UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedNovember 30, 2017February 29, 2024
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number0-28259
DESTINY MEDIA TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
| NEVADA | 84-1516745 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| Vancouver, British Columbia, Canada | V6G 2V3 | |
| (Address of principal executive offices) | (Zip Code) |
604-609-7736
(Registrant's telephone number, including area code)
___________________________________________________________________
__________________________________________________________________________
(Former name, former address and former fiscal year, if changes since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
.
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] |
Emerging growth company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Act.
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
[ ] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’sissuer's class of common stock, as of the latest practicable date:
The number of shares outstanding of the registrant’sregistrant's common stock, par value $0.001, as of January 16, 2018April 15, 2024 was 55,013,874.9,672,710.
DESTINY MEDIA TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ItemITEM 1. Financial Statements.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DESTINY MEDIA TECHNOLOGIES, INC.
Condensed Consolidated FinancialBalance Sheets
| Notes | February 29, 2024 | August 31, 2023 | |||||
| (unaudited) | (audited) | ||||||
| ASSETS | |||||||
| Cash and cash equivalents | 3 | $ | 1,539,685 | $ | 2,002,769 | ||
| Accounts receivable, net of allowance for doubtful accounts of $38,436 (August 31, 2023 - $41,331) | 634,465 | 432,501 | |||||
| Other receivables | 63,750 | 58,519 | |||||
| Prepaid expenses | 40,297 | 72,014 | |||||
| Deposits | 32,174 | 32,214 | |||||
| Total current assets | 2,310,371 | 2,598,017 | |||||
| Property and equipment, net | 4 | 531,853 | 642,207 | ||||
| Intangible assets, net | 5 | 872,752 | 645,474 | ||||
| Total assets | $ | 3,714,976 | $ | 3,885,698 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current | |||||||
| Accounts payable | $ | 101,067 | $ | 110,203 | |||
| Accrued liabilities | 294,031 | 267,144 | |||||
| Deferred revenue | 19,304 | 34,710 | |||||
| Total current liabilities | 414,402 | 412,057 | |||||
| Total liabilities | 414,402 | 412,057 | |||||
| Commitments and contingencies | 7 | - | - | ||||
| Stockholders' equity | |||||||
| Common stock, par value $0.001, authorized 20,000,000 shares. Issued and outstanding - 9,787,310 shares (August 31, 2023 - 10,096,610 shares) | 6 | 9,787 | 10,096 | ||||
| Additional paid-in capital | 8,960,760 | 9,242,671 | |||||
| Accumulated deficit | (5,184,863 | ) | (5,304,367 | ) | |||
| Accumulated other comprehensive loss | (485,110 | ) | (474,759 | ) | |||
| Total stockholders' equity | 3,300,574 | 3,473,641 | |||||
| Total liabilities and stockholders' equity | $ | 3,714,976 | $ | 3,885,698 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DESTINY MEDIA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Comprehensive Income
Destiny Media Technologies Inc.
(Unaudited)November 30, 2017(Expressed in United States dollars)
| Three months ended | Six months ended | ||||||||||||
| Notes | February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||
| Service revenue | 8 | $ | 986,338 | $ | 899,042 | $ | 2,141,140 | $ | 1,919,779 | ||||
| Cost of revenue | |||||||||||||
| Hosting costs | 32,383 | 25,526 | 60,656 | 53,485 | |||||||||
| Internal engineering support | 12,926 | 12,883 | 29,996 | 25,453 | |||||||||
| Customer support | 73,247 | 73,008 | 169,975 | 144,236 | |||||||||
| Third-party and transactions costs | 16,790 | 15,177 | 38,137 | 32,867 | |||||||||
| 135,346 | 126,594 | 298,764 | 256,041 | ||||||||||
| Gross margin | 850,992 | 772,448 | 1,842,376 | 1,663,738 | |||||||||
| 86.3% | 85.9% | 86.0% | 86.7% | ||||||||||
| Operating expenses | |||||||||||||
| General and administrative | 205,255 | 175,345 | 353,147 | 338,406 | |||||||||
| Sales and marketing | 285,001 | 258,300 | 500,858 | 432,526 | |||||||||
| Product development | 419,183 | 312,904 | 727,730 | 576,330 | |||||||||
| Depreciation and amortization | 4,5 | 87,026 | 35,952 | 168,124 | 72,331 | ||||||||
| 996,465 | 782,501 | 1,749,859 | 1,419,593 | ||||||||||
| Income (loss) from operations | (145,473 | ) | (10,053 | ) | 92,517 | 244,145 | |||||||
| Other income | |||||||||||||
| Interest and other income | 15,461 | 8,777 | 26,987 | 16,445 | |||||||||
| Net income (loss) before income tax | $ | (130,012 | ) | $ | (1,276 | ) | $ | 119,504 | $ | 260,590 | |||
| Current income tax expense | - | - | - | (3,600 | ) | ||||||||
