DIGITAL BRAND MEDIA & MARKETING GROUP, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operation

(Edgar Glimpses Via Acquire Media NewsEdge) Readers are cautioned that certain statements contained herein are forward-looking statements and should be read in conjunction with our disclosures under the heading "Forward-Looking Statements" on page 1. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. This discussion also should be read in conjunction with the notes to our consolidated financial statements contained in Item 8.

"Financial Statements and Supplementary Data" of this Report.

Background DBMM is an OTC:QB listed company. Subsequent to the close of the fiscal year 2011 following substantial investment, the Company conducted a structural review of its total product and services offering. The review was carried out by the Board of Directors. The result was to bring technology development being outsourced directly into the Company to steward on a daily basis and any activities which were not revenue generating in the near term were eliminated.

It was unanimously agreed that the company would adopt a lean approach that focused on the relationships and partnerships. To that end, the Company has added significant partnerships through Letters of Intent, Joint Ventures and various collaborative structures involving revenue sharing arrangements.

Operations Overview/Outlook Operationally, 2013 has been important in continuing the direction of the Company and steering it toward a scaled, sustainable growth plan. The model developed in fiscal 2012 has been reinforced and is differentiating to clients, therefore, the model will continue into fiscal 2014.

Entertainment/Fashion/Sports/Automotive/Ecommerce Solutions DBMM is taking its strengths including its relationships to build its business focus on a wide array of industries. The Company, under very competitive global market conditions and growing development needs, continues to identify partnership opportunities. Utilizing successful models with existing clients, the outlook remains strong for the future.

The heart of the business is the marketing consultancy. Understanding each client and developing the model to individualize the outlook has been essential.

This kind of close relationship with the client resulted in Digital Clarity being considered a close professional advisor.

In fiscal year 2014, the Company will continue to focus on the positive results of the last year and use that model to expand geographic reach with existing and new partners.

Digital Marketing Services 2013 continues to see exponential growth in the adoption of Social Media as a communication, marketing and engagement avenues. An acceptance of change is driving revenue. The future growth in mobile search is on of the fastest growing ancillary businesses. It was clear that the direction, talent and growth of the Company is in its human capital and outside relationships which must be proactive in order to differentiate itself from competition The clear opportunity is at the foundation of the Company, namely the need to expedite and encourage development in the digital marketing services sector. The marketing services product is labor intensive and thus the Company must jumpstart the growth by significant capital infusion in fiscal year 2014 to grow simultaneously in multiple geographies.

As a foundation, the financial review showed that Digital Clarity continued to be revenue generating and remained cash flow positive.

Key Milestones During 2013, Digital Clarity continued to make inroads into established and emerging markets. In 2012, as part of this emphasis, that was greatly enhanced and supported by the Head of US Operations, Steven Baughman, the company won a major deal with a US based entertainment group. The group was seeking a seasoned agency that could fulfil its complex specifications and grow with its aggressive expansion plans throughout the US and beyond. Digital Clarity was awarded the contract, removing the competitors to win the design and development of the new website centered on an intelligent design as well as a strong understanding and execution of social media integration. This model became the template for contracts going forward.

DBMM signed a Letter of Intent with Video Media Holdings, Inc. (VMS) to become its reseller in Europe with other revenue streams being explored as well. The value proposition for VMS strengthens DBMM's offering to its clients. VMS Holdings, Inc. develops a mobile application for sharing videos. Its mobile application allows companies and users to send and receive video content to and from a mobile phone; subscribe for a favorite celebrity, actor, TV-channel, or team and get video updates; and create your own channel and become a broadcaster, as well as serves as a tool for mobile marketing and sales. The company's mobile application is available for Android, BlackBerry, iPhone, and Symbian devices. It distributes its mobile application through distributors, and mobile device and application stores in Africa, Europe, Asia, North America, and South Africa. It serves mobile operators and media companies, government organizations and law enforcement agencies, premium content providers and retailers, sports clubs, and celebrities worldwide.

DBMM finalized an agreement with New York based digital marketing automation platform, BRANDmini LLC, to strategically broaden BRANDmini's delivery of its SaaS (Software as a Service) application; primarily looking after those larger clients seeking to leverage a more bespoke digital marketing service abroad.

BRANDmini is a transactional marketing automation platform for creating, serving, and measuring marketing campaigns across multiple online channels and mobile devices. Our platform is integrated with leading ad networks, publishers, mobile platforms and social sites. BRANDmini's innovative In-Page technology empowers brands to engage and transact with consumers while they are browsing.

