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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: November 30, 2012

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT

 

For the transition period from ________ to ________

 

Commission file number: 333-85072

 

RTG VENTURES, INC.

(Exact name of small business issuer as specified in its charter)

 

Florida

 

59-3666743

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

  Identification No.)

 

c/o David E. Price, Esq.

1915 I Street Northwest 5th FL

Washington, DC 20006-2107

(Address of principal executive offices)

 

(917) 488-6473

(Issuer's telephone number, including area code)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]   No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, or non-accelerated filer.

 

Large accelerated filer    [  ]       

Accelerated filer    [  ]

 

 

Non-accelerated filer      [  ]     

Smaller reporting company    [X]

 

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)   Yes [  ]   No [X]

 

Indicate by check mark whether the registrant has filed all the documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X]  No [  ]

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 750,000,000 shares of Common Stock, par value $.001 per share, as of January 14, 2013.

 

Transitional Small Business Disclosure Format (Check one):   Yes [  ]   No [X].

 

1

 

 

 RTG VENTURES, INC.

CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2012

(Unaudited)

 

INDEX

 

 

Page No

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

Consolidated Financial Statements (Unaudited)

3

Balance Sheets

3

Statements of Operations

4

Statement of Stockholders' Deficit

5

Statements of Cash Flows

6

Notes to Unaudited  Consolidated Financial Statements

7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3. Quantitative and Qualitative Disclosures About Market Risk

19

Item 4T. Controls and Procedures

19

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

20

Item 1A. Risk Factors

20

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

20

Item 3. Defaults Upon Senior Securities

20

Item 4. Submission of Matters to a Vote of Security Holders

20

Item 5. Other Information

20

Item 6. Exhibits

20

SIGNATURES

21

 

2

 

 

 

 

RTG VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

November 30,

 

August 31,

 

 

2012

 

2012

 

 

(UNAUDITED)

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash

 

 $               63,544

 

 $              78,131

Accounts receivable

 

                  61,117

 

61,444

     Total current assets

 

124,661

 

139,575

 

 

 

 

 

Property and equipment - net

 

3,635

 

4,287

 

 

 

 

 

      TOTAL ASSETS

 

 $             128,296

 

 $            143,862

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

  Accounts payable and accrued expenses

 

 $             319,277

 

 $            294,138

  Accrued salaries

 

752,288

 

716,475

   Loans payable

 

314,000

 

269,500

   Derivative liability

 

120,711

 

112,828

  Convertible debentures, net

 

307,760

 

250,642

 

 

 

 

 

         TOTAL CURRENT LIABILITIES

 

1,814,036

 

1,643,583

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

  

 

 

 

 

Preferred stock, Series 1, par value .001; authorized 2,000,000      shares; 1,431,520 and 955,888 shares issued and outstanding

 

1,431

 

955

  

 

 

 

 

Preferred stock, Series 2, par value .001; authorized 2,000,000 shares; 2,000,000 and 2,000,000 shares issued and outstanding

 

2,000

 

2,000

  

 

 

 

 

Common stock, par value .001; authorized 1,000,000,000shares; 750,000,000 and 750,000,000 shares issued and outstanding

 

750,000

 

750,000

  Additional paid in capital

 

7,986,009

 

7,956,212

  Other comprehensive loss

 

 (3,012)

 

 (3,441)

  Accumulated deficit

 

 (10,422,168)

 

 (10,205,447)

 

 

  

 

 

      TOTAL STOCKHOLDERS' DEFICIT

 

 (1,685,740)

 

 (1,499,721)

 

 

 

 

 

    TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 $           128,296

 

 $            143,862

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

3








RTG VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

Three Months ended November 30,

 

 

2012

 

 

2011

 

 

 

 

 

 

SALES

 

 $               137,487

 

 

 $                 83,158

 

 

 

 

 

 

COST OF SALES

 

                    70,275

 

 

                    96,755

 

 

 

 

 

 

GROSS PROFIT

 

67,212

 

 

 (13,597)

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

 

General and administrative

 

64,095

 

 

61,480

Payroll

 

78,600

 

 

77,002

Legal and professional fees

 

95,736

 

 

69,765

Amortization and depreciation

 

57,823

 

 

83,581

 

 

 

 

 

 

TOTAL OPERATING EXPENSES

 

296,254

 

 

291,828

 

 

 

 

 

 

OPERATING LOSS

 

 (229,042)

 

 

 (305,425)

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

Interest expense

 

 (17,947)

 

 

 (14,581)

Gain (loss) on foreign currency translation

 

                              -   

 

 

658

Loss on derivative liability

 

 (2,883)

 

 

 (71,549)

Gain on settlement of debt

 

33,151

 

 

                              -   

Other Interest - Modification Expense

 

                              -   

 

 

 (43,510)

TOTAL OTHER INCOME (EXPENSE)

 

12,321

 

 

 (128,982)

 

 

 

 

 

 

NET LOSS

 

 $             (216,721)

 

 

 $             (434,407)

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

Foreign exchange translation

 

429

 

 

 (948)

COMPREHENSIVE LOSS

 

 $             (216,292)

 

 

 $             (435,355)

 

 

 

 

 

 

NET LOSS PER SHARE

 

 

 