| Net income (loss) | $ | (130,012 | ) | $ | (1,276 | ) | $ | 119,504 | $ | 256,990 | |||
| Foreign currency translation adjustments | 2,341 | (18,922 | ) | (10,351 | ) | (111,406 | ) | ||||||
| Total comprehensive income (loss) | $ | (127,671 | ) | $ | (20,198 | ) | $ | 109,153 | $ | 145,584 | |||
| Net income (loss) per common share | |||||||||||||
| Basic and diluted | 6 | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.01 | $ | 0.03 | ||
| Weighted average common shares outstanding: | |||||||||||||
| Basic | 6 | 9,842,720 | 10,122,261 | 9,926,627 | 10,122,261 | ||||||||
| Diluted | 6 | 10,107,554 | 10,122,261 | 10,191,461 | 10,122,261 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DESTINY MEDIA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Stockholders' Equity
Three and Six Months Ended February 29, 2024 and February 28, 2023
(Unaudited)
| Common stock | |||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||
| Balance, August 31, 2022 | 10,122,261 | $ | 10,122 | $ | 9,115,848 | $ | (5,639,465 | ) | $ | (376,218 | ) | $ | 3,110,287 | ||||||
| Total comprehensive income (loss) | - | - | - | 258,266 | (92,484 | ) | 165,782 | ||||||||||||
| Stock-based compensation | - | - | 37,157 | - | - | 37,157 | |||||||||||||
| Balance, November 30, 2022 | 10,122,261 | 10,122 | 9,153,005 | (5,381,199 | ) | (468,702 | ) | 3,313,226 | |||||||||||
| Total comprehensive loss | - | - | - | (1,276 | ) | (18,922 | ) | (20,198 | ) | ||||||||||
| Stock-based compensation | - | - | 38,085 | - | - | 38,085 | |||||||||||||
| Balance, February 28, 2023 | 10,122,261 | $ | 10,122 | $ | 9,191,090 | $ | (5,382,475 | ) | $ | (487,624 | ) | $ | 3,331,113 | ||||||
| Common stock | |||||||||||||||||||
| Notes | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||
| Balance, August 31, 2023 | 10,096,610 | $ | 10,096 | $ | 9,242,671 | $ | (5,304,367 | ) | $ | (474,759 | ) | $ | 3,473,641 | ||||||
| Total comprehensive income (loss) | - | - | - | 249,516 | (12,692 | ) | 236,824 | ||||||||||||
| Stock-based compensation | 6(b) | - | - | 13,805 | - | - | 13,805 | ||||||||||||
| Common shares retired | 6(a) | (172,000 | ) | (172 | ) | (170,606 | ) | - | - | (170,778 | ) | ||||||||
| Balance, November 30, 2023 | 9,924,610 | 9,924 | 9,085,870 | (5,054,851 | ) | (487,451 | ) | 3,553,492 | |||||||||||
| Total comprehensive income (loss) | - | - | - | (130,012 | ) | 2,341 | (127,671 | ) | |||||||||||
| Stock-based compensation | 6(b) | - | - | 10,655 | - | - | 10,655 | ||||||||||||
| Common shares retired | 6(a) | (137,300 | ) | (137 | ) | (135,765 | ) | - | - | (135,902 | ) | ||||||||
| Balance, February 29, 2024 | 9,787,310 | $ | 9,787 | $ | 8,960,760 | $ | (5,184,863 | ) | $ | (485,110 | ) | $ | 3,300,574 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
DESTINY MEDIA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six months ended | ||||||
| February 29, 2024 | February 28, 2023 | |||||
| Operating Activities | ||||||
| Net income | $ | 119,504 | $ | 256,990 | ||
| Adjustments to reconcile net income to net cash provided (used) in operations: | ||||||
| Depreciation and amortization | 168,124 | 72,331 | ||||
| Stock-based compensation | 24,460 | 75,242 | ||||
| Allowance for doubtful accounts | (2,895 | ) | (3,126 | ) | ||
| Unrealized foreign exchange gain | (2,886 | ) | - | |||
| Changes in non-cash working capital: | ||||||
| Accounts receivable | (164,452 | ) | (28,565 | ) | ||
| Other receivables | (5,303 | ) | (16,473 | ) | ||
| Prepaid expenses and deposits | 31,692 | 31,748 | ||||
| Accounts payable | (47,271 | ) | (43,373 | ) | ||
| Accrued liabilities | 27,204 | 51,534 | ||||
| Deferred revenue | (15,380 | ) | 5,861 | |||
| Net cash provided by operating activities | 132,797 | 402,169 | ||||
| Investing Activities | ||||||
| Development of software | (230,926 | ) | (452,051 | ) | ||
| Purchase of property, equipment, and intangibles | (50,637 | ) | (4,741 | ) | ||
| Net cash used in investing activities | (281,563 | ) | (456,792 | ) | ||
| Financing Activity | ||||||
| Common stock repurchased for cancellation | (306,680 | ) | - | |||
| Net cash used in financing activity | (306,680 | ) | - | |||
| Effect of foreign exchange rate changes on cash and cash equivalents | (7,638 | ) | (67,286 | ) | ||
Net decrease in cash and cash equivalents | (463,084 | ) | (121,909 | ) | ||
| Cash and cash equivalents, beginning of period | 2,002,769 | 2,095,928 | ||||
| Cash and cash equivalents, end of period | $ | 1,539,685 | $ | 1,974,019 | ||
| Supplementary disclosure: | ||||||
| Interest paid | $ | - | $ | - | ||
| Income taxes paid | $ | - | $ | 3,600 | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Destiny Media Technologies Inc.
