last 2 years. Even as in-person engagement re-emerged as an option, buyers made clear they prefer a cross-channel mix, choosing in-person, remote, and digital self-serve interactions in equal measure.
Increasing demands from customers, the proliferation of sales channels, the increase in data availability, and the need to personalize content have driven the need for sales and marketing teams to work as one. In fact, 89 percent of respondents now say that marketing and sales need to work closely together, more so than ever before.
To help enable and drive increased sales, marketing teams have been busy. Fifty-two percent of respondents say their companies have conducted extensive primary research to improve customer experience. Another 51 percent have invested in new capabilities to enable personalized marketing, while 45 percent say their companies have recently re-evaluated the role of marketing in their organization overall.
McKinsey says that the equilibrium is no accident. As B2B buyers flexed to remote and digital ways of engaging, they found much to like. The use and preference for e-commerce—self-serve, for example—has continually grown year on year.
Omnichannel is more effective than traditional sales models alone. As more companies enable face-to-face, remote, and e-commerce interactions, satisfaction with the sales model has grown exponentially. More than 90 percent of B2B companies say their go-to-market model is just as or more effective than before the pandemic began.
DIGITAL CLARITY PERFECTLY POSITIONED FOR GROWTH
Organizations will have to fight hard to retain loyalty if customer needs are not met: for example, eight in ten B2B decision makers say they will actively look for a new supplier if performance guarantees.
Buyers are more willing than ever before to spend big through remote or online sales channels, with 35 percent willing to spend $500,000 or more in a single transaction. Seventy-seven percent of B2B customers are also willing to spend $50,000 or more.
B2B customers now regularly use ten or more channels to interact with suppliers.
Digital Clarity is a specialist in many of these channels and has been for a number of years. This expertise, experience, and trust will put Digital Clarity front of mind for organizations as they seek professional advice.
Some of the channels of focus are:
B2B DIGITAL MARKETING SERVICES
There is no denying the last year has proved challenging for Digital Marketing Services.
That said, the need for specialist marketing advisors is in demand. Google still dominates as part of the buying journey for both top and bottom of the buying funnel. SEO and Google’s algorithm has become more complex. Digital Clarity are perfectly positioned to help companies navigate the complexities.
CONTENT MARKETING
Content has become a critical tool in the marketing mix for almost every B2B brand. Nine out of ten B2B marketers are using content marketing strategies to pull in new customers. This year, the most successful marketers were already spending 40% or more of their budget on their content strategy.
At its simplest, B2B content marketing is when a brand uses stories, ideas, and insights to engage and influence a business audience.
There is a realization amongst B2B brands that rather than being faceless organizations, they need to tell their brand’s story and show a more human side to their business, endear and promote demand from other businesses and customers. The best content marketing campaigns back up these stories and ideas with robust insights: interesting data points, original research, and real-world examples that help their customers understand a new trend or challenge and equip them with the tools and best practices to respond and thrive.
These data points and research is utilized by Digital Clarity to support companies in shaping their content strategy. Typically, areas that Digital Clarity help clients are:
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Blog posts – marketers who make blogging a priority are 13x more likely to see a positive ROI for their efforts. |
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White papers – favored by 22% of business leaders, these longer research-based reports provide more in-depth information. Learn more about writing a compelling B2B marketing white paper here. |
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Short-form articles – enjoyed by 37% of execs, these have to research-based if they are to stand out. |
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Case studies – these provide buyers with reassurance further down the buying funnel and can be made sector-specific. Nearly half of all business leaders appreciate them. |
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Infographics – these have become one of the most popular content marketing tools in recent years. |
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Podcasts – increasingly popular lead generation tools with marketers looking to deliver thought leadership content to buyers on the move. |
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Videos – companies using video, experience clickthrough rates that are 27% higher and web conversion rates 34% greater than those that don’t. |
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Email – nearly eight out of 10 marketers report see g an increase in email engagement over the past 12 months of 2022. |
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LinkedIn – generates more than 50% of all social traffic to B2B websites & blogs. |
CONTENT IS INFORMATION, AND DISCOVERABLE INFORMATION DRIVES REVENUE
Information drives purchase ease and high-quality sales
All of this looping around and bouncing from one job to another means that buyers value suppliers that make it easier for them to navigate the purchase process.