 

 

   Basic and diluted

 

 $                   (0.00)

 

 

 $                   (0.00)

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES

 

 

 

 

 

   Basic and diluted

 

750,000,000

 

 

207,702,704

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

4








RTG VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series 1

 

Series 2

 

 

 

 

 

Additional

Paid in

Capital

 

Accumulated Deficit

Total

 

Other

Comprehensive

Income(Loss)

Total

Stockholders'

Deficit

 

Preferred Stock

 

Preferred Stock

 

Common Stock

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

Balance, August 31, 2011

263,772

 

264

 

-   

 

-   

 

197,692,250

 

197,694

 

7,080,069

 

 (8,935,014)

 

 (2,048)

 

(1,659,035)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

 

 

 

 

 

 

 

 

6,500,000

 

6,500

 

52,000

 

 

 

 

 

58,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued in connection with convertible debt

 

 

 

 

 

 

 

 

379,771,865

 

379,771

 

 (129,272)

 

 

 

 

 

250,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for accrued interest

 

 

 

 

 

 

 

 

11,921,489

 

11,921

 

 (3,801)

 

 

 

 

 

8,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest related to modification of conversion price of debt

 

 

 

 

 

 

 

 

 

 

 

 

172,696

 

 

 

 

 

172,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued in connection with loan payable

 

 

 

 

 

 

 

 

148,937,502

 

148,937

 

79,562

 

 

 

 

 

228,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued in connection with conversion of preferred shares

 (97,596)

 

 (98)

 

 

 

 

 

5,176,894

 

5,177

 

 (5,079)

 

 

 

 

 

-   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Contribution

 

 

 

 

 

 

 

 

 

 

 

 

95,000

 

 

 

 

 

95,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares issued for conversion of accrued salary

268,367

 

268

 

 

 

 

 

 

 

 

 

228,661

 

 

 

 

 

228,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares issued to officers

521,345

 

521

 

 

 

 

 

 

 

 

 

32,018

 

 

 

 

 

32,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature in connection with convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

136,560

 

 

 

 

 

136,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares issued for compensation

 

 

 

 

2,000,000

 

2,000

 

 

 

 

 

217,798

 

 

 

 

 

219,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net loss

 

 

 

 

 

 

 

 

 

 

 

 

-   

 

(1,270,433)

 

 

 

 (1,270,433)

     Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1,393)

 

 (1,393)

           Subtotal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1,271,826)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2012

955,888

 

955

 

2,000,000

 

2,000

 

750,000,000

 

750,000

 

7,956,212

 

 (10,205,447)

 

 (3,441)

 

(1,499,721)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for conversion of accounts payable

41,995

 

42

 

 

 

 

 

 

 

 

 

2,631

 

 

 

 

 

2,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to officers as bonus

433,637

 

434

 

 

 

 

 

 

 

 

 

27,166

 

 

 

 

 

27,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net loss

 

 

 

 

 

 

 

 

 

 

 

 

-   

 

 (216,721)

 

 

 

 (216,721)

     Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

429

 

429

           Subtotal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (216,292)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, November 30, 2012

             1,431,520

 

 $ 1,431

 

2,000,000

 

 $2,000

 

750,000,000

 

 $ 750,000

 

 $ 7,986,009

 

$(10,422,168)

 

 $  (3,012)

 

 $ (1,685,740)

See Notes to Unaudited Consolidated Financial Statements

5

 

RTG VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

Three Months Ended November 30,

 

 

2012

 

2011

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net loss

 

 $        (216,721)

 

 $           (434,407)

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

  Fair value of shares issued for services

 

-   

 

58,500

  Fair value of preferred shares issued for bonus

 

27,600

 

-

  Depreciation

 

759

 

392

  Amortization of debt discount

 

57,115

 

83,092

  Change in fair value of derivative liability

 

2,883

 

71,549

  Gain on settlement of debt

 

 (33,151)

 

-

  Bad debt expense

   

-   

 

1,787

  Interest related to modification of conversion price of debt

 

-   

 

43,510

Changes in operating assets and liabilities:

 

 

 

 

  Accounts receivable

 

328

 

 (12,964)

  Accrued salaries

 

35,813

 

64,030

  Accounts payable and accrued expenses

 

60,778

 

25,897

 

 

 

 

 

NET CASH USED IN OPERATING ACTIVITIES

 

 (64,596)

 

 (98,614)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

  Proceeds from convertible notes payable

 

5,000

 

-   

  Proceeds from loans payable

 

44,500

 

-   

  Capital contribution

 

                           -   

 

50,000

 

 

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

49,500

 

50,000

 

 

 

 

 

NET DECREASE IN CASH

 

 (15,096)

 

 (48,614)

 

 

 

 

 

EFFECT OF VARIATION OF EXCHANGE RATE OF CASH

 

 

 

 

HELD IN FOREIGN CURRENCY

 

509

 

 (992)

 

 

 

 

 

CASH - BEGINNING OF PERIOD

 

78,131

 

62,111

 

 

 

 

 

CASH - END OF PERIOD

 

 $             63,544

 

 $               12,505

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

  Cash paid for interest

 

 $                    -   

 

 $                      -   

  Cash paid for income taxes

 

 $                    -   

 

 $                      -   

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

Debt contributed to capital

 

 $                    -   

 

 $               30,500

Conversion of convertible notes payable into common stock

 

 $                    -   

 

 $               38,000

Conversion of accrual to preferred stock

 

 $             35,824

 

 $                      -   

 

 

See Notes to Unaudited Consolidated Financial Statements

6


 



RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

 

Nature of Business and History of the Company

 

RTG Ventures, Inc. is an OTC:QB listed company. The Company was organized under the laws of the State of Florida on September 29, 1998.