DESTINY MEDIA TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(Expressed in United States Dollars)UnauditedFINANCIAL STATEMENTS
FEBRUARY 29, 2024
As at,
| November 30, | August 31, | |||||
| 2017 | 2017 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current | ||||||
| Cash and cash equivalents | 1,752,591 | 1,342,956 | ||||
| Accounts receivable, net of allowance for | ||||||
| doubtful accounts of $3,292 [August 31, 2017 – $3,383][note 10] | 389,451 | 529,666 | ||||
| Other receivables | 28,538 | 21,216 | ||||
| Short term receivable[note 3] | 31,333 | 64,811 | ||||
| Prepaid expenses | 44,782 | 54,507 | ||||
| Deposit | 576 | 592 | ||||
| Total current assets | 2,247,271 | 2,013,748 | ||||
| Deposits | 27,169 | 27,923 | ||||
| Property and equipment, net[note 4] | 171,491 | 116,208 | ||||
| Intangible assets, net[note 4] | 69,456 | 86,824 | ||||
| Total assets | 2,515,387 | 2,244,703 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current | ||||||
| Accounts payable | 236,225 | 127,444 | ||||
| Accrued liabilities | 167,446 | 192,433 | ||||
| Deferred leasehold inducement | 5,084 | 2,090 | ||||
| Deferred revenue | 15,040 | 23,685 | ||||
| Obligation under capital lease – current portion [note 6] | 4,023 | 6,246 | ||||
| Total liabilities | 427,818 | 351,898 | ||||
| Commitments and contingencies[notes 6 and 8] | ||||||
| Stockholders’ equity | ||||||
| Common stock, par value $0.001[note 5] Authorized: 100,000,000 shares Issued and outstanding: 55,013,874 shares [August 31, 2017 – issued and outstanding 55,013,874 shares] | 55,014 | 55,014 | ||||
| Additional paid-in capital[note 5] | 9,725,603 | 9,712,213 | ||||
| Accumulated deficit | (7,374,041 | ) | (7,607,531 | ) | ||
| Accumulated other comprehensive loss | (319,007 | ) | (266,891 | ) | ||
| Total stockholders’ equity | 2,087,569 | 1,892,805 | ||||
| Total liabilities and stockholders’ equity | 2,515,387 | 2,244,703 |
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Expressed in United States dollars)Unaudited
Three months ended November 30,
| 2017 | 2016 | |||||
| $ | $ | |||||
| Service revenue[note 10] | 973,798 | 892,229 | ||||
| Operating expenses | ||||||
| General and administrative | 150,935 | 178,906 | ||||
| Sales and marketing | 259,129 | 247,406 | ||||
| Research and development | 303,070 | 324,674 | ||||
| Depreciation and amortization | 25,697 | 41,878 | ||||
| 738,831 | 792,864 | |||||
| Income from operations | 234,967 | 99,365 | ||||
| Other income | ||||||
| Interest income | 2,325 | 4,763 | ||||
| Other income (expense) | (3,802 | ) | — | |||
| Net income | 233,490 | 104,128 | ||||
| Foreign currency translation adjustments | (52,116 | ) | (33,369 | ) | ||
| Total comprehensive income | 181,374 | 70,759 | ||||
| Net income per common share, basic and diluted | 0.00 | 0.00 | ||||
| Weighted average common shares outstanding: | ||||||
| Basic | 55,013,874 | 55,013,874 | ||||
| Diluted | 55,013,874 | 55,013,874 |
See accompanying notes
DestinyMedia Technologies Inc.