Now anyone can build branded transactional ads, gadgets, social landing pages and run campaigns anywhere your customers are.

These two partnerships illustrate the execution of DBMM's strategic direction which strengthens the Company through its revenue sharing relationships resulting in additional revenue streams.

Many clients in the UK such as Mercedes Benz, UK, Wharfside and Duvet & Pillow Warehouse have experienced increases in revenue and increases in conversion as a result of Digital Clarity's strategic direction. These case studies are excellent resources for new clients.

Digital Clarity Named in Top Ten Best Social Media Marketing Firms in the UK for 2013 "Topseos.co.uk , an independent research firm, revealed the listing of the top 10 best social media marketing agencies in the UK based on their strength and competitive advantage. Social media marketing companies are put through a methodical analysis to ensure the rankings contain the absolute best companies the search marketing industry has to offer." Digital Clarity was awarded a spot in the top 10. The process for researching and declaring social media marketing agencies in the UK is based on the use of a set of analysis criteria and learning more about their solutions and their communications with their customers through references.

The teso.co.uk independent analysis team communicates directly with the clients in order to inquire about the solutions and achievement from the client's perspective.

Key Differentiators 2013 has been about establishing strong foundations by restructuring financially, continuing to streamline operations and assessing activities on a cost benefit basis while developing new partnerships and relationships. This focus has allowed the Company to enhance brand value for its clients. 2014 will continue to be about growth and outreach.

Image Removed As the internet and mobile arena continues to mature, the need to make sense of and manage companies through this often complex market is clearly an area of massive growth. The company is confident that the talent and experience within the digital marketing team is poised for a major springboard in 2014, but must be expanded significantly in order to support the global reach intended.

Artist Collaboration, driven by Co-Chief Operating Officer and Head, US Operations, Steve Baughman, is an area that will see exponential growth in the coming 12 months and beyond. Artists and brands that look to leverage their celebrity status will look to companies such as Digital Clarity to help drive and develop their brand in the growing and complex arena of social media.

Market Reach The Company has reach and experience across a large number of vertical markets including, but not limited to: Entertainment/Fashion/Sports/Automotive/Ecommerce.

Relationships and Industry Contacts The team at Digital Clarity have professional and personal contacts, including some long-term relationships, at companies such as Google, Microsoft and Facebook, often being invited to attend strategic market briefings and insights.

Partnerships and agency management have allowed Digital Clarity to work on some of the biggest brands, sitting behind the agencies as a support and resource to deliver very high quality service and results to their clients.

Team Expertise Image Removed: [rtgventures_10k083113004.gif ] Examples: § PPC campaign experience especially Google AdWords existed § SEO evolution from aggressive link building and onsite SEO through to strategic marketing integration of inbound marketing § Website design and development based on results driven design and planning § Brand consultancy § Social media management and advertising. Several clients have been "won" directly via Digital Clarity's internal social media strategy § Sales and account management experience from multi-disciplined backgrounds Evolution and Flexibility The market is continually changing. Digital Clarity has always remained ahead of the curve and given their clients peace of mind by remaining a true strategic partner.

Creative, Individualized Solutions and Customer Service Case Studies and testimonials reflect the client-centric approach of Digital Clarity. Being selected over larger more established firms, support that we provide the client with skills that are differentiating. The Digital Clarity Brand is being established positively.

Growth opportunities in the Market As the use of web mobile sites and applications grow, so do the complexities and challenges of using these sites and platforms commercially. Digital Clarity directs business through the maze of an often confusing and sophisticated set of barriers, to create a clear path for the customer to our clients product or service. As this market matures, the need for companies to rely on the services from Digital Clarity can only grow. Here we look at some of the growth areas in Digital Clarity's arsenal.

Growth & Opportunities in Design § 644,275,754- number of active web pages 1st QTR 2012 - NetCraft § 6 million domains added in quarterly - Verisign § By 2015, Mobile Internet Usage Will Increase by Factor of 26 - CISCO § 665 million media tablets in use worldwide By end of 2016 - Gartner Group Growth & Opportunities in Search § The North American Search industry will grow from $19.3 bn in 2011 to $26.8bn in 2013 - SEMPO § Revenue from Localized Mobile Ads to Reach $5.8 Billion in U.S. by 2016 - BIA/Kelsey § U.S. search spend grew by 11 percent Year over Year, while ROI improved by 26 percent - Adobe § 72% of Consumers Want Mobile-Friendly Sites - Google Research § 2million search queries are made on Google, every minute - Google § Growthin Corporate Search - 50% of Fortune 100 Companies have a Google+ Account Growth & Opportunities in Social Media Fortune Global 100 companies have more accounts on each platform than ever before with an average: § 10.1 Twitter accounts § 10.4 Facebook pages § 8.1 YouTube channels § 2.6 Google Plus pages § 2.0 Pinterest accounts § Seventy-four percent of companies studied have a Facebook page.