 

In 2006, the Company identified a business in digital technology, social media marketing and online global payment systems in the UK which lent itself to both organic growth and growth by acquisition. From that time, we had been evolving the Business Plan to maximize the opportunities and minimize the risks inherent in a challenging economic environment. Initially, all of these efforts were conducted under the contractual requirements of a Share Exchange Agreement. On March 20, 2007, we entered into a Share Exchange Agreement (the "Agreement") with Atlantic Network Holdings Limited ("ANHL"), New Media Television (Europe) Limited ("NMTV"), and Certain Outside Stockholders to acquire all of the outstanding shares of NMTV. ANHL was a Guernsey company limited by shares and NMTV is a United Kingdom private company limited by shares. The transaction was subject to the fulfillment of certain conditions, including the filing by the Company of all reports required to be filed by it under the Exchange Act and the satisfactory completion of the audit of ANHL/NMTV's financial statements for each of its past three fiscal years.  The conditions of closing were not met by ANHL/NMTV et al and the agreement was rescinded via 8-K/A on March 30, 2010.

 

RTG Ventures, Inc. entered into a Share Exchange Agreement (the “Exchange Agreement”), on March 31, 2010, with Cloud Channel Limited which was subsequently re-named as RTG Ventures (Europe) Limited in July 2010 (“RTG Ventures (Europe)”). Pursuant to the Exchange Agreement, the Company acquired 100% of the outstanding capital stock of RTG Ventures (Europe) from its stockholders for consideration consisting of Convertible Preferred Shares of RTG Ventures, Inc. according to the derivative valuation methodologies outlined in the Share Exchange Agreement of Stylar Limited, a/k/a Digital Clarity. RTG Ventures (Europe) has been valued 12 months forward “notionally” one year hence. An 8-K/A was filed in September 2010 containing audited financials of the acquisition of Stylar Limited which completed the transaction. Shareholders were able to convert the preferred shares into common stock using the average share price of the 30 days preceeding September 3, 2011 which provides a share price of $0.016083. The methodology provides for a valuation of 4X net profit. All preferred stock was held by RTGV's transfer agent for the 12 month period ending September 3, 2011. All voting shares are held by management.

 

In August, 2009, RTGV signed a Letter of Intent with International Financial Systems Ltd. (IFS) a private company, to include iPayu, which became a joint venture with RTG Ventures (Europe) Ltd in April, 2010.

 

Subsequent to the close of the fiscal year 2011 following substantial investment, the Company conducted a structural review of its total product and services offering. The review was carried out by the Board of Directors. The result was to bring technology development being outsourced directly into the Company to steward on a daily basis and any activities which were not revenue generating in the near term were eliminated. It was unanimously agreed that the company would adopt a lean approach that focused on the relationships and partnerships built up over the year in the music arena as well as build on the early stage development of its CloudChannel product by bringing the technology in-house following product development disappointments of the technology being developed in the Ukraine. Within this shift, it was agreed that a new, more appropriate name be given to the services and technology offered by RTG that reflected the change and would allow the building of brand value in its own right. Pulse Station reflected that change.

 

Certain business lines were eliminated from the Business Plan immediately. In October, 2011 the joint venture with iPayu was mutually withdrawn and in December, 2011 the acquisition of Bitemark Ltd. was rescinded. The companies reverted to the same position each held prior to the contracts. The rescission of the Bitemark Ltd. share purchase agreement was included as an exhibit to the filing for the 2011 fiscal year even though it constituted a subsequent event at the time.

 

As a further result of the review, the Company has also agreed to strategically focus on developing the business of its wholly owned and revenue generating online marketing services company, Digital Clarity. With deep DNA in its operating market, blending the services of an experienced work force augmented to the technology offering would position the company in a strong, forward looking structure. Digital Clarity operates in the growing area of digital marketing that helps companies make the most the digital economy focusing on areas such as Search Engine Marketing (Google, Yahoo! & Bing), Social Media (Twitter, Facebook & LinkedIn) and Internet Strategy Planning including Design, Analytics and Mobile Marketing.

 

During the last quarter of fiscal 2012, RTG Ventures entered into an agreement with BrandEntertain. RTG Ventures, Inc. and Brand Entertain have agreed to restructure their agreement retroactively to June 11, 2012. BrandEntertain is a partnership and there were certain issues with partnership financials which suggested the business combination be construed as a collaboration/cooperative venture, rather than an acquisition. Both parties agreed that arrangement was mutually beneficial and agreed by RTG's professional advisors. As such, RTG expects to benefit from BrandEntertain's platforms in the pipeline since a valuation would have taken place in one year's time in either arrangement.