In fact, Gartner research found that customers who perceived the information they received from suppliers to be helpful in advancing across their buying jobs were 2.8 times more likely to experience a high degree of purchase ease, and three times more likely to buy a bigger deal with less regret.
Digital Clarity has a process that helps shape their client’s content to become more discoverable information, and this increases revenues.
Buyer enablement, or the provisioning of information to customers in a way that enables them to complete information online, like gathering information or making a purchase, is an area that Digital Clarity are helping organizations.
KEY MILESTONES
As the market conditions in the consumer market cool slightly, the team at Digital Clarity has been busy pivoting their business model to address the need in the 2b2 business sector. This is a more strategic offering for prospective customers.
Digital Clarity has started offering a wider array of services to it fast-growing S company in the US. Services include, LinkedIn strategy, content positioning and SEO.
Digital Clarity has attended a major convergence summit with its client in the Unified Communication and Digital Transformation arena. This allowed the team to meet with the likes of SaaS CX providers, 8x8, Five9, and Mitel, amongst others. This will be an area of focus for the company into 2023.
In October, Digital Clarity was part of a select group that part of a panel that discussed the impact of NFTs, Blockchain and the growth of Web 3 and the Metaverse. The event was arranged by leading law firm Memery Crystal, part of Rosenblatt.
Digital Clarity has been on a large business development push and attended various networking events in London. The events include Enterprise Cyber Security hosted at the London Stock Exchange as well as diverse events in DeFi and InsureTech.
Other examples are representative of the diversity of client base. DBMM's approach using a client's analytics and executing an individualized model to increase ROI as the prime objective, spans a wide range of industries.
Core industry verticals for Digital Clarity include: B2B, SaaS, Digital Transformation, FinTech, Unified Communication Companies and discretionary advice for professional service providers and consultants.
THE GROWTH OF DIGITAL MARKETING & CONSULTANCY SERVICES
The skill set historically owned by agencies offering disciplines such as UX, design, creativity, customer-centric data analytics and customer engagement is now being immersed with large consultancy businesses whose traditional bread and butter was Digital Transformation.
Accenture, Deloitte, IBM, KPMG, McKinsey and PricewaterhouseCoopers rank among the most aggressive players in acquiring and partnering with agencies such as Digital Clarity. They present not only an opportunity for Digital Clarity but also a prospective exit and investment opportunity.
Digital Clarity have continued to develop their Digital Consulting and Strategy Planning offering. The forward looking program is to be a recognized leader in this field and fulfill companies seeking Digital Transformation for their originations.
THE NEED FOR PROFESSIONAL CONSULTANCY AND THE OPPORTUNITY FOR MASSIVE GROWTH
Four consultancies lead Ad Age's ranking of the 10 largest agency companies in the world. With combined revenue of $13.2 billion, the marketing services units of Accenture, PwC, IBM and Deloitte sit just below WPP, Omnicom, Publicis Groupe, Interpublic and Dentsu. Last year, only two consultancies—Accenture Interactive and IBM iX—made the top 10. IBM iX was the first to break into the top 10.
Given the experience of the team, Digital Clarity’s advisory and consultancy is in demand. With the recent growth in these business areas, and the rise of consultancies, it is confirmation that Digital Clarity is headed in the right direction for growth
THE GROWTH OF DIGITAL TRANSFORMATION WORLDWIDE
The Global Digital Transformation Market size is expected to reach $1.3 billion by 2027, rising at a market growth of 20.8% CAGR during the forecast period. Digital transformation is considered as the utilization of digital technology. Digitally transformed enterprises can be flexible to the changing technological landscape and can address abrupt shifts in the industry, particularly the one presently created by the COVID-19 pandemic; studies show that the efficiency and rate of adaptation of digitally transformed companies to a post-pandemic era are relatively larger than conventional businesses. Source
Digital Clarity can help various businesses that have been considerably affected by the global outbreak of the COVID-19 pandemic. One of the significant challenges for the global economy in 2020 was to facilitate business continuity in the midst of social distancing guidelines, lockdowns norms, work-from-home culture, and other operational challenges. The lack of availability of digital strategies, infrastructure, or tools worsens the challenges for various companies that were needed to abruptly shift operations online or allow workers to work from their homes.
The situation, on the other hand, resulted in a considerable surge in awareness regarding the urgent requirement for digital transformation across a majority of the industries and created some lucrative opportunities for the global market. Companies are getting more aware of the advantages of digital transformation, particularly in the work-from-home culture that needs a business to allow the employees to easily learn, collaborate and perform organizational functions across remote locations.
