Digital Brand Media & Marketing Group, Inc. - Quarter Report: 2012 May (Form 10-Q)

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: May 31, 2012

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

For the transition period from ________ to ________

RTG VENTURES, INC.

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

c/o David E. Price

1915 I Street Northwest

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.

 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: 686,867,611 shares of Common Stock, par value $.001 per share, as of July 5, 2012.

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

 RTG VENTURES, INC.

CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2012

(Unaudited)

INDEX

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

Nature of Business and History of the Company

RTG Ventures, Inc. (the “Company” or “RTGV”) 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 have been evolving the Business Plan to maximize the opportunities and minimize the risks inherent in a challenging economic environment. All of these efforts were conducted under the contractual requirements of a Share Exchange Agreement. On March 20, 2007, the Company entered into a Share Exchange Agreement (the "Agreement") with Atlantic Network Holdings Limited, New Media Television (Europe) Limited ("NMTV"), and Certain Outside Stockholders listed on Exhibit A to the Agreement to acquire all of the outstanding shares of NMTV. Atlantic Network Holdings Limited is a Guernsey company limited by shares and NMTV is a United Kingdom private company limited by shares. The transaction was subject to the fulfillment of certain conditions, including the 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 NMTV's financial statements for each of its past three fiscal years. The conditions of closing were not met by ANHL and the agreement was rescinded via 8-K/A on March 30, 2010.

On March 31, 2010, RTG Ventures, Inc. entered into a Share Exchange Agreement (the “Exchange Agreement”) 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 valuation methodologies outlined in the Share Exchange Agreements of RTG Ventures (Europe) subsidiaries Bitemark MC Limited and Stylar Limited, a/k/a Digital Clarity. RTG Ventures (Europe) has been valued 12 months forward using forecasts submitted by them and agreed by the Company as notional valuations. An 8-K/A was filed in September 2010 containing audited financials of RTG Ventures (Europe) which completed the transactions. Shareholders will be able to convert the preferred shares into common stock using the average share price of the 30 days preceding the conversion. The methodology for valuing purchase of RTG Ventures (Europe) provides for a valuation of 4X net profit for Stylar Limited. All preferred stock was to be held by RTGV's transfer agent for the 12 month period ending September 3, 2011. See footnotes 13 and 14 for additional information.

In August, 2009, RTGV signed a Letter of Intent with International Financial Systems Ltd. (IFS) a private company, to include iPayu, another dimension in the payment systems division of our Business Plan as described on our website, www.rtgventures.com. The Letter of Intent became a joint venture with RTG Ventures (Europe) Ltd in April, 2010.

Initially and for the first year of operations, RTG Ventures was organized as three divisions: Media Systems, Payment Systems and Solutions, each of which contained both wholly-owned companies and joint ventures with independent business plans, strategies and management. In addition to servicing their discrete markets, these companies all contributed to RTGV's total product offering for media rights owners.

Subsequent to the close of the fiscal year following substantial investment and rapid change within the three main operating sectors of the business, the Company has had a structural review of their total product and services offerings. 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 due to the shift in the market, the Company would adopt a lean approach that focused on the relations built up over the year in the music arena as well as build on the early stage development of its CloudChannel product, to re-align and address the new social and analytics needs of the market. Within this shift, it was agreed that a new, more appropriate name be given to the technology that reflected the change and would allow the building of brand value in its own right. That effort is underway.

In October, 2011 the joint venture with iPayu was mutually withdrawn and in December, 2011 the acquisition of Bitemark was rescinded. The companies reverted to the same position each held prior to the contracts.

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 workforce augmented to the technology offering positions of the company, placing 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.

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

RTGV offers music & entertainment technology solutions and digital marketing services harnessing the strength of its acquired online marketing agency Digital Clarity, the company has developed a software platform that fills the needs of artists, management and labels in a complex and ever increasing social economy. Using Digital Clarity’s application in the social and marketing arena, RTG Ventures offers a unique value proposition of intelligent, analytics based technology with the support and insight of an experienced digital marketing team. RTGV offers customerss a complete, seamless and powerful solution in marketing, alongside cutting edge technology platforms for web, mobile and tablet devices.