 


7





RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Going Concern


The accompanying unaudited consolidated financial statements have been prepared on a going concern basis. The Company has an accumulated deficit of approximately $10,420,000 and a negative working capital at November 30, 2012 of approximately $1,690,000. The Company has incurred a net loss of approximately $217,000 for the three months ended November 30, 2012. The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and to generate profitable operations in the future. Management plans to continue to provide for its capital requirements by seeking long term financing which may be in the form of additional equity securities and debt. The outcome of these matters cannot be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results.


These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These unaudited financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.


Basis of Presentation


The interim consolidated financial statements of RTG Ventures Inc. (“we,” “us,” “our,” “RTG” or the “Company”) are unaudited and contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full year or for previously reported periods due in part, but not limited to, availability of capital resources, the timing of acquisitions, and the sensitivity of our business to economic conditions.


The accompanying unaudited consolidated financial statements have been prepared, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. You should read these interim financial statements in conjunction with the audited consolidated financial statements and notes thereto included in the RTG Ventures, Inc. Annual Report on Form 10-K for the year ended August 31, 2012.


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

 

Basis of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary RTG Ventures (Europe), Ltd. All significant inter-company transactions are eliminated.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist primarily of cash in banks. The Company considers cash equivalents to include all highly liquid investments with original maturities of three months or less to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are presented net of allowance for doubtful accounts.

 

The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At November 30, 2012 and August 31, 2012, the Company recognized $0 and $0 as allowance for doubtful accounts, respectively.

 

Property and Equipment

 

Property and equipment is stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets (primarily three to five years).

  




8



RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)


 Revenue Recognition

 

The Company follows the guidance of ASC Topic 605, formerly, SAB 104 for revenue recognition. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

 

Revenues from services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectability is probable.


 Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

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

 

Income Taxes

 

The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.

 

Earnings (loss) per common share

The Company utilizes the guidance per FASB Codification “ASC 260 "Earnings Per Share". Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive. Such securities have been excluded from the per share computations as of November 30, 2012 and 2011.

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of November 30, 2012, 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.

 


9




 

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

 

During the quarter ended November 30, 2012, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. Accordingly, the Company has recognized a derivative liability in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter and in determining which valuation is most appropriate for the instrument (e.g., Black Scholes), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate.

 

Fair Value of Financial Instruments

 

Effective January 1, 2008, the Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, or ASC 820, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the 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 November 30, 2012, with the exception of its convertible notes payable and derivative liability. The carrying amounts of these liabilities at November 30, 2012 approximate their respective fair value based on the Company’s incremental borrowing rate.

 

Cash is considered to be highly liquid and easily tradable as of November 30, 2012 and therefore classified as Level 1 within our fair value hierarchy.

 

In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

 

Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.  Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.


 

 

10



RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Convertible Instruments (continued)


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 both the exchange rate in effect at the balance sheet date or historical rate, as applicable. Results of operations are translated using the average exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are included in a separate component of stockholders’ equity (accumulated other comprehensive loss), while gains and losses resulting from foreign currency transactions are included in operations.

 

Business Combinations

 

In accordance with Accounting Standards Codification 805, "Business Combinations" ("ASC 805") the Company records acquisitions under the purchase method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. The Company utilizes management estimates and, in some instances, may require an independent third-party valuation firm to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.

 

 

 


11





  

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recently Issued Accounting Pronouncements

 

A variety of accounting standards have been issued or proposed by FASB that do not require adoption until a future date. We regularly review all new pronouncements that have been issued since the filing of our Form 10-Q for the quarter ended November 30, 2012 to determine their impact, if any, on our financial statements. The Company does not expect the adoption of any of these standards to have a material impact once adopted.

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

 

 

 

November 30,

 

August 31,

 

Estimated life

 

2012

 

2012

Computer and office equipment

3 to 5 years

 

$

8,485

 

$               8,379

Less: Accumulated depreciation

 

 

 

(4,850

)

(4,092)

 

 

 

$

3,635

 

$                4,287

 

 

Depreciation expense amounted to $759 and $392 for the quarters ended November 30, 2012 and 2011 respectively.


 

NOTE 4 - LOANS PAYABLE

 

 

 

November 30,

 

August 31,

 

 

2012

 

2012

Loans payable

 

$

314,000

 

$

269,500

 

 

 

 

 

 

 

In July 2010 an officer of the Company sold $140,000 of debt to a shareholder. The debt was due on demand and bears no interest.

 

During the year ended August 31, 2011 a shareholder loaned the Company $30,500. The debt is due on demand and bears no interest. The loan was assumed by an officer of the Company and simultaneously contributed to capital.

 

During the year ended August 31, 2011 an officer of the Company sold $450,000 of debt to the same shareholder. The debt is due on demand and bears no interest. During the year ended August 31, 2011, the Company issued approximately 30,817,704 shares as partial payment of the loan valued at $434,392, in which $367,500 related to the principal portion and $66,892 was recorded as a loss on debt settlement. The balance remaining to the shareholder is $253,000 as of August 31, 2011.