THE IMPORTANCE OF STRATEGIC MARKETING CONSULTANCY
The fundamentals of marketing may not have changed, but everything else has: goals, roles, expectations, talent needs, and more. B2B marketing leaders need to navigate this new terrain and build the capabilities needed to win. Digital Clarity helps these organizations win.
Across industries, organizations are accelerating digital transformation processes for long-term growth and profitability. Yet: “53% of the organizations surveyed remain untested in the face of digital challenge and their digital transformation readiness therefore uncertain.” This report from Gartner highlights the need embrace change.
Businesses had no choice but to respond quickly to challenging conditions. Although not formally classed as ‘agile’, the twists and turns of the pandemic have required executives to innovate on the fly and collaborate to get things done. This has been compounded by working from home, which has cut out distractions and created more time for ‘deep thinking’. Regardless of headcount, a return to more stable trading conditions shouldn’t mean running back to the standard practices and silos that previously slowed marketers down.
Adobe says that Business-to-business (B2B) commerce will continue to undergo a major transformation as companies adopt the latest technologies to find new customers, improve their supply-chain efficiencies, and provide a more personalized user experience to their clientele.
Digital Clarity has created a unique Diagnosis Workshop that helps brands identify needs as well as assess the opportunity available. The core focus is to help reduce wastage and increase results.
Areas of focus include:
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Audit current channels |
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Digital consulting and training |
COMPETITIVE LANDSCAPE
Digital advertising is the fastest-growing segment of the global market for advertising spending. The increasing use of smartphones and the availability of cheap internet services are the two major factors propelling the growth prospects for this market. More than 30% of the companies are planning to spend around 75% of their advertising expenditures on digital marketing within the next five years.
“U. S. Marketers are expected to spend $110.1 billion on digital ads this year, or 51% of the $214.6 billion total U.S. advertising spending forecast, excluding political ads. Newspapers, radio, magazines, and local television now account for just 21% of the U.S. ad market.” From The Wall Street Journal
DIGITAL CLARITY HAS A COMPETITIVE ADVANTAGE
Digital Clarity operate in a highly commoditized market but have over the years build a stellar reputation that makes it different from its competitors. Some of these areas include:
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Our DNA is Strategically Driven |
We believe the path to successful customer acquisition lies in understanding a client’s business – not just running a campaign. We seek to help clients understand that success has to be objective and measurable.
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We are Business Led |
Digital marketing is not a cost but an asset. Not a line in a spreadsheet but an emotive force that if done right, will bring real business change and growth.
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We are Digital Thinkers |
Marketing has to be at the heart of the business. Delivering real innovation in digital marketing requires not just knowledge but authority and bravery. We think digital. We drive results.
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Our goal is to deliver Digital Performance |
We help our clients to understand their goals and objectives, using digital marketing to drive new business opportunities and retain their current customers.
HIS Markit, a research firm, reported: “Each dollar that companies spent on advertising in the United States last year, led to $9 in sales.
THE GROWTH OF B2B SOCIAL MEDIA
2020 will go down as the year that marketing was pulled into the boardroom. 80% of senior executives said the role of marketing in setting strategy has expanded since the pandemic. Traditional consumers have moved online, making the digital environment even more important right now.
This priority has raised the profile of marketing as companies scramble to understand the digital-first consumer. The battleground for 2023 will be about speed and agility. Now that many companies have treasure troves of data, the difference is how fast they can personalize the experience and respond to consumer behaviors. Expect to see more investment and innovation in technology infrastructure alongside marketing.
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76% of B2B organizations use social media analytics to measure content performance. |
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By 2025, 80% of B2B sales interactions will occur on digital channels. |
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U.S. B2B business will spend an estimated $1.99 billion in 2022, and $2.33 billion in 2023. |
GROWTH IN LINKEDIN ADVERTISING SET TO SOAR BEYOND 2023
Almost all B2B content marketers (96%) use LinkedIn. They also rated it as the top-performing organic platform.
For paid social posts, the picture is similar but not identical.
Digital Clarity help business organization make the most of LinkedIn. We help customers understand and build campaigns around the 95-5 rule. The 95-5 rule advises you market mostly to buyers who are not likely to buy from you today.