§ Ninety-three percent of corporate Facebook pages are updated weekly.

§ Forty-eight percent of companies are now on Google Plus.

§ Twenty-five percent of companies have Pinterest accounts.

§ Each corporate Facebook page has an average of 6,101 people talking about it.

The need for DBMM to reach Global Markets It is clear that the economy continues its slow recovery from the global effect of market forces which impact on all areas of commerce and trade. As the markets remain volatile, the opportunity for a company like DBMM to approach new business with its proven track record, increases. The core markets remain US and English speaking European markets. Emerging markets are a target for 2014. BRIC countries (Brazil, Russia, India and China) will be the next targets from the emerging markets.

Internet usage is poised for explosive growth across Asia, driving massive consumer demand for digital content and services. The biggest challenge for businesses hoping to meet this demand is how to make money will while creating low-cost content. According to McKinsey & Co, India and China are driving the next digital revolution via new mobile devices.

The Company intends to further extend its services in the Middle Eastern market initially then review the successes using a lean methodology and continuous improvement along the way, and then roll out to the BRIC markets.

US The US remains the center of the entertainment, technology and digital industries and as such the emphasis looking forward to 2014 and building on the recent success in the last quarter of the 2013 calendar year means that DBMM and its agency Digital Clarity are perfectly positioned to spring board into this market using the successful models established over the last two years.

The digital market continues to be focused on New York and Los Angeles therefore DBMM's triangle of London/New York/LA is strategically sound. We are establishing a strong digital marketing presence in the Los Angeles area to cover the entertainment and music market and then plan to have the same model in New York. Our corporate offices are located in New York, however Los Angeles remains a key regional base from which to build and expand relationships, while a New York presence is equally important to serve and build relationships in the largest advertising market in the US.

The Asian American Market - An Unusually Attractive Opportunity • Fast Growing: -Current Population - 13+ Million - 49% population growth 1990-2000; 29% growth 2000-2008.

• Educated & Affluent: -44% holding BA degree - vs. 28% of Non-Hispanic Whites -Median HH income almost $10K greater than Non-Hispanic Whites • Geographically Concentrated: -More than 50% reside in 3 states alone: CA, NY, TX.

• Money to Spend: • $509 billion in annual purchasing power.

• Entrepreneurial and Driven -Own and operate 1.1 million business nationally, generating $343 billion in annual revenue.

• Cost Efficient Reach -Almost 1,000 targeted media outlets reaching Asians nationally, with lowest CPMs of all consumer segments.

Europe As the current base of the digital marketing agency is in London England, it is perfectly placed to reach out to the broader European market to replicate the Company's model in the stronger economies in this region. As with the relationships mentioned in the US, opportunities were advanced with US partners to leverage Digital Clarity's reach in this region and help take established US agencies into the European region.

In 2013, the execution of this aspect of the business plan is illustrated by the agreements with VMS and Brandmini to represent them outside the United States, initially in Europe.

Middle East The Middle East is a fertile market for heritage based US and European brands looking for entry into this lucrative market. The fastest area for growth in this sector is to leverage on the luxury arena. Digital Clarity is already in discussions with a number of different luxury groups each with different brands within the group.

Given the complexity of the region as well as the enormous potential, it is important that Digital Clarity aligns itself with established players in local markets. With this in mind, Digital Clarity will look to collaborate with some digital agency partners where there is already a relationship and create a strategy that allows the company to look at the breakdown of current digital competence of these brands focusing on various touch points such as tablets, sites, mobile & social reach in the Middle East.

Our value proposition is very much about creating digital penetration of the Middle Eastern market for a particular group and how those brands would be positioned to create brand value - a byproduct of which would be sales.

Support for growth in the Middle East § Worldwide luxury goods continues double-digit annual growth; global market now tops €200 billion § Dubai commands around 30 per cent of Middle East luxury market and around 60 per cent of the UAE's luxury market § The Dubai Mall accounts for around 50 per cent of Dubai's luxury purchases § Each year, more "HENRYs" (High Earnings, Not Rich Yet) become potential customers, with ten times as many HENRYs as ultra-affluent individuals § The rise of the middle class in emerging countries is polarizing the competitive arena, becoming a "new baby-boom sized generation" for luxury brands to target.