 

During the year ended August 31, 2012, $30,500 of the loan payable was assumed by an officer and $100,000 was assigned to a nonaffiliated third party. In addition this shareholder purchased $150,000 of debt that was owed to an officer of the Company and funded the Company $225,500. As of August 31, 2012, the Company has issued 148,937,502 common shares as a partial repayment of the debt amounting to $228,500 and made cash payments of $10,000. The balance remaining amounted to $269,000 which is due on demand and bears no interest.

 

During the quarter ended November 30, 2012 a shareholder loaned the Company $44,500. The debt is due on demand and bears no interest.





12





RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

At November 30, 2012 and August 31, 2012 convertible debentures consisted of the following:

 

 

 

 

November 30,  

 

 

 

August 31,  

 

 

 

2012

 

 

2012

 

 

 

(Unaudited)

 

 

 

Convertible notes payable

 

$

393,351

 

 

$

388,351

 

Unamortized debt discount

 

 

(85,591

)

 

 

(137,709

)

Total

 

$

307,760

 

 

$

250,642

 

 

In March, 2010, the Company issued a convertible debenture in the amount of $25,000 at 0% interest. The note matured in September 2010 and was convertible into shares of the Company’s common stock at $.01 per share.

 

In March 2011, the Company received $81,653 from a non-affiliated third party in the form of a convertible debenture at 0% interest and is due on demand. This note is convertible into approximately 8,000,000 shares of common stock.

 

Effective September 1, 2010 the Company adopted (FASB ASC 815-40-15-5) ("ASC 815") "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock" which outlines new guidance for being indexed to an entity's own stock and the resulting liability or equity classification based on that conclusion. The adoption of ASC 815 affects the accounting for convertible instruments with provisions that protect holders from declines in the stock price ("down - round" provisions).

 

Pursuant to 815-40-25-22, if the number of currently authorized but unissued shares, less the maximum number of shares that could be required to be delivered during the contract period under existing commitments, including outstanding convertible debt or instruments, outstanding stock options and warrants, exceeds the maximum number of shares that could be required to be delivered under share settlement of the contract then the underlying convertible equity instrument cannot be classified in equity.  At May 31, 2012, the Company believes that substantially all its outstanding convertible promissory notes and convertible preferred stock trigger this excess.  (See Note 6).

 

In March, April, May and July 2011, the Company entered into agreements with a third party non-affiliate to four 8% interest bearing convertible debentures for $203,000 due in nine months (“The 8% Convertible Notes”), with the conversion features commencing 6 months after the loan issuance date. The loans are convertible at an average share price computed on the 30 days prior to conversion. In connection with these debentures, the Company recorded a $207,705 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note was converted or repaid. As of August 31, 2012 these notes have been converted into 266,371,866 shares of common stock. The Company has recorded amortization expense amounting to $100,533 for the year ended August 31, 2012.

 

During the year ended August 31, 2012, the Company entered into convertible loans with third party non-affiliates in which $100,000 of debt was assigned from a shareholder and $248,156 was received in cash. These loans bear interest ranging from 0% - 15% and mature in one year or less. They are convertible in six months or less at a discount based on average share prices ranging between 10 and 30 days. As a result the Company recorded $300,758 in debt discount related to the beneficial conversion feature. In connection with these debentures, the Company has recorded amortization expense amounting to $263,585 for the years ended August 31, 2012 with $137,709 net discount balance remaining.  As of August 31, 2012, $250,500 of debt was converted into 379,771,865 shares of common stock and $29,625 has been paid in cash. As of August 31, 2012, the balance of the Company’s convertible debt amounts to $250,642, net of discount.

During the quarter ended November 30, 2012, the Company has recorded amortization expense amounting to $57,115 for the quarter ended November 30, 2012 with $85,591 net discount balance remaining.  As of November 30, 2012, the balance of the Company’s convertible debt amounts to $307,760, net of discount.



NOTE 6 - DERIVATIVE LIABILITIES

 

The Company accounts for the embedded conversion features included in its convertible instruments.

 The aggregate fair value of derivative liabilities at November 30, 2012 and August 31, 2012 amounted to $120,711 and $112,828, respectively.

 In addition the Company has recorded a loss related to the change in fair value of the derivative liability amounting to $2,883.

 At each measurement date, the fair value of the embedded conversion features was based on the binomial and the Black Scholes method, respectively.


13





RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 – ACCRUED PAYROLL

 

As of November 30, 2012 and August 31, 2012 the Company owes $752,288 and $716,475 respectively, in accrued salary to its employees. The amounts are non-interest bearing.

 

During the year ended August 2012, the Company and an officer agreed to end accruing the officer’s salary as of August 31, 2011. The officer was issued 268,367 shares of preferred stock to satisfy the accrued salary balance through August 31, 2011. The issuance of preferred stock may, if mutually agreed, continue annually in each fiscal year.


 

NOTE 8 - COMMON STOCK AND PREFERRED STOCK

 

In September, 2011, 6,500,000 shares of common stock were valued at $58,000 to consultants under the terms of the agreements for services.

 

In January 2012, 268,367 shares of preferred stock were issued to satisfy $228,929 in accrued salary due to an officer of the Company.

 

In January 2012, 471,345 shares of preferred stock were issued to three officers of the Company in connection with compensation.

 

In March 2012, 97,596 shares of preferred stock were converted into 5,176,894 shares of common stock for the minority shareholders pursuant to the share exchange agreement with Stylar Limited a/k/a Digital Clarity.