THE NEW NORMAL IS DIGITAL
In just one-year, since the pandemic. digital adoption has happened at five to ten times the projected rate.
Lockdown periods, economic uncertainty and loss of predictability have forced customers and businesses online in previously unseen numbers. This migration has upset the power balance, with customers now more in control of the relationship and less loyal to brands and products. On top of that, 60% of companies have seen new buying behaviors such as changes to average basket size and product interests.
Pandemic disruption is also causing many businesses to demand a similar level of convenience to consumers. When we return to normal, there’s no question that the new normal will be digital.
GROWTH IN INVESTOR AWARENESS AND OUTREACH.
We expect that, in 2023, the strategic outreach will be directed at investors around the world who understand the digital marketplace and its expanding influence on consumer decisions. DBMM will target new investors through a global digital and traditional integrated investor outreach campaign which will be run by Digital Clarity, with third parties, as required, for distribution. In all areas, the Company will act in the interests of all stakeholders.
In the full industry context of dramatic expansion of digital footprints, there has been no direct correlation between DBMM's revenues and its share price. Economic and industry analysts have opined that the industry multiple continues to grow to, in some cases, 25-30 times revenues. DBMM will expand its client and geographic scale, thus increasing revenues. There were matters outside of DBMM's control which caused growth to be in neutral, and in 2020/21 the pandemic threw all planning into disarray. With capital infusion following the closure of the SEC review with a final order of the earlier dismissal, 2023 will follow the model of a growing client base and geographic reach until it achieves a TBD level of profitability. We anticipate the benchmark will replicate successful industry models in digital technology, marketing and company transformation.
On October 26, 2022, FINRA processed a Form 211 relating to the initiation of priced quotations of our shares of common stock, which means that the submitting broker-dealer has demonstrated to FINRA compliance with FINRA Rule 6432 and therefore has met the requirements under that rule to initiate a quotation for our shares of common stock within four days of October 26, 2022. FINRA’s processing of a Form 211 in no way constitutes FINRA’s approval of the security, the issuer, or the issuer’s business and relates solely to the submitting broker-dealer’s obligation to comply with FINRA Rule 6432 and SEA Rule 15c2-11 when quoting a security. (FINRA TO Glendale Securities)
After OTC Markets’ review of our activities following their process, our shares of common stock returned to normal market trading without restriction or caveat emptor. The caveat emptor was removed on December 20, 2022. Accordingly, plans to grow investor awareness and outreach are underway.
Glendale Securities, Inc. is the designated Market Maker.
The SEC matter has remained open since the November 12, 2019 dismissal regarding the cured late filings. This has been damaging to our investors and us and impedes our progress. Nevertheless, our compliance continued with required timely filings . In June 2023, the SEC issued an Order Dismissing Proceedings as Release 4413 advising us that their administrative proceedings against us has been dismissed
FINANCIAL OVERVIEW/OUTLOOK
DBMM has been honing its commercial model since the acquisition of Digital Clarity (“DC”) in 2011, and has been cash flow-positive as an operating company since then. Unfortunately, external events outside of DBMM’s control have precluded the growth expected to this point; however, its margins of 35-50% are accurate. Aspirationally, when the Company reaches appropriate scale and profitability TBD, the business will meet all stakeholder expectations.
The growth trajectory anticipated during 2023 remained deferred until the Company returns to normal business and normal trading. Normal trading has resumed and the clients will benefit immediately due to a wider range of resources, and the shareholders will benefit as the market cap grows. The media market multiple far exceeds the “old” manufacturing multiples, as digital technology and marketing has become one of fastest growing industries in the world today. The trading in our shares of common stock returned to normal on December 20, 2022 with no restrictions. The US retail marketplace of our shares of common stock was open finally to all investors.
The return to normal business is a step-by-step process now that the SEC matter is closed in our favor and all mitigating factors circumstances concluded to our benefit. DBMM’s place in the industry reputationally is strong, particularly for its size. The industry environment continues to grow exponentially, and digital marketing and company transformation is an essential strategy for any commercial activity, and thus has become embedded in planning.
Since 2020, revenues have slowed down temporarily due to a number of factors: 1) client uncertainty caused by Brexit trade issues, 2) COVID-19 global slowdown with some clients pausing as lockdowns stopped and started, 3) clients needing to extend or double down lacked the resources. To address the changing environment, the business development model has evolved and, as such, Digital Clarity has earned a “seat at the table,” client by client. With precision, the revenues are turning around.