Financial Overview/Outlook DBMM began the 2013 fiscal year with significant challenges while continuing to streamline the Company which resulted in a reduction of 39% in operating expenses couple with a decrease in other expenses of 56%. While the Company is still operating at a loss, the loss was 46% less than 2012. The focus remains on the growth of digital marketing services and technology driven through Digital Clarity. The cost of sales has decreased by 19% while gross profit increased by 3%. DBMM is a marketing services company which is labor intensive in order to provide a differentiating product to its clients. As such, it is imperative to raise a significant amount of capital to hire professionals who can deliver profit to the Company within a quarter. The proven model carried in our financials is each new hire/client averages a margin of 35%-55%, straight line and simple. On that basis, our target is to recruit 10-20 new staff to represent a critical mass and scale up our revenues proportionately.

The Company restructured through a reverse stock split in early 2013 coincident with a name change and trading symbol change effective in April, 2013.

Unfortunately all of the corporate realignment took a significant portion of the fiscal year, thus a significant capital raise was deferred until 2014 in order to follow the fiscal year 2013 audit. In the interim, the Company relied on short-term financing, a practice which we do not expect to continue in 2014 when it will be replaced by long term financing.

However, the weakened share price remains a challenge to the Company. In the last two years having revenues of approximately $500,000 would suggest a conservative market multiple of x10-x16, the latter being the manufacturing average, the market cap of DBMM should be a minimum of $5,000,000. The multiples for media tend to be at the higher end of the spectrum, therefore, compared to other companies in this sector, DBMM is significantly undervalued. The issue will be addressed as a priority early in the 2014 fiscal year. Professional advisors suggested that in order to position the Company successfully with the long-term financial community, a restructuring was required. The Company concluded its reverse split and name change and post - fiscal year 2013 filing of the 10-K, will be in a good position to continue discussions with a number of target groups . In addition an investment bank in New York is collaborating with DBMM in the identification of a significant acquisition in our industry sector. Initial due diligence is now taking place.

In summary, DBMM's financing efforts have always been in short term, small amounts of working capital. That is going to change in 2014. Going forward, DBMM intends to embark on a significant capital raise to allow the Company to scale up geographically and maximize our global reach through partnered relationships.

This strategy is the most efficient and effective path to grow DBMM quickly into multiple revenue streams. We have proven the model in the last year. Our marketing services' offering is a labor intensive endeavor, wherein human capital is a key differentiator of knowledge and/or relationships. What we have discussed here is organic growth which will be conducted in conjunction with concluding an acquisition in the digital technology/marketing services sector.

After a very difficult year, fraught with challenges and hurdles, we see 2014 as poised for growth on multiple fronts. With capital infusion, which will allow us to bring in new clients, grow existing successful clients and service them accordingly, coupled with an offer of a deferred tax asset to attract partners with significant revenue and expansion patterns, we will have a model in place which will be sustainable.

Off-Balance Sheet Arrangements We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Recently Issued Accounting Pronouncements Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, could have a material effect on the accompanying financial statements.

Reclassifications Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.

Significant and Critical Accounting Policies Our discussion of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States.

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities at the date of the financial statements. Management regularly reviews its estimates and assumptions, which are based on historical factors and other factors that are believed to be relevant under the circumstances. Actual results may differ from these estimates under different assumptions, estimates or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. See "Notes to Consolidated Financial Statements" for additional disclosure of the application of these and other accounting policies.

LIQUIDITY AND CAPITAL RESOURCES After the Board's strategic review post-2011 fiscal year, we have migrated the technology in-house and are concentrating on activities which will grow Digital Clarity organically and by acquisition. We spent fiscal year 2012 establishing a client model for existing and new customers which can be exported geographically.

FISCAL YEAR 2013 We had $0 cash at August 31, 2013, though we had substantial cash in the first week of fiscal 2014. Our working capital deficit amounted to approximately $2.2 million at August 31, 2013.

During fiscal 2013, we used cash in our operating activities amounting to approximately $334,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $670,000 adjusted for the following: · Fair value of shares issued of approximately $28,000 · Amortization of debt discount of approximately $248,000 · Change in fair value of derivative liability of approximately $51,000 · Bad debt expense of approximately $7,000 · Depreciation of approximately $3,000 Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activity: · An increase in our accounts payable and accrued expenses of approximately $119,000, resulting from slower payment processing due to our financial condition.

· An increase in our accrued salaries of approximately $144,000, resulting from partial payments made due to our financial condition.