 

In May 2012, the Company announced the appointment of an executive officer as Head, US Operations and issued him 50,000 shares of preferred stock as a sign on bonus.

 

In June 2012, the Company entered into a cooperative venture agreement with BrandEntertain. Under the terms of the agreement, 2,000,000 Preferred Shares-Series 2 were reserved for the officers of BrandEntertain at $219,840.

 

During the year ended August 31, 2012, 379,771,866 shares of common stock were issued to satisfy approximately $250,500 of convertible notes payable and 11,921,489 shares of common stock were issued to satisfy $8,120 in accrued interest.

 

During the year ended August 31, 2012, 148,937,502 shares of common stock were issued to satisfy $228,000 of loans payable. These conversions resulted in a modification expense of $172,694.

 

As of November 30, 2012 we had authorized 2,000,000 shares of $.001 par value series 1 preferred stock, of which 1,431,520 were outstanding.   

 

As of November 30, 2012 we had authorized 2,000,000 shares of $.001 par value series 2 preferred stock, of which 2,000,000 were outstanding.   

 

As of November 30, 2012 we had authorized 750,000,000 shares of $.001 par value common stock, of which 750,000,000 were issued and outstanding. 

 

In November 2012, 41,995 shares of preferred stock were issued for an accrual to satisfy a debt of $35,824.

 

In November 2012, 433,637 shares of preferred stock were issued to four officers of the Company in connection with compensation.


 

NOTE 9 – CAPITAL CONTRIBUTION

 

During the year ended August, 2011 an officer of the Company made contributions of $190,000 to assist with Company accounts payable and various professional fees. These contributed funds are considered paid in capital.

 

During the year ended August, 2012 an officer of the Company made contributions of $95,000 to assist with Company accounts payable and various professional fees. These contributed funds are considered paid in capital.

 

NOTE 10 - EMPLOYMENT AND CONSULTING AGREEMENTS

 


In April, 2010 a term sheet was agreed with a Company officer for annual remuneration of £100,000 ($160,000) for the Chairman and Director of the Company, Mr. Neil Gray. Mr. Gray may receive a bonus totaling 50-75% of his base salary after certain Company performance objectives are achieved following the first year of operation. In 2010, Mr. Gray as a sign on bonus received 3.0 million restricted shares.  The term sheet is ongoing and renewable on an annual basis.  Mr. Grey's term sheet was renewed on September 1, 2012. 

 

In September 2010 a term sheet was agreed with a company officer for annual remuneration of $150,000 with Ms. Linda Perry for her role as a consultant and as Executive Director and US interface to provide oversight regarding external regulatory reporting requirements. In addition, she is lead executive for capital funding requirements and business development.  The term sheet is ongoing and renewable on an annual basis.  Ms. Perry's term sheet was renewed on September 1, 2012. 

 

In April, 2011 a term sheet was agreed with a Company officer, Mr. Reggie James, where remuneration was split between his duties as Senior Vice President and Executive Director of RTG Ventures and Managing Director of Digital Clarity.  The term sheet is ongoing and renewable on an annual basis.  Mr. James's term sheet was renewed on September 1, 2012.

 

In June 2012, a term sheet was agreed with the Head, US Operations with a sign on bonus of 50,000 preferred shares, further compensation is performance reflecting multiple projects and business development activities.

   

 

NOTE 11 – SUBSEQUENT EVENTS

 

In January, 2013, the Company increased its authorized common shares to 1,000,000,000.

 

In January, 2013, the Company appointed Reggie James and Steven Baughman Co-Chief Operating Officers. They also retain their previous titles of Senior Vice President, Communication and Marketing and Executive Director and Head, US operations, respectively.


14

Item 2. Management's Discussion and Analysis or Plan 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" 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

 

RTG Ventures, Inc. 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 built up over the year in the music arena as well as build on the early stage development of its CloudChannel product by bringing the technology in-house following product development disappointments of the technology being developed in Ukraine. Within this shift, it was agreed that a new, more appropriate name be given to the services and technology offered by RTG that reflected the change and would allow the building of brand value in its own right. Pulse Station reflected that change.

 

Operations Overview/Outlook

 

Operationally, 2012 was important in evaluating the direction of the company and steering it toward a sustainable growth plan that will center on technology and digital marketing in 2013, as described below: 

 

Music & Entertainment Solutions

RTG is taking its strengths including its relationships to build its business focus on music and entertainment. The Company, under very competitive global market conditions and growing development needs, continued to identify partnership opportunities using its platform, Pulse Station, and conducted a robust review of performance with excellent results.

 

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 2013, the Company will take the positive results of the last year and use that model to expand geographic reach with existing and new partners.

Digital Marketing Services

2012 saw a massive growth in the adoption of Social Media as a communication, marketing and engagement avenue. Through Stylar, RTG’s wholly owned digital marketing agency brand, Digital Clarity, it was clear that the direction, talent and growth of the company is in its human capital and outside relationships.

 

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 Company must jumpstart the growth by significant capital infusion by fiscal year 2013 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 the latter part of 2012, Digital Clarity continued to make inroads into established and emerging markets. As part of this push, that was greatly enhanced and supported by a newly created 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 fulfill 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.