Several years ago, the Company received a commitment for future working capital to grow the Company in key markets. Growth capital will be directed to support a client base rebalancing and leveraging of a very dynamic, transformational, digital landscape. DC’s mantra remains the same: “ROI is our DNA.” Going forward, there will be an emphasis on investor awareness now that normal business recommenced. DBMM intends to make significant strides in aggressively broadening its brand exposure. There are investors around the globe who understand the digital marketplace and its increasing influence on commercial decisions. DBMM will be targeting new shareholders in the public market through a global digital and traditional, integrated campaign run by DC, with third parties, as required for distribution.
The expectations for fiscal year 2023 were to return to normal trading first, which now has occurred, and then move ahead to a scaled growth plan in multiple geographies once normal business recommenced and the SEC matter is finally closed. The result will benefit all stakeholders.
The Company resolved in 2015 to eliminate any consideration of using convertible debentures as a financing vehicle. Accordingly, the Company has not issued convertible debentures since 2015 nor have any convertible debentures been executed since 2016.
Additionally, we have demonstrated our adherence to such a philosophy by renegotiating its aged debt with lenders, one at a time, at fixed settlement amounts with no conversion terms. Furthermore, such renegotiations lead to the derecognition of derivative liabilities overhanging our balance sheet. The Company intends to continue its debt negotiation and modification program.
This has been a successful strategy thus far:
During fiscal year 2021 and so far in 2023, and to a lesser extent in fiscal 2020, we successfully reached agreements with certain lenders resulting in a gain on extinguishment for loans payable which amounted to the difference between the carrying value and the revised amount of the obligations.
The gain on extinguishment of principal and accrued interest amounted to $169,837 and $57,802 during fiscal 2021 and 2020, respectively.
We also successfully reached an agreement with a holder of convertible debentures aggregating $249,800 to modify its terms. Such debentures are no longer convertible, are now non-interest bearing, and have been reclassified to loans payable. It also resulted in a decrease in derivative liabilities and an increase in additional paid-in capital of approximately $260,000 during fiscal 2021.
Furthermore, in March 2022, we reached an agreement with a holder of convertible debentures to satisfy obligations aggregating $85,000 in consideration of 30 million shares of the Company’s common stock.
In February 2023, we reached an agreement with a holder of convertible debentures to satisfy obligations aggregating $76,000 in consideration of 7.5 million shares of the Company’s common stock.
In May 2023, we reduced our liability to a lessor by $15,000.
NINE MONTH PERIOD ENDED MAY 31, 2023
We had $22,000 in cash and our working capital deficiency amounted to approximately $6.5 million at May 31, 2023.
During the nine-month period ended May 31, 2023, we used cash in our operating activities amounting to $296,000. Our cash used in operating activities was comprised of our net loss of approximately $716,000 adjusted primarily for the following:
Change in fair value of derivative liability of approximately $129,000;
Additionally, the following variations in operating assets and liabilities during the nine-month period ended May 31, 2023 impacted our cash used in operating activity:
Increase of accounts payable, accrued expenses, accrued interest, and accrued compensation, of approximately $216,000, resulting from a short fall in liquidity and capital resources.
We generated cash from financing activities of $309,000 which primarily consists of the proceeds from notes payable.
NINE MONTH PERIOD ENDED MAY 31, 2022
We had $14,000 in cash and our working capital deficiency amounted to approximately $5.75 million at May 31, 2022.
During the nine-month period ended May 31, 2022, we used cash in our operating activities amounting to approximately $257,000. Our cash used in operating activities was comprised of our net loss of approximately $405,000 adjusted primarily for the following:
Change in fair value of derivative liability of $265,000 and loss on extinguishment of debt of $83,000;
Additionally, the following variations in operating assets and liabilities during the nine-month period ended May 31, 2022 impacted our cash used in operating activity:
Accounts payable, accrued expenses, accrued interest, and accrued compensation, of approximately $303,000, resulting from a short fall in liquidity and capital resources.
We generated cash from financing activities of $262,000 which primarily consists of the proceeds from notes payable.