The Company is committed to rolling out the services of both the technology and marketing services offering of the business from its current base in London, England into larger markets in the United States, namely Los Angeles and New York.

Going Concern

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis. The Company has an accumulated deficit of approximately $9,990,000 and a negative working capital at May 31, 2012 of approximately $1,740,000. The Company has incurred a net loss of approximately $1,060,000 for the nine months ended May 31, 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, 2011.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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.

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounts Receivable and Allowance for Doubtful Accounts

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

The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. At May 31, 2012 and August 31, 2011, the Company recognized $0 and $24,818 as allowance for doubtful accounts, respectfully.

Property and Equipment

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

Revenue Recognition

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

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

Use of Estimates

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

Reclassifications

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

Income Taxes

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

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Computation of Net Loss Per 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 net income per share is computed by dividing net income for the period by the weighted-average number of common share equivalents during the period. Common stock equivalents arise from the issuance of stock options and warrants. Dilutive earnings per share is not shown as the effect is anti-dilutive. There were no common stock equivalents at May 31, 2012.

Derivative Liabilities

The Company assessed the classification of its derivative financial instruments as of May 31, 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.

During the period ended May 31, 2012, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. An addition, the Company’s shares that are required to be delivered under its existing commitments have exceeded the authorized shares. 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:

The Company did not have any Level 2 or Level 3 assets or liabilities as of May 31, 2012, with the exception of its convertible notes payable and derivative liability. The carrying amounts of these liabilities at May 31, 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 May 31, 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”.

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 require net cash settlement, then the contract shall be classified as an asset or a liability.

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.  

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Impairment of Goodwill

Goodwill is tested for potential impairment at least annually, and whenever events or changes in circumstances suggest that the carrying value may be impaired. Judgment regarding the existence of impairment indicators are mainly based on operating results, changes in the manner of the use of the acquired assets or the Company’s overall business strategy, and market and economic trends.

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-K for the year ended August 31, 2011 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:

Depreciation expense amounted to $1,496 and $1,347 for the nine months ended May 31, 2012 and May 31, 2011 respectively.

NOTE 4 - LOANS PAYABLE

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.

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 period ended May 31, 2012, $30,500 of the loan payable was assumed by an officer and $100,000 was assigned to a non affiliated third party. In addition this shareholder purchased $150,000 of debt that was owed to an officer of the Company and also loaned the Company $43,000. As of May 31, 2012, the Company has issued 132,805,113 common shares as a partial repayment of the debt. The balance remaining amounted to $113,500 which is due on demand and bears no interest.

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – CONVERTIBLE NOTES PAYABLE

At May 31, 2012 and August 31, 2011 convertible debentures consisted of the following:

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 May 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 nine months ended May 31, 2012.

During the nine months ended May 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 $128,456 was received in cash. These loans bear interest ranging from 0% - 7% 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 $207,595 in debt discount related to the beneficial conversion feature. In connection with these debentures, the Company has recorded amortization expense amounting to $103,822 for the nine months ended May 31, 2012 with $103,773 net discount balance remaining. As of May 31, 2012 $21,037 of debt was converted into 66,400,000 shares of common stock and $13,625 has been paid in cash.

NOTE 6 - DERIVATIVE LIABILITIES

The maximum number of shares required to be delivered during the period under which substantially all of the Company’s outstanding convertible preferred shares and convertible notes exceed the amount of authorized shares at May 31, 2012.

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

The aggregate fair value of derivative liabilities at May 31, 2012 and August 31, 2011 amounted to approximately $550,000 (in which $357,000 was related to convertible debt and $193,000 related to reclassifying convertible preferred shares out of equity) and $0, respectively.

In addition the Company has recorded a loss related to the change in fair value of the derivative liability amounting to $213,000.

During the nine-month period ended May 31, 2012, the convertible preferred stock that was issued by the Company was recognized as equity because, at the time, the Company had a sufficient amount of authorized shares of common stock to satisfy its obligations under such contracts.

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

NOTE 7 – ACCRUED PAYROLL

As of May 31, 2012 and August 31, 2011 the Company owes $678,422 and $1,003,040 respectively, in accrued salary to its employees. The amounts are non-interest bearing.