 

Further to that success, Digital Clarity has also been in deep negotiation with a Luxury Brand Group that takes established and well known global high-end fashion brands into the rapidly growing Middle East market.

 

Digital Clarity is working with the group due to the agency’s ability to leverage on contacts within the region and the ability to deliver tangible strategy. The Middle East remains an important market for the company. These two initiatives are examples of the Company’s development activities which will serve as models for the 2013 fiscal year.

 

Key Differentiators

2012 was about establishing strong foundations, streamlining operations and assessing activities on a cost benefit basis. 2013 will be about growth and outreach.

  

As the internet and mobile arena continues to mature, the need to make sense of and manage companies through this often complex market is clearly an area of massive growth. The company is confident that the talent and experience within the digital marketing team is poised for a major springboard in 2013, but must be expanded significantly in order to support the global reach intended.

 

Experience

The company has reach and experience across a large number of vertical markets including: Automotive, Retail, Travel, Finance, Property, Recruitment, Advertising, Entertainment/Sports, B2B, Start-ups to name a few.

 

Relationships and Industry Contacts

The team at Digital Clarity have professional and personal contacts 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

·         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 Claritys 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.


15

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 Claritys arsenal. 

 

Growth & Opportunities in Design

§    644,275,754 number of active web pages 1st QTR 2012 - NetCraft

§    6million domain added in first QTR 2012 - Verisign

§    By 2015, Mobile Internet Usage Will Increase by Factor of 26 - CISCO

§    665million 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

§    Growth in 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 RTG 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 RTG Ventures to approach new business with its proven track record, increase. The core markets remain US and English speaking European markets. Emerging markets are a target for 2013. We already have identified a partner in the Middle East and are actively developing a significant client. In addition, BRIC countries (Brazil, Russia, India and China) would be the next targets from the emerging markets.

 

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 at the center of the entertainment, technology and digital industries and as such the emphasis looking forward to 2013 and building on the recent success in the last quarter of the 2012 calendar year means that RTG and its agency Digital Clarity are perfectly positioned to spring board into this market using the successful models established this past year.

 

Currently, negotiations are taking place to extend relationships with collaborative partners that have clients in the entertainment and media sectors that can leverage Digital Clarity’s experience in the digital and social space.

 

With the appointment of Steven Baughman as Head of US Operations in June 2012, we are establishing a strong digital marketing presence in the Los Angeles area to cover the music and entertainment market and then plan to do the same later in 2013 in New York. We intended to establish the satellite office during the 2012 fiscal year but didn’t have the bandwidth to do so and develop our client base as well. As California remains a key regional base from which to build and expand relationships, the need to have a New York satellite office is equally important to serve and build relationships the largest advertising market in the US.

 

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 are being explored as to how US partners can leverage Digital Clarity’s reach in this region and help take established US agencies into the European region.

 

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 bye product of which would be sales.

 

Areas supporting growth in the Middle East

§ Leverage of trade shows e.g. MEE in November in Dubai World Travel & Luxury Goods

§ 214,000 Chinese tourists visited Dubai in 2011, a 50% increase from the previous year.

§ 25% of luxury goods sold in the Mall of the Emirates were bought by Chinese tourists 2011

 

§  A recent survey by Chalhoub Group revealed that 70% of survey respondents shopped with friends and 40% with sisters and mothers. The survey found that having the right logo and fashion brand displayed on handbags or clothes is particularly important. For example, up to 90% of people surveyed in Riyadh, Saudi Arabia, believed it was important to have a prestigious logo displayed on their clothing or accessories.

 

 

16

Key differentiators

Artist Collaboration with the head of US Operations, Steven 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.

 

Financial Overview/Outlook
The first quarter of the 2013 fiscal year continued the Company realignment from the previous year. Cost of sales decreased further while revenues continue to increase.

In addition, by the end of the fiscal year 2012 and continuing through the first quarter of 2013, all debt is in the hands of friendly lenders who have shown their support to the Company.

 

However, the weakened share price remains a challenge to the Company. Having revenues of approximately $500,000 in fiscal 2012 and approximately $137,500 in the first quarter of fiscal 2013 would suggest a conservative market multiple of x10-x16, the latter being the manufacturing average. Compared to other companies in this sector, RTG is significantly undervalued. The issue will be addressed as a priority. The Company will continue to seek appropriate partnerships, joint venture and/or merger opportunities.

 

Going forward, RTG Ventures 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 RTG 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.

 

The Board of Directors sees 2013 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.

 

 QUARTER ENDED NOVEMBER 30, 2012

 

We had $63,544 cash at November 30, 2012. Our working capital deficit amounted to approximately $1.689 million at November 30, 2012.

 

During the quarter ended November 30, 2012, we used cash in our operating activities amounting to approximately $65,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $217,000 adjusted for the following:

 

 

 

·

Fair value of preferred shares issued for bonus of $27,600;

 

·

Change in fair value of derivative liability of $2,883;

 

·

Amortization of debt discount of $57,115;

 

·

Gain on settlement of debt of $33,151;

 

·

Depreciation of $759;


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 $61,000, resulting from slower payment processing due to our financial condition.

 

·

An increase in our accrued salaries of approximately $36,000, which is a significant decrease as compared to the first quarter in fiscal 2012.