CONDENSEDCONSOLIDATEDSTATEMENTSOF CHANGES IN STOCKHOLDERS’EQUITY(Expressed in United States dollars)Unaudited
| Accumulated | Total | |||||||||||||||||
| Additional | other | stockholders’ | ||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | equity | ||||||||||||||
| Shares | Amount | capital | Deficit | loss | ||||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||
| Balance, August 31, 2016 | 55,013,874 | 55,014 | 9,666,080 | (7,896,312 | ) | (336,377 | ) | 1,488,405 | ||||||||||
| Total comprehensive income | — | — | — | 288,781 | 69,486 | 358,267 | ||||||||||||
| Stock based compensation –Note 5 | — | — | 46,133 | — | — | 46,133 | ||||||||||||
| Balance, August 31, 2017 | 55,013,874 | 55,014 | 9,712,213 | (7,607,531 | ) | (266,891 | ) | 1,892,805 | ||||||||||
| Total comprehensive income | — | — | — | 233,490 | (52,116 | ) | 181,374 | |||||||||||
| Stock based compensation –Note 5 | — | — | 13,390 | — | — | 13,390 | ||||||||||||
| Balance, November 30, 2017 | 55,013,874 | 55,014 | 9,725,603 | (7,374,041 | ) | (319,007 | ) | 2,087,569 | ||||||||||
Seeaccompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended November 30, | (Expressed in United States dollars) | |||||
| 2017 | 2016 | |||||
| $ | $ | |||||
| OPERATING ACTIVITIES | ||||||
| Net income | 233,490 | 104,128 | ||||
| Items not involving cash: | ||||||
| Depreciation and amortization | 25,697 | 41,878 | ||||
| Stock-based compensation | 13,390 | 12,402 | ||||
| Deferred leasehold inducement | 3,133 | (8,582 | ) | |||
| Unrealized foreign exchange | 379 | 372 | ||||
| Loss on disposal of property, plant and equipment | 3,801 | — | ||||
| Changes in non-cash working capital: | ||||||
| Accounts receivable | 112,078 | 131,270 | ||||
| Other receivables | 9,191 | (11,516 | ) | |||
| Prepaid expenses and deposits | 8,498 | 16,588 | ||||
| Accounts payable | 114,107 | 73,276 | ||||
| Accrued liabilities | (21,366 | ) | (28,333 | ) | ||
| Deferred revenue | (8,220 | ) | (8,085 | ) | ||
| Short term receivable | 32,200 | 15,216 | ||||
| Net cash provided by operating activities | 526,378 | 338,614 | ||||
| INVESTING ACTIVITY | ||||||
| Purchase of property, equipment and intangibles | (74,063 | ) | (23,668 | ) | ||
| Net cash used in investing activity | (74,063 | ) | (23,668 | ) | ||
| Effect of foreign exchange rate changes on cash | (42,680 | ) | (15,983 | ) | ||
| Net increase in cash and | ||||||
| cash equivalents during the period | 409,635 | 298,963 | ||||
| Cash and cash equivalents, beginning of period | 1,342,956 | 662,743 | ||||
| Cash and cash equivalents, end of period | 1,752,591 | 961,706 | ||||
| Supplementary disclosure | ||||||
| Interest paid | — | — | ||||
| Income taxes paid | — | — | ||||
| Equipment acquired through capital lease obligations | — | — | ||||
See accompanying notes
NOTE 1. ORGANIZATION
Destiny Media Technologies Inc. (the “Company”"Company") was incorporated in August 1998 under the laws of the State of Colorado and the corporate jurisdiction was changed to Nevada effective October 8, 2014. The Company develops technologies that allow for the distribution over the internet of digital media files in either a streaming or digital download format. The technologies are proprietary. The Company operates out of Vancouver, BC, Canada and serves customers predominantly located in the United States, Europe, and Australia.
The Company’sCompany's stock is listed for trading under the symbol “DSNY”"DSNY" on the OTCQB U.S. in the United States, under the symbol “DSY”"DSY" on the TSX Venture Exchange (the "TSXV") and under the symbol “DME”"DME1.F" on the Berlin, Frankfurt, Xetra and Stuttgart exchanges in Germany.
2. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements include the consolidated accounts of the Company and its wholly owned subsidiaries: Destiny Software Productions, Inc. ("DSNY"), MPE Distributions, Inc. ("MPE"), Tonality, Inc. ("Tonality"), and Sonox Digital Inc. ("Sonox"). All intercompany transactions have been eliminated on consolidation. All figures are in United States dollars unless otherwise stated.
The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by management in accordanceconformity with accounting principles generally accepted in the United States for interim financial information pursuant to the rules and regulations of the United States Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles in the U.S. ("U.S. GAAP"). The unaudited condensed consolidated financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K filed with the SEC on November 28, 2023 (the "2023 Form 10-K"). The condensed consolidated balance sheet as of August 31, 2023 was derived from audited consolidated financial statements included in the 2023 Form 10-K but does not include all disclosures required by U.S. GAAP for annualcomplete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. OperatingThe Company's significant accounting policies are described in Note 2 to those consolidated financial statements.
Interim results for the three months ended November 30, 2017 aremay not necessarilybe indicative of the results that may be expected for the year ended August 31, 2018.
full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. The balance sheet at August 31, 2017 has been derived from the auditedunaudited condensed consolidated financial statements at that date but does not includereflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, financial condition, cash flows and stockholders' equity for the information and footnotes required by United States generally accepted accounting principles for annual financial statements.periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature.
Use of Estimates
For further information, refer toThe preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make use of certain estimates and footnotes thereto included inassumptions that affect the Company's annual report on Form 10-K for the year ended August 31, 2017.
3. SHORT TERM RECEIVABLE
In a prior year, the Company agreed to settle litigation with an unrelated party. Pursuant to a Settlement Deed dated March 5, 2012, the Company became entitled to a settlement sumreported amounts of $825,000 Australian dollars (“AUD”) (US $858,194), receivable in monthly installments over the courseassets and liabilities and disclosure of 72 months, beginning on March 31, 2012contingent assets and ending on February 28, 2018. The balance is due to be paid in equal monthly installments of AUD$14,050 until the endliabilities as of the obligation. The unpaid balance accrues interest of 10.25% per annum compounded monthly. The receivable is secured by a registered charge against real estate located in Australia. As of November 30, 2017, installments of US$904,962, including interest of US$232,865, have been received (AUD$1,041,350 and AUD$257,721, respectively).