During the nine months ended May 2012, the Company and an officer agreed to end accruing the officer’s salary as of August 31, 2011. The officer was issued preferred stock to satisfy the accrued salary through August 31, 2011.

NOTE 8 - COMMON STOCK AND PREFERRED STOCK

As of May 31, 2012 we had authorized 2,000,000 shares of $.001 par value preferred stock, of which 955,888 were outstanding.

As of May 31, 2012 we had authorized 750,000,000 shares of $.001 par value common stock, of which 686,867,611 were issued and outstanding.

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 a Share Option Program established by the Company.

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

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

During the nine month period ended May 31, 2012, 332,771,865 shares of common stock were issued to satisfy approximately $224,000 of convertible notes payable and 11,921,489 shares of common stock were issued to satisfy $8,120 in accrued interest.

During the nine month period ended May 31, 2012, 132,805,113 shares of common stock were issued to satisfy $202,000 of loans payable. These conversions resulted in a modification expense of $162,196, reflected as additional paid in capital.

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 - LITIGATION

The Company is not currently involved in any litigation.

NOTE 10 – CAPITAL CONTRIBUTION

In July 2010 an officer of the Company made contributions of $85,000 to assist with various professional fees. These contributed funds are considered as paid in capital.

In November 2010 an officer of the Company made contributions of $95,000 to assist with various professional fees. These contributed funds are considered paid in capital.

In February, 2011 an officer of the Company made contributions of $95,000 to assist with various professional fees. These contributed funds are considered paid in capital.

In November, 2011 an officer of the Company made contributions of $80,500 to assist with various professional fees. These contributed funds are considered paid in capital, of which $50,000 was cash and $30,500 relates to a prior year loan which was assumes by an officer of the company and simultaneously contributed to capital.

During the nine months ended May, 2012 an officer of the Company made contributions of $197,500 to assist with Company accounts payable and various professional fees. These contributed funds are considered paid in capital.

NOTE 11 – ACQUISITION

RTGV acquired 100% of the shares of RTG Ventures (Europe) Limited, 10,000 (Ten Thousand) ordinary shares at £ .0001 per share par value. RTGV shall issue and transfer 263,772 preferred shares which convert into its common stock. The conversion rate is calculated and agreed by RTGV. It is acknowledged and approved by both Boards that the majority of these shares are to be consideration for acquisitions and asset purchases to be completed by RTG Ventures, Inc. All shares held in escrow will be voted by management.

Stylar Limited

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 methodology outlined in the Share Exchange Agreement of Stylar, a/k/a Digital Clarity Limited. Stylar Limited was notionally valued 12 months forward. The accounting date of the acquisition was September 3, 2010 and the transaction was accounted for as a purchase of a business under Accounting Standards Codification ("ASC") 805, Business Combinations.

The valuation methodology resulted in a purchase price agreed to by both parties of $225,027. Shareholders will be able to convert the preferred shares into common stock using the average share price of the 30 days preceding September 3, 2011 which provides a common share price of $0.016083. The result of the agreed upon purchase price would be the issuance of 263,772 shares of preferred stock at a ratio of 1 to 53.04 shares of common stock.

The following table summarizes the estimated fair values of the assets and liabilities assumed at the date of acquisition:

The purchase price resulted in the Company recognizing goodwill of $156,908. The transaction was accounted for under the purchase method in accordance with ASC 805.

In accordance with ASC 305 and as of August 31, 2011 the Company determined that the goodwill of $156,908 should be fully impaired and as a result has written it off.

Revised May 31, 2011 financial information:

For the nine and three months ended May 31, 2011, the Company recorded the write-off and amortization of the intangible asset of approximately $800,000 and $700,000, respectively which was based on the tentative purchase price determinable at the time. In December 2011, the conversion factors resulting from the 12 month forward pricing were finalized and both parties had agreed to the revised purchase price and consideration resulting in a measurement period adjustment. Accordingly, pursuant to generally accepted accounting principles, it was necessary to retrospectively restate the May 31, 2011 nine month and three month figures filed on July 18, 2011. In accordance with ASC 805, the Company has retrospectively adjusted the May 31, 2011 figures and has disclosed in this filing the May 31, 2011 comparative financial information to reflect the new purchase price of $225,027 and an increase in income for the nine and three months ended May 31, 2011 of approximately $800,000 and $700,000, respectively in the Statements of Operations.