RESULTS OF OPERATIONS
| Consolidated Operating Results | ||||||||||||||||||||||||||||||||
| For the Three-Month Period Ended | For the Nine-Month Period Ended | |||||||||||||||||||||||||||||||
| Increase/ | Increase/ | Increase/ | Increase/ | |||||||||||||||||||||||||||||
| May 31, | May 31, | (Decrease) | Decrease | May 31, | May 31, | (Decrease) | Decrease | |||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||||||||
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SALES |
$ | 98,496 | $ | 68,130 | $ | 30,366 | 45 | % | $ | 221,356 | $ | 164,976 | $ | 56,380 | 34 | % | ||||||||||||||||
|
COST OF SALES |
81,789 | 30,217 | 51,572 | 1719 | % | 185,690 | 102,090 | 83,600 | 82 | % | ||||||||||||||||||||||
|
GROSS PROFIT |
(16,707 | ) | 37,913 | (21,206 | ) | -56 | % | 35,666 | 62,886 | (27,220 | ) | -43 | % | |||||||||||||||||||
|
COSTS AND EXPENSES |
||||||||||||||||||||||||||||||||
|
Sales, general and administrative |
107,022 | 124,451 | (17,249 | ) | -14 | % | 371,272 | 441,908 | (70,636 | ) | -16 | % | ||||||||||||||||||||
|
TOTAL OPERATING EXPENSES |
107,022 | 124,451 | (17,249 | ) | -14 | % | 371,272 | 441,908 | (70,636 | ) | -16 | % | ||||||||||||||||||||
|
OPERATING LOSS |
(90,315 | ) | (86,538 | ) | (3,777 | ) | 4 | % | (335,606 | ) | (379,072 | ) | (43,416 | ) | -11 | % | ||||||||||||||||
|
OTHER (INCOME) EXPENSE |
||||||||||||||||||||||||||||||||
|
Interest expense |
68,391 | 95,599 | (27,208 | ) | -28 | % | 224,317 | 307,240 | (82,923 | ) | -27 | % | ||||||||||||||||||||
|
Other income |
- | NM | (46,255 | ) | (98,265 | ) | 52,010 | NM | ||||||||||||||||||||||||
|
Loss on settlement of debt |
(15,375 | ) | 82,485 | (97,860 | ) | NM | 73,349 | 82,845 | (9,496 | ) | NM | |||||||||||||||||||||
|
Change in fair value of derivative liability |
(166,865 | ) | 18,273 | (185,138 | ) | NM | 128,697 | (265,724 | ) | 394,421 | NM | |||||||||||||||||||||
|
TOTAL OTHER EXPENSES (INCOME), NET |
(113,849 | ) | 196,357 | (310,206 | ) | NM | 380,108 | 26,096 | 354,012 | NM | ||||||||||||||||||||||
|
NET LOSS |
$ | 23,534 | $ | (282,895 | ) | $ | (306,429 | ) | -108 | % | $ | (715,714 | ) | $ | (405,118 | ) | $ | 310,596 | 77 | % | ||||||||||||
|
NM: not meaningful |
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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.
For the nine-month period ended May 31, 2023 our primary sources of revenue are the Web design and advisory services, Per-Click Advertising, and Social Media. These primary sources amounted to 48%, 38%, and 14% of our revenues, respectively during the nine-month period ended May 31, 2023.
Revenue is recognized upon transfer of control of promised or services to customers in an amount that reflects the consideration the Company expect to receive in exchange for those services. The Company enter into contracts that can include various combinations of services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
The increase in our revenues during the three and nine-month period ended May 31, 2023, when compared to the prior year, is due to increased volume of services provided and new clients during fiscal 2023.
During the three and nine-month period ended May 31, 2023, our cost of sales increased due to a greater amount of resources allocated to servicing customer needs and identifying new clients.
The sales, general and administrative expenses decreased during the three and nine-month period ended May 31, 2023 when compared to the prior year periods primarily as a result of decreased overhead expenses and streamlined operations in fiscal 2023.
Interest expenses during the three and six-month decreased when compared to the prior year periods primarily from the decrease of considerations provided to certain lenders in fiscal 2023 when compared to fiscal 2022.
The change in other income during the nine months ended May 31, 2023 is primarily due to lower research and development credits claimed during that period than in fiscal 2022.
The change in fair value of in derivative liabilities between comparable periods is primarily attributable to an increase in the Company’s stock price and fluctuation in expected volatility used in the assumptions to compute its fair value at May 31, 2023 when compared to May 31, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Act.