The following table summarizes the changes regarding the carrying valuedate of the remaining receivable balanceunaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the year ended August 31, 2017reported periods. The Company bases its estimates on historical experience and coveringon various other assumptions that management believes are reasonable under the periodcircumstances, the results of September 1, 2017which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to November 30, 2017:the labour capitalized to software under development and computer software, the recoverability of long-term assets including property, equipment, and intangible assets, amortization expense, and valuation of stock-based compensation.
| November 30, | August 31, | |||||
| 2017 | 2017 | |||||
| $ | $ | |||||
| Beginning balance | 64,811 | 175,206 | ||||
| Gross installments received | (32,851 | ) | (127,845 | ) | ||
| Interest | 1,366 | 12,840 | ||||
| Foreign exchange impact | (1,993 | ) | 4,610 | |||
| Ending balance | 31,333 | 64,811 |
5
3. CASH AND CASH EQUIVALENTS
The foreign exchange impactCompany's cash include cash in the above table is partially allocated into other comprehensive income (loss) and partially allocated into exchange gain (loss) on the income statement.readily available checking accounts. The Company's cash equivalents consist of investments in mutual funds with a major Canadian financial institution that earn interest at variable interest rates ranging from 4.55% - 4.90%.
Payments to be received over the next fiscal year are as follows:
| Principal | Interest | Total | |||||||
| $ | $ | $ | |||||||
| 2018 | 31,333 | 537 | 31,870 | ||||||
| 31,333 | 537 | 31,870 |
4. PROPERTY AND EQUIPMENT, AND INTANGIBLESNET
| Accumulated | Net book | ||||||||
| Cost | amortization | value | |||||||
| $ | $ | $ | |||||||
| November 30, 2017 | |||||||||
| Property and equipment | |||||||||
| Furniture and fixtures | 148,574 | 110,017 | 38,557 | ||||||
| Computer hardware | 237,135 | 191,124 | 46,011 | ||||||
| Computer software | 216,542 | 198,341 | 18,201 | ||||||
| Leasehold improvement | 138,208 | 69,486 | 68,722 | ||||||
| 740,459 | 568,968 | 171,491 | |||||||
| Intangibles | |||||||||
| Patents, trademarks and lists | 405,968 | 336,512 | 69,456 | ||||||
| 405,968 | 336,512 | 69,456 | |||||||
| August 31, 2017 | |||||||||
| Property and equipment | |||||||||
| Furniture and fixtures | 171,724 | 126,005 | 45,719 | ||||||
| Computer hardware | 241,705 | 192,596 | 49,109 | ||||||
| Computer software | 222,554 | 201,174 | 21,380 | ||||||
| Leasehold improvement | 71,415 | 71,415 | — | ||||||
| 707,398 | 591,190 | 116,208 | |||||||
| Intangibles | |||||||||
| Patents, trademarks and lists | 415,752 | 328,928 | 86,824 | ||||||
| 415,752 | 328,928 | 86,824 |
| February 29, 2024 | |||||||||
| Property and Equipment | Cost | Accumulated Amortization | Net Book Value | ||||||
| Furniture and fixtures | $ | 131,740 | $ | (121,939 | ) | $ | 9,801 | ||
| Computer hardware | 316,254 | (276,345 | ) | 39,909 | |||||
| Computer software | 861,295 | (379,152 | ) | 482,143 | |||||
| Total property and equipment | $ | 1,309,289 | $ | (777,436 | ) | $ | 531,853 | ||
| August 31, 2023 | |||||||||
| Property and Equipment | Cost | Accumulated Amortization | Net Book Value | ||||||
| Furniture and fixtures | $ | 131,892 | $ | (120,990 | ) | $ | 10,902 | ||
| Computer hardware | 316,619 | (269,733 | ) | 46,886 | |||||
| Computer software | 811,374 | (226,955 | ) | 584,419 | |||||
| Total property and equipment | $ | 1,259,885 | $ | (617,678 | ) | $ | 642,207 | ||
During the three and six months ended February 29, 2024, the Company reclassified a total of $27,117 and $50,455 in salaries and wages from software under development to computer software, respectively (February 28, 2023 - $Nil and $Nil, respectively).
Depreciation on property and amortizationequipment for the three and six months ended November 30, 2017February 29, 2024 was $25,697 (2016: $41,878)$83,083 and $160,555, respectively (February 28, 2023 - $34,147 and $68,049, respectively).
5. INTANGIBLE ASSETS, NET
| February 29, 2024 | |||||||||
| Intangible Assets | Cost | Accumulated Amortization | Net Book Value | ||||||
| Software under development | $ | 854,556 | $ | - | $ | 854,556 | |||
| Patents, trademarks, and lists | 472,206 | (454,010 | ) | 18,196 | |||||
| Total intangible assets | $ | 1,326,762 | $ | (454,010 | ) | $ | 872,752 | ||
| August 31, 2023 | |||||||||
| Intangible Assets | Cost | Accumulated Amortization | Net Book Value | ||||||
| Software under development | $ | 624,539 | $ | - | $ | 624,539 | |||
| Patents, trademarks, and lists | 467,852 | (446,917 | ) | 20,935 | |||||
| Total intangible assets | $ | 1,092,391 | $ | (446,917 | ) | $ | 645,474 | ||
During the three and six months ended February 29, 2024, the Company capitalized a total of $102,780 and $280,182 in salaries and wages related to software under development, respectively (February 28, 2023 - $203,732 and $452,074, respectively), out of this amount, $27,117 and $50,455, respectively, was subsequently reclassified to computer software assets as the projects were completed (Note 4) (February 28, 2023 - $Nil and $Nil, respectively).