 

·

A decrease in our accounts receivable of $328 resulting from slower collections.

 

 

                                                             17

 

QUARTER ENDED NOVEMBER 30, 2011

 

We had $12,505 cash at November 30, 2011. Our working capital deficit amounted to approximately $1.877 million at November 30, 2011.

 

During the quarter ended November 30, 2011, we used cash in our operating activities amounting to approximately $99,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $434,000 adjusted for the following:

 

 

·

Fair value of shares issued of $58,500;

 

·

Change in fair value of derivative liability of $71,549;

 

·

Amortization of debt discount of $83,092;

 

·

Interest related to modification of conversion price of debt of $43,510;

 

·

Bad debt expense of $1,787;

 

·

Depreciation of $392;


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 $26,000, resulting from slower payment processing due to our financial condition.

 

·

An increase in our accrued salaries of approximately $64,000, which is a significant decrease as compared to the first quarter in fiscal 2011.

 

·

An increase in our accounts receivable of $12,964 resulting from slower collections.


RESULTS OF OPERATIONS

 

Comparison of the Results for the Quarters Ended November 30, 2012 and 2011

 

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 quarters ended November 30, 2012 and 2011 was approximately $137,000 and $83,000, respectively. For the quarter ended November 30, 2012 our primary sources of revenue are the Per-Click Advertising, Web Design and Search Engine Optimization Services. These primary sources amounted to 74% of our revenues. Our secondary sources of revenue are our Social Media and Email Media. These secondary sources amounted to approximately 26% of our revenues.  For the quarter ended November 30, 2011 our primary sources of revenue are the Per-Click Advertising, and Search Engine Optimization Services. These primary sources amounted to greater than 80% of our revenues. Our secondary sources of revenue are our Web Design Fees, Social Media and Web Design. These secondary sources amounted to approximately 20% of our revenues.  

 

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 quarters ended November 30, 2012 and 2011 was approximately $70,000 and $97,000, respectively. For the quarter ended November 30, 2012, cost of sales included advertising, salaries and media spend. This resulted in a gross profit of approximately $67,000 for the quarter ended November 30, 2012. For the quarter ended November 30, 2011, cost of sales included advertising, salaries and media spend. This resulted in a gross loss of approximately $13,600 for the quarter ended November 30, 2011.

 

General and administrative costs increased 4% to approximately $64,100 from approximately $61,480 for the quarters ended November 30, 2012 and 2011, respectively. The fiscal 2013 balance which only increased by approximately $2,600 was due to the Company’s continued trend of streamlining its overhead keeping its expenditures low compared to prior years.

 

Payroll increased for the quarter ended 2012 by only 2% to approximately $79,000. The fiscal 2013 balance which only increased by approximately $1,600.

 

Professional fees (which include accounting/auditing, consulting and legal fees) increased by approximately $26,000 for the quarter ended November 30, 2012. This increase in fiscal 2013 is primarily attributable to the increase in accounting and legal fees.

 

Amortization and depreciation for the quarters ended November 30, 2012 and 2011 was approximately $58,000 and $84,000 respectively. The decrease is due to the lower number of loans in fiscal 2013 as well as a number of existing notes which were fully amortized in fiscal 2012.

Interest expense for the quarters ended November 30, 2012 and 201 was approximately $18,000 and $15,000 respectively, an increase of approximately $3,000 or 23%.

 

Gain on settlement of debt totaled $33,151 and $0 for the quarters ended November 30, 2012 and 2011, respectively.

 

Other interest – gain on derivative liability totaled approximately $2,283 and $71,549 for the quarters ended November 30, 2012 and 2011, respectively and was due to the calculation of a derivative liability associated with the issuance of convertible note payables.

 

Other interest – modification expense totaled approximately $0 and $43,500 for the quarters ended November 30, 2012 and 2011, respectively and was due to the price modification associated with the calculation of convertible shares issued associated with the convertible note payables issued in 2011.


18

 


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 4T. CONTROLS AND PROCEDURES

 

As of the end of the period covered by this quarterly report, our management evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our management concluded that, as of November 30, 2012, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed 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 Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. 

 

Evaluation of Disclosure Controls

 

We maintain controls and procedures designed to ensure that we are able to collect the information that is required to be disclosed in the reports we file with the Securities and Exchange Commission (the "SEC") and to process, summarize and disclose this information within the time period specified in the rules of the SEC. Our management is responsible for establishing, maintaining and enhancing these procedures. Management is also responsible, as required by the rules established by the SEC, for the evaluation of the effectiveness of these procedures.

 

Internal Controls

 

We maintain a system of internal controls designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization; transactions are recorded as necessary to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") and maintain accountability for assets. Access to assets is permitted only in accordance with management's general or specific authorization.

 

 

19

 


PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

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

 

31.1     

Executive Director - Rule 13a-14(a) Certification

32.1     

Executive Director - Sarbanes-Oxley Act Section 906 Certification

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

20

 

 

 

 

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.

 

 

 

RTG VENTURES, INC. 

 

 

 

Date: January 16, 2013 

 

By: /s/ Linda Perry 

 

 

 

Linda Perry

Executive Director

 

 

 

 

21