RTG VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 12 – RESCISSION OF SHARE EXCHANGE AGREEMENT – BITEMARK LIMITED

Bitemark MC Limited.

On September 3, 2010, the Company acquired 100% of the common stock of Bitemark MC Limited (“Bitemark”), according to the derivative valuation methodology outlined in the Share Exchange Agreement of Bitemark MC Limited (BMC).

In June 2011 Bitemark MC Limited was liquidated and is no longer operating. The original Share Purchase Agreement was rescinded leaving both companies in the same position prior to the first agreement between the parties. Since this dissolution occurred during the fiscal period, management determined that a deconsolidation would be appropriate in this case and therefore, the original transaction recorded in September 2010 was reversed.

Revised May 31, 2011 financial info:

Due to management’s subsequent evaluation, the rescission of the original purchase agreement and the subsidiary’s liquidation and dissolution in June 2011, the May 31, 2011 quarterly figures filed on July 8, 2011 have been revised to nullify the amounts resulting from this invalidated transaction. For the nine and three months ended May 31, 2011, the Company recorded a loss from discontinue operations of approximately $319,000 and $220,000, respectively. The Company has retrospectively adjusted the May 31, 2011 figures and has disclosed in this filing the nine and three months ended May 31, 2011 comparative financial information to reflect the deconsolidation of the subsidiary resulting in an increase in income of approximately $319,000 and $220,000 respectively, in the Statement of Operations.

NOTE 13 – SUBSEQUENT EVENTS

On June 11, 2012 RTG Ventures, Inc. entered into an Agreement to Purchase LLC Interests from Brand Entertain, a private company, whereby RTGV would acquire 100% of its shares.

Brand Entertain will be issued Convertible Preferred Shares of RTG Ventures, Inc. according to an agreement filed as an 8-K on June 11, 2012. The Convertible Preferred Shares are Restricted for a minimum of one year, before they can be converted to common shares at a ratio of 34.35. This initial conversion ratio is subject to a future positive adjustment based on established performance-based milestones mutually agreed by the parties post-agreement.

Pursuant to the Agreement to Purchase LLC Interests, the Registrant acquired 100% of the outstanding ownership of Brand Entertain from its 2 shareholders for consideration consisting of 2,000,000 shares of Convertible (Restricted) Series 2 Preferred Shares according to determined valuation methodologies agreed mutually by the parties.

The purchase price is Two Hundred Fifty Two Thousand Four Hundred Seventy Two dollars and Fifty Cents ($252,472.5). The Series 2 Preferred Shares are convertible into 68,700,000 shares of RTG's common stock, which was ten percent (10%) of the outstanding stock of RTG at the closing date. The initial conversion ratio for Series 2 Preferred to common stock is 34.35. This conversion ratio of the Series 2 Preferred shall be subject to a future positive adjustment. The amount of any positive adjustment will be based upon a comparison of the post-closing business results of Brand Entertain and of RTGV.

On June 11, 2012 Jeffrey Wattenberg was appointed as a Director of the Company.

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. Initially through the fiscal year 2011, RTG Ventures had been organized as three divisions: Media Systems, Payment Systems and Solutions, each of which contained both wholly-owned companies and joint ventures with independent business plans, strategies and management. After substantial investment and rapid change within the three main operating sectors of the business, the Company has had a structural review of its total offering. The offering has been promoted by both market forces in the technology and rights management and mobile payments arenas, alongside the positive prospective growth of its acquired digital marketing company, Stylar Limited a/k/a Digital Clarity.

The review was carried out by the Board of Directors and it was unanimously agreed that due to the shift in the market, 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, to re-align and address the new social and analytics needs of the market. Within this shift, it was agreed that a new, more appropriate name be given to the technology that reflected the change and would allow the building of brand value in its own right.