Amortization on intangible assets for the three and six months ended February 29, 2024 was $3,943 and $7,569, respectively (February 28, 2023 - $1,805 and $4,282, respectively).
5. STOCKHOLDERS’6. STOCKHOLDERS' EQUITY
[a]Common stock issued and authorized
The Company is authorized to issue up to 100,000,00020,000,000 shares of common stock, par value $0.001 per share.
During the three and six months ended November 30, 2017, noFebruary 29, 2024, the Company did not issue any common stock (February 28, 2023 - Nil). During the three and six months ended February 29, 2024, the Company repurchased and cancelled 137,300 and 309,300 common shares were issued.for $135,902 and $306,680, respectively (February 28, 2023 - Nil and Nil, respectively).
[b]Stock option plans
The Company has two existing stock option plans (the “Plans”), namelyPursuant to the 2006 Stock Option Plan and theCompany's 2015 Stock Option Plan under which up to 7,750,000(the "2015 Plan"), 530,000 shares of the common stock hashave been reserved for issuance. A total of 1,240,681420,000 common shares remain eligible for issuance under the plan. 2015 Plan. On February 18, 2022 the Company received shareholder approval for the 2022 Stock Option Plan (the "2022 Plan") (together with the 2015 Plan, the "Plans"), whereby 1,000,000 common shares are reserved for issuance. As of February 29, 2024, 376,166 common shares remain eligible for issuance under the 2022 Plan.
The options generally vest over a range of periods from the date of grant, some are immediate, and others are 12 orvest over 24 months. Any options that do not vest as the result of a grantee leaving the Company are forfeited and the underlying common shares underlying them are returned to the reserve. The options generally have a contractual term of five years.
Stock-Based Payment Award Activity
A summary of stock option activity under the Plans as of November 30, 2017,February 29, 2024, and changes during the period then ended is presented below:were the following:
| Weighted | ||||||||||||
| Weighted | Average | Aggregate | ||||||||||
| Average | Remaining | Intrinsic | ||||||||||
| Exercise Price | Contractual | Value | ||||||||||
| Options | Shares | $ | Term | $ | ||||||||
| Outstanding at August 31, 2017 | 1,806,250 | 0.39 | 4.07 | — | ||||||||
| Granted | — | — | — | — | ||||||||
| Forfeited | — | — | — | — | ||||||||
| Expired | (43,750 | ) | 0.40 | — | — | |||||||
| Outstanding at November 30, 2017 | 1,762,500 | 0.39 | 3.92 | — | ||||||||
| Exercisable at November 30, 2017 | 595,831 | 0.39 | 2.78 | — |
| Number of Options | Weighted Average Exercise Price | Weighted Average Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||
| Outstanding at August 31, 2022 | 593,000 | $ | 1.49 | 3.79 | $ | - | ||||||
| Granted | 228,000 | $ | 0.85 | 4.90 | $ | - | ||||||
| Forfeited | (72,000 | ) | $ | 1.41 | 3.41 | $ | - | |||||
| Outstanding at August 31, 2023 | 749,000 | $ | 1.30 | 3.37 | $ | - | ||||||
| Forfeited | (13,416 | ) | $ | 0.86 | 4.37 | $ | 3,028 | |||||
| Expired | (1,750 | ) | $ | 1.50 | 2.67 | $ | - | |||||
| Outstanding at February 29, 2024 | 733,834 | $ | 1.31 | 2.85 | $ | 51,912 | ||||||
| Exercisable at February 29, 2024 | 588,516 | $ | 1.42 | 2.49 | $ | 20,022 |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’sCompany's common stock for the options that were in-the-money at November 30, 2017.
5. STOCKHOLDERS’ EQUITY (cont’d.)
The following table summarizes information regarding the non-vested stock purchase options outstanding as of November 30, 2017February 29, 2024. As of February 29, 2024, the aggregate intrinsic value of outstanding and changesexercisable options was $51,912 and $20,022, respectively (February 28, 2023 - $Nil and $Nil, respectively). There were no stock options repurchased during the period then ended:six months ended February 29, 2024 (February 28, 2023 - Nil).
| Weighted | ||||||
| Average | ||||||
| Grant Date | ||||||
| Number of Options | Fair Value | |||||
| $ | ||||||
| Non-vested options at August 31, 2017 | 1,366,667 | 0.07 | ||||
| Granted | — | — | ||||
| Forfeited | — | — | ||||
| Vested | (199,998 | ) | 0.07 | |||
| Non-vested options at November 30, 2017 | 1,166,669 | 0.07 |
As of November 30, 2017,February 29, 2024, there was $78,577$59,156 (February 28, 2023 - $141,020) of total unrecognized compensation cost related to non-vested share-basedstock-based compensation awards. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.5 years.0.83 years (February 28, 2023 - 1 year).