· A decrease in our accounts receivable of $33,000 resulting from a decrease in sales coupled with the Company's ability to successfully collect its fees.

During fiscal 2013, we used cash from investing activities of approximately $600, for purchase of fixed assets.

During fiscal 2013, we generated cash from financing activities of $307,000, which consist of the proceeds from the issuance of loans and convertible notes offset by principal repayments on such debt amounting to approximately $55,000.

FISCAL YEAR 2012 We had $78,131 cash at August 31, 2012. Our working capital deficit amounted to approximately $1.5 million at August 31, 2012.

During fiscal 2012, we used cash in our operating activities amounting to approximately $489,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $1.3 million adjusted for the following: · Fair value of shares issued of approximately $319,000; · Amortization of debt discount of approximately $264,000; · Change in fair value of derivative liability of approximately $51,000; · Bad debt expense of approximately $25,000; · Interest related to modification of conversion price of debt of approximately $173,000; · Depreciation of approximately $2,000; Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activity: · An increase in our accounts payable and accrued expenses of approximately $1,000, resulting from slower payment processing due to our financial condition as well as an increase in expenditures of RTG Ventures (Europe).

· An increase in our accrued salaries of approximately $92,000, resulting from partial payments made due to our financial condition.

· A decrease in our accounts receivable of $7,000 resulting from sales made by acquisition.

During fiscal 2012, we used cash from investing activities of approximately $2,000, for purchase of fixed assets.

During fiscal 2012, we generated cash from financing activities of approximately $509,000, which consist of the proceeds from the issuance of loans, convertible notes, and capital contributions of approximately $548,000 offset by principal repayments on such debt amounting to approximately $40,000.

RESULTS OF OPERATIONS Comparison of the Results for the Years Ended August 31, 2013 and 2012 We currently generate revenue through our Pay-Per-Click Advertising, Search Engine Marketing, Search Engine Optimization Services, Web Design, Social Media, Digital analytics and Advisory Services.

Revenue for the years ended August 31, 2013 and 2012 was approximately $409,000 and $458,000, respectively. In 2013 our primary sources of revenue are the Per-Click Advertising, Web Design Fee Income and Search Engine Optimization Services. These primary sources amounted to greater than 84% of our revenues or approximately $343,000. Our secondary sources of revenue are SMS Fee Income, Social Fee Income, Email Media Income and SMS Media. These secondary sources amounted to approximately 16% of our revenues or approximately $50,000. In 2012 our primary sources of revenue are the Per-Click Advertising, Web Design Fee Income and Search Engine Optimization Services. These primary sources amounted to greater than 88% of our revenues or approximately $405,000. Our secondary sources of revenue are SMS Fee Income, Social Fee Income, Email Media Income and SMS Media. These secondary sources amounted to approximately 11% of our revenues or approximately $50,000.

We recognize revenue upon the completion of our performance obligation, provided that: (1) evidence of an arrangement exists; (2) the arrangement fee is fixed and determinable; and (3) collection is reasonably assured.

Cost of sales for the years ended August 31, 2013 and 2012 was approximately $234,000 and $288,000, respectively. In 2013, 100% of cost of sales included advertising, salaries and media spend. This resulted in gross margins of approximately $174,000 for the fiscal year 2013. In 2012, 100% of cost of sales included advertising, salaries and media spend. This resulted in gross margins of approximately $170,000 for the fiscal year 2012.

General and administrative costs decreased 12% to approximately $212,000 from approximately $242,000 for the fiscal years ended August 31, 2013 and 2012, respectively. This is primarily attributable to the streamlining of overhead in the parent company in the US resulting in a decrease in expenditures.

Payroll increased in 2013 by 13% to approximately $232,000 as a result of the Company's increase in the number of employees as well as a full year of partial accrued compensation relating to one of the Company's Co Chief Operating Officer.

Professional fees (which include accounting/auditing, consulting and legal fees) decreased by approximately $460,000 for the fiscal year ended August 31, 2013.

This decrease is primarily attributable to the decreased consulting and legal fees in 2013 as well as the reversal of the consideration associated with the BrandEntertain agreement totaling $219,797.

Amortization and depreciation for the years ended August 31, 2013 and 2012 was approximately $251,000 and $266,000 respectively. The decrease is due to the full amortization of existing notes as well as the decrease in the number of new convertible notes.

Interest expense for the years ended August 31, 2013 and 2012 was approximately $176,000 and $92,000 respectively. An increase of approximately $85,000 or 92% which is the result of interest associated with the notes payable issued in 2013 and 2012 which were not converted and continue to accrue interest.

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