Payment Systems Division

The Company intended to roll-out a disruptive mobile payment platform built on a full banking system through a Joint Venture framework with UK’s International Financial Systems (IFS). Due to the growth in this sector by Internet, Media, Telecoms and Credit Card Companies, it was decided that the level of investment required indexed against the growth by competitive providers would leave the company exposed with a product that would struggle to progress in a highly competitive, well capitalized commercial environment. The joint venture between the RTG Ventures and International Financial Systems was mutually set aside in November 2011. Coincidently, the Payment Systems Division has been eliminated.

Media Systems Division

The Media Systems Division consisted of four separate yet complementary businesses. These were CloudChannel, ArchiveGo, FlowCaster and Audigist.

CloudChannel was the lead platform, with ArchiveGo and FlowCaster supporting the archive and streaming monetization element of the software platform. Audigist is the site established for independent artists and to which our partner Aderra has directed many artists who have no contractual relationships with record labels.

The software development of CloudChannel was outsourced to a company based in Ukraine. After a series of late development cycles and major changes in the need for a turnkey monetization platform, it was decided to bring the development of this technology under the stewardship of RTG Ventures, digital marketing company Digital Clarity, a trading name of Stylar Limited.

The Solutions Division

The Solution Division comprised of Stylar Limited a/k/a Digital Clarity and Bitemark Limited (BMC), including NUA. NUA was a non-material business combination with BMC in order to provide retail support to the merchandising effort.

Digital Clarity remains a viable business, a 100% subsidiary of RTG Ventures, Inc.

The share purchase agreement with Bitemark Limited has been rescinded by RTG’s Board of Directors and included as an exhibit to the August 31, 2011 Form 10-K.

The Company has also agreed to focus on developing the business of its wholly owned and revenue generating online marketing services company, Stylar Limited. Stylar Limited has the trading brand, Digital Clarity. With a deep DNA in its operating market, blending the services of an experienced marketing approach augmenting to the technology offering would position the company in a strong, forward looking structure. The company has focused on its core strengths with an intent to develop its technology vision in conjuction with the growth and identification of revenue streams.

Digital Clarity is a trading brand of wholly owned RTG Ventures, Inc Company, Stylar Limited. Currently through its office in London, England the Company operates in the growing area of digital marketing which 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.

Digital Clarity is a multi-service digital marketing agency which specializes in creating effective strategies and campaigns for clients across a range of vertical markets.

Specializing in Search Engine Marketing, SEO Services, Social Media & Digital analytics, at present we work with both major brands and medium sized companies to help develop and leverage online brand presence and new customer acquisition.

Pay per Click Advertising (PPC)

Pay per click (PPC) (also called Cost per click) is an Internet advertising model used to direct traffic to websites, where advertisers pay the publisher (typically a website owner) when the ad is clicked. With search engines, advertisers typically bid on keyword phrases relevant to their target market. Content sites commonly charge a fixed price per click rather than use a bidding system. PPC "display" advertisements are shown on web sites with related content that have agreed to show ads.

Search Engine Optimization (SEO)

Search engine optimization (SEO) is the process of improving the visibility of a website or a web page in search engines via the "natural" or un-paid ("organic" or "algorithmic") search results. In general, the earlier (or higher ranked on the search results page), and more frequently a site appears in the search results list, the more visitors it will receive from the search engine's users. SEO may target different kinds of search, including image search, local search, video search, academic search, news search and industry-specific vertical search engines.

Analytics

The measurement, collection, analysis and reporting of internet data for purposes of understanding and optimizing web usage.

Email Marketing

Description: Email marketing is a form of direct marketing which uses email as a means of communicating commercial or fund-raising messages to an audience. In its broadest sense, every email sent to a potential or current customer could be considered email marketing.

SMS Marketing

Users of an SMS service can exchange text messages either from mobile to mobile or through a specialist internet website to a handset about anything from promotional offers, to general information regarding a product or service. Messages are usually sent using a short code system. Short codes are around 5 or 6 digits in length and work by asking customers to text a certain keyword to a specific code. E.g. ‘Text WIN to 84841’.