During the three and six months ended November 30, 2017,February 29, 2024, the totalCompany recorded $10,655 and $24,460 in non-cash stock-based compensation, expense of $13,390 is reported in the statement of comprehensive income as follows:respectively (February 28, 2023 - $38,085 and $75,242, respectively).
| 2017 | 2016 | |||||
| $ | $ | |||||
| Stock-based compensation | ||||||
| General and administrative | 8,023 | 8,764 | ||||
| Sales and marketing | 1,540 | 1,323 | ||||
| Research and development | 3,827 | 2,315 | ||||
| Total stock-based compensation | 13,390 | 12,402 |
Subsequent to November 30, 2017, the Company granted 150,000 options at an exercise price of $0.40 for a period of five years from the date of issuance.7
5. STOCKHOLDERS’ EQUITY (cont’d.)
[c] Employee Stock Purchase Plan
The Company’sCompany's 2011 Employee Stock Purchase Plan (the “Plan”"ESPP") became effective on February 22, 2011. Under the Plan,ESPP, employees of Destiny are able tothe Company can contribute up to 5% of their annual salary into a pool which is matched equally by Destiny. Independent directors are ablethe Company in order to purchase the Company's common shares under certain terms. Directors can contribute a maximum of $12,500 each for a combined maximum annual purchase of $25,000. The maximum annual combined contributions will be $400,000. All purchases are made through the Toronto Stock ExchangeTSXV by a third-party plan agent. The third-party plan agent willis also be responsible for the administration of the PlanESPP on behalf of Destinythe Company and the participants.
During the three and six months ended November 30, 2017,February 29, 2024, the Company recognized compensation expense of $7,126 (2016: $7,465)$24,160 and $45,982, respectively (February 28, 2023 - $51,498 and $70,170, respectively) in salaries and wages on the condensed consolidated statement of comprehensive income (loss) in respect of the Plan,ESPP, representing the Company’sCompany's employee matching of cash contributions to the plan.ESPP. The shares were purchased on the open market at an average price of $0.21 (2016: $0.19) $1.01 over a six-month period (February 28, 2023 - $1.15). The shares are held in trust by the Company for a period of one year from the date of purchase. As of February 29, 2024, 202,247 shares were held in trust by the Company.
[d] WarrantsEarnings Per Share
A summaryNet income (loss) per common share (basic) is calculated by dividing net income (loss) by the weighted average number of common stock warrantsshares outstanding asduring the period. Net income (loss) per common share (diluted) is calculated by dividing net income (loss) for the period by the weighted average number of November 30, 2017, and changescommon shares outstanding during the period, then ended is presented below:
| Number of | Aggregate | |||||||||||
| Common | Exercise | Date | Intrinsic | |||||||||
| Shares | Price | of | Value | |||||||||
| Issuable | $ | Expiry | $ | |||||||||
| Outstanding at August 31, 2017 | 1,010,000 | 0.30 | October 20, 2017 | — | ||||||||
| Expired | (1,010,000 | ) | 0.30 | |||||||||
| Outstanding at November 30, 2017 | — | — | — |
6. COMMITMENTS
plus the dilutive effect of outstanding common share equivalents. This method requires that the dilutive effect of outstanding options and warrants issued be calculated using the treasury stock method. Under the treasury stock method, all common share equivalents have been exercised at the beginning of the period (or at the time of issuance, if later), and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common shares during the period, but only if dilutive. The Company entered into a new lease agreement commencing July 1, 2017following table shows the computation of basic and expiring June 30, 2022diluted earnings per share for the same premise consistingthree and six months ended February 29, 2024 and February 28, 2023:
| Three Months Ended | Six Months Ended | |||||||||||
| February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||
| Numerator: | ||||||||||||
| Net income (loss) | $ | (130,012 | ) | $ | (1,276 | ) | $ | 119,504 | $ | 256,990 | ||
| Denominator: | ||||||||||||
| Weighted-average basic shares outstanding | 9,842,720 | 10,122,261 | 9,926,627 | 10,122,261 | ||||||||
| Effect of dilutive stock-based awards | 264,834 | - | 264,834 | - | ||||||||
| Weighted-average diluted shares | 10,107,554 | 10,122,261 | 10,191,461 | 10,122,261 | ||||||||
| Basic and diluted earnings per share | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.01 | $ | 0.03 | ||
469,000 stock options were excluded from the computation of approximately 6,550 square feet. The Company has fiscal year payments committed as follows:
| $ | |||
| 2018 | 184,171 | ||
| 2019 | 250,787 | ||
| 2020 | 257,990 | ||
| 2021 | 263,498 | ||
| 2022 | 224,878 |
Duringdiluted earnings per share for the three and six months ended November 30, 2017 the Company incurred rent expense of $65,774 (2016 - $57,830) which hasFebruary 29, 2024 because their effect would have been allocated between general and administrative expenses, research and development and sales and marketing on the consolidated statement of comprehensive income. The rent expense during the three months ended November 30, 2017 has included the allocation of rental payments on a straight-line basis over the term of the lease.antidilutive.