Based upon the evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of May 31, 2023. Our management concluded that the consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows for the period presented in accordance with GAAP.
Changes in Internal Controls Over Financial Reporting:
There were no changes in our internal control over financial reporting during the quarter ended May 31, 2023 identified in connection with the evaluation thereof by our management, including our Principal Executive Officer and Principal Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The U.S. Securities & Exchange Commission instituted an Administrative Proceeding, File No. 3-17990, on May 16, 2017 to revoke the Company's registration statement because of delinquent filings. A hearing was held on August 9, 2017 and the Initial Decision to revoke the registration was dated November 16, 2017. The order was subsequently remanded by order of the U.S. Supreme Court in December 2017. The Company responded to the Remand with evidence of mitigating circumstances under a Protective Order and filed all its delinquent filings: a Super 10-K for 2015-2016-2017 on May 31, 2018 and 10-Q's for 2018 1Q, 2Q on June 22, 2018 and 3Q on July 15, 2018, its due date.
The Hearing for January 15, 2019 was re-scheduled because of government shutdown. Digital Brand entered a Motion to Dismiss the Proceedings on March 19, 2019 based on being current as of July 2018, and all filings to date have been filed on time for the 2019 fiscal year. The facts were presented at the hearing. The Division did not support the dismissal in a response to which Digital Brand filed two Amendments to the Consolidated 10-K for 2015- 2016-2017 and the 10-K for 2018 on April 23 and 24, 2019 respectively, and Amendments No. 2 on October 1, 2019 to supersede language in Part II, Item 9A. On November 12, 2019, Carol Fox Foelak, Administrative Law Judge, Securities & Exchange Commission ordered an Initial Decision/Dismissal of the Proceeding. The Dismissal would have become effective under Rule 360 of the Commission's Rules of Practice, 17 C.F.R., Section 201.360, following the Commission’s Order of Finality. Unfortunately, on December 3, 2019 The Division of Enforcement Submitted a Petition for Review of Judge Carol Fox Foelak’s Initial Decision dismissing the Administrative Proceedings rendered on November 12, 2019. The Company filed a Motion for summary affirmance of the Initial Decision on December 20, 2019. The Motion for Summary Affirmance was not opposed by Enforcement, nevertheless the Petition for Review (“PFR”) was filed earlier.
On January 25, 2021, the Commission denied the Company’s Motion for Summary Affirmance of Judge Carol Fox-Foelak’s Dismissal of November 12, 2019 and granted the Division’s Petition for Review and set a briefing schedule beginning February 24, 2021. The Commission concluded that “briefing in the ordinary course would...assist the Commission. This appeal raises issues as to which we have an interest in articulating our views and important matters of public interest, including the proper application of the standard that governs determination of sanctions in a Section 12(j) proceeding.” Both parties have briefed and concluded April, 2021. The Company is disappointed that so much time has been lost and continues to vociferously support the original Dismissal three years ago.
The Commission notified the Company on December 9, 2021 that an extension of 90 days to issue a decision has been ordered. A sixth extension was ordered for an additional 90 days to conclude by June 5, 2023.
On June 2, 2023, the SEC issued an Order Dismissing Proceedings under Release 4413 advising us that that their pending administrative proceedings against us had been dismissed. A final Order of Dismissal closes the matter after previous unnecessary protracted delays.
Shareholders have been significantly damaged by the protracted SEC matter. The delays were further exacerbated by the unnecessary PFR requested by the Division of Enforcement while the Company continued to meet its reporting compliance in good faith as committed to the court and contained in its cured SEC filings and thereafter.
From time to time, the Company has become or may become involved in certain lawsuits and legal proceedings which arise in the ordinary course of business. The Company intends to vigorously defend its positions. However, litigation is subject to inherent uncertainties and an adverse result in those or other matters may arise from time to time that may harm its financial position, or our business and the outcome of these matters cannot be ultimately predicted.
Item 1A. Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this item.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
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31.1 |
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Principal Executive Officer Rule 13a-14(a) Certification Principal Financial Officer Executive Director |
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32.1 |
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Principal Executive Officer Sarbanes-Oxley Act Section 906 Certification Principal Financial Officer Executive Director |
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|
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIGITAL BRAND MEDIA & MARKETING GROUP, INC.
Date: July 17, 2023
By: /s/ Linda Perry
Linda Perry
Principal Executive Officer
Principal Financial Officer
Executive Director