Web Design & Development

The process of planning and creating a website. Text, images, digital media and interactive elements are used by Digital Clarity’s designers to produce the page seen on the web browser. As a whole, the process of web design can include conceptualization, planning, producing, post-production, research, and advertising. The site itself can be divided into it pages. The site is navigated by using hyperlinks commonly these are blue and underlined but can be made to look like anything the client wishes.

In January 2011, the Company along with Aderra, Media Technologies announced the intention of the two companies to pursue a joint venture for the specific purpose of developing a fan application (app) which will leverage the global diversity to the fan base. A Letter of Intent has been agreed upon by both parties.

Operations Quarterly Summary

RTG Ventures, Inc. faced enormous challenges in the first three quarters of fiscal year 2012 which resulted in a realignment of management and the assimilation by Digital Clarity of the technology which had been developed as an outsourced activity, concurrently. The focus of the operating management was to dramatically change the strategy and streamline the business model to result in increasing revenues and the user base.

During the nine months ended May 31, 2012, the Company made necessary changes while business development required sharing the new vision with partners and prospective new business.

Though not ideal timing and a departure from Digital Clarity’s core digital business, it has not only been necessary but imperative to assess the technology platform in development entitled Cloud Channel to incorporate it into a broader concept encompassing the power and leverage of social media and its implications in increasing client revenues. We believe the result will be a powerful product and well placed competitively.

Digital Clarity has been balancing staff requirements for technology development, existing clients and prospective new clients in a very lean, cost effective manner to minimize the burn rate. It is clear additional funding will be required to meet minimum development standards in the digital technology and marketing industry. Preliminary meetings with partners and new clients were well received and will continue in January. The letter of intent with Aderra Media Technologies to execute a fan based application already announced is an example of the new direction and a precursor to the ultimate product.

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

RTG Ventures, Inc. spent a full year focused on developing a product called Cloud Channel through outsourcing technology development. Long term financing was not available until the product was demonstrable and ready to launch commercially. At the same time Digital Clarity, was generating revenues. 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.

We had $28,926 cash at May 31, 2012. Our working capital deficit amounted to approximately $1,740,000 at May 31, 2012.

During the nine months ended May 31, 2012, we used cash in our operating activities amounting to approximately $ 354,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $1,058,000 adjusted for the following:

Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activity:

During the nine months ended May 31, 2012, we generated cash from financing activities of approximately $325,000, which consist of the proceeds from capital contributions, loans payable and convertible notes payable less a payment of debt made totaling $13,625.

During the nine months ended May 31, 2011, we used cash in our operating activities amounting to approximately $397,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $999,000 adjusted for the following:

Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activity:

During the nine months ended May 31, 2011, we generated cash from investing activities of approximately $53,000, which consist of cash acquired in connection to acquisition of Digital Clarity, the purchase of fixed assets of approximately $6,000 and capitalized website development costs of approximately $21,000

During the nine months ended May 31, 2011, we generated cash from financing activities of approximately $450,000, which consists of the proceeds from the issuance of convertible notes, loans payable and capital contributions less a payment of debt made totaling $53,000.

The Company may continue to face significant uncertainty relating to liquidity and intends to continue to search for additional sources of working capital, and to actively search for collaborative partners. Many of the existing contracts and initiatives require capital expenditure to move forward and management anticipates that delays will occur if long term funding is not identified.

RESULTS OF OPERATIONS

Comparison of the Results for the Nine Months Ended May 31, 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.

Revenue for the nine months ended May 31, 2012 and 2011 was approximately $332,000 and $652,000, respectively. For the nine months ended May 31, 2012 our primary sources of revenue are the Per-Click Advertising, and Search Engine Optimization Services. These primary sources amounted to greater than 74% of our revenues. Our secondary sources of revenue are our Social Media and Web Design. These secondary sources amounted to approximately 26% of our revenues. For the nine months ended May 31, 2011 our primary sources of revenue were the Per-Click Advertising, and Search Engine Optimization Services.

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 nine months ended May 31, 2012 and 2011 was approximately $222,000 and $112,000, respectively. For the nine months ended May 31, 2012, cost of sales included advertising, salaries and media spend. This resulted in a gross profit of approximately $110,000 for the nine months ended May 31, 2012. For the nine months ended May 31, 2011, cost of sales included advertising, salaries and media spend. This resulted in a gross profit of approximately $540,000 for the nine months ended May 31, 2011.