7. COMMITMENTS AND CONTINGENCIES
In February 2015, the Company entered into a capital lease. The Company is committedsubject to future payments under its capital leases until March 2018 as follows:
| $ | |||
| 2018 | 4,075 | ||
| Total lease payments | 4,075 | ||
| Less: Amounts representing interest | (52 | ) | |
| Balance of obligation | 4,023 |
7. RELATED PARTY TRANSACTIONS
There were no related party transactions during the three months ended November 30, 2017claims and comparative period ended November 30, 2016.
8. CONTINGENCIES
| |
|
9. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Standards
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires deferred tax assets and liabilities to be classified as non-currentlegal proceedings that arise in the consolidated balance sheet. Previously, accounting principles required an entityordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to separate deferred income tax assets and liabilities between current and noncurrent amounts inthe Company or that the resolution of any such matter will not have a classified statement ofmaterial adverse effect upon the Company's financial position.statements. The Company adopted this standard on September 1, 2017. The adoptiondoes not believe that any of ASU 2015-17 did notsuch pending claims and legal proceedings will have any impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company adopted this standard on September 1, 2017. The adoption of ASU 2015-17 did not have any impact on the Company’s consolidated financial statements.
9. NEW ACCOUNTING PRONOUNCEMENTS (cont’d.)
Accounting Standards Not Yet Effective
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). This new accounting guidance on revenue recognition provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. ASU 2014-09 will be effective for the Company beginning on September 1, 2018. The Company is currently evaluating the impact of the new guidancematerial adverse effect on its consolidated financial statementsstatements.
On September 5, 2017, the Company's former President and has not yet selectedChief Executive Officer filed a transition approach to implementNotice of Civil Claim in the standard.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in this Update increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will be effective forSupreme Court of British Columbia against the Company, beginning on September 1, 2019.its subsidiaries, independent directors, and current Chief Executive Officer, claiming damages for conspiracy, breach of contract, wrongful dismissal, defamation and aggravated and punitive damages. The Company believes the claims are without merit and is currently evaluatingdefending itself against the impactclaims. The quantum of loss, if any, is not determinable at this time and management believes it is unlikely that the new guidanceoutcome of this matter will have an adverse impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurementresults of Credit Losses on Financial Instruments” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is in the process of determining the effect the adoption of this standard will have on its consolidated financial statements.
9. NEW ACCOUNTING PRONOUNCEMENTS (cont’d.)
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). The purpose of Update No. 2016-18 is to clarify guidance and presentation related to restricted cash in the statements ofoperations, cash flows as well as increased disclosure requirements. It requires beginning-of-period and end-of-period total amounts shown on the statements of cash flows to include cash and cash equivalents as well as restricted cash and restricted cash equivalents. Update No. 2016-18 will be effective for the Company beginning on September 1, 2018. Early adoption is permitted. The Company is in the process of determining the effect the adoption of this standard will have on its consolidated statements of cash flows.financial condition.
10.8
8. CONCENTRATIONS, AND ECONOMIC DEPENDENCE AND SEGMENTS
The Company operates solely in the digital media software segment and all revenue from its products and services are made in this segment.
Revenue from external customers earned during the three and six months ended February 29, 2024 and February 28, 2023, by product and location of customer, iswas as follows:
| 2017 | 2016 | |||||
| $ | $ | |||||
| Play MPE® | ||||||
| United States | 438,139 | 363,259 | ||||
| Europe | 436,143 | 440,162 | ||||
| Australia | 73,333 | 77,710 | ||||
| Total Play MPE® Revenue | 947,615 | 881,131 | ||||
| Clipstream ® | ||||||
| United States | 26,183 | 11,098 | ||||
| Total Clipstream ® Revenue | 26,183 | 11,098 | ||||
| Total Revenue | 973,798 | 892,229 |
| Three Months Ended | Six Months Ended | |||||||||||
| February 29, 2024 | February 28, 2023 | February 29, 2024 | February 28, 2023 | |||||||||
| Play MPE® | ||||||||||||
| North America | $ | 446,289 | $ | 406,734 | $ | 1,085,316 | $ | 941,577 | ||||
| Europe | 492,804 | 450,595 | 953,226 | 889,278 | ||||||||
| Australasia | 41,870 | 34,025 | 91,535 | 74,049 | ||||||||
| Africa | 5,375 | 7,688 | 11,063 | 14,875 | ||||||||
| Total Play MPE® | $ | 986,338 | $ | 899,042 | $ | 2,141,140 | $ | 1,919,779 | ||||
10. CONCENTRATIONS AND ECONOMIC DEPENDENCE (cont’d.)
Revenue in thepresented above table is based on location of the customer’scustomer's billing address. Some of these customers have distribution centers located around the globe and distribute around the world. During the three and six months ended November 30, 2017,February 29, 2024, the Company generated 39%48% and 44% of total revenue from one customer [2016(February 28, 2023 - 47% and 43%, respectively).
As at February 29, 2024, one customer represented 39%