General and administrative costs decreased 13% to approximately $193,000 from approximately $222,000 for the nine months ended May 31, 2012 and 2011, respectively. This is primarily attributable to the streamlining of overhead resulting in a decrease in expenditures.

Payroll decreased for the nine months ended May 31, 2012 by 78% to approximately $191,000 as a result of the Company’s decrease in the number of employees including an officer of the Company. The Company has also adjusted its salary related to the elimination of an accrual of an officer of the Company.

Professional fees (which include accounting/auditing, consulting and legal fees) increased by approximately $23,000 for the nine months ended May 31, 2012. This increase is primarily attributable to the increased professional fees in 2012 associated with the Company's use of consultants.

Amortization and depreciation for the nine months ended May 31, 2012 and 2011 was approximately $206,000 and $214,000 respectively. The slight decrease is due to the amortization of debt discount of approximately $204,000 in 2012.

Interest expense for the nine months ended May 31, 2012 and 2011 was approximately $49,000 and $31,000 respectively. An increase of approximately $18,000 which is the result of interest associated with the additional notes payable issued during the nine months ended May 31, 2012.

Gain (loss) on derivative liability totaled approximately $(213,000) and $(53,000) for the nine months ended May 31, 2012 and 2011, respectively and was due to the calculation of a derivative liability associated with the issuance of convertible note payables issued in 2012 and 2011.

Other interest – modification expense totaled approximately $162,000 and $0 for the nine months ended May 31, 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 2012.

Comparison of the Results for the Three Months Ended May 31, 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.

Revenue for the three months ended May 31, 2012 and 2011 was approximately $118,000 and $250,000, respectively. For the three months ended May 31, 2012 our primary sources of revenue are the Per-Click Advertising, and Search Engine Optimization Services. These primary sources amounted to greater than 58% of our revenues. Our secondary sources of revenue are our Social Media and Web Design. These secondary sources amounted to approximately 30% of our revenues. For the three months ended May 31, 2011 our primary sources of revenue was the Per-Click Advertising, and Search Engine Optimization Services.

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 three months ended May 31, 2012 and 2011 was approximately $63,000 and $33,000, respectively. For the three months ended May 31, 2012, cost of sales included advertising, salaries and media spend. This resulted in a gross profit of approximately $55,000 for the three months ended May 31, 2012. For the three months ended May 31, 2011, cost of sales included advertising, salaries and media spend. This resulted in a gross profit of approximately $217,000 for the quarter ended May 31, 2011.

General and administrative costs decreased 51% to approximately $70,000 from approximately $142,000 for the three months ended May 31, 2012 and 2011, respectively. This is primarily attributable to the streamlining of overhead resulting in a decrease in expenditures.

Payroll decreased for the three months ended May 31, 2012 by 82% to approximately $73,000 as a result of the Company’s decrease in the number of employees including an officer of the Company. The Company has also adjusted its salary related to the elimination of an accrual of an officer of the Company.

Professional fees (which include accounting/auditing, consulting and legal fees) increased by approximately $22,000 for the three months ended May 31, 2012. This increase is primarily attributable to the increased professional fees in 2012 associated with the Company's use of consultants.

Amortization and depreciation for the three months ended May 31, 2012 and 2011 was approximately $67,000 and $94,000 respectively. The decrease is due to the amortization of debt discount of approximately $66,000 in 2012.

Interest expense for the three months ended May 31, 2012 and 2011 was approximately $16,000 and $0 respectively. An increase of approximately $16,000 which is the result of interest associated with the additional notes payable issued during the three months ended May 31, 2012.

Gain (loss) on derivative liability totaled approximately $(28,000) and $0 for the nine months ended May 31, 2012 and 2011, respectively and was due to the calculation of a derivative liability associated with the issuance of convertible note payables issued in 2012 and 2011.

Other interest – modification expense totaled approximately $106,000 and $0 for the nine months ended May 31, 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 2012.

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 May 31, 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.

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

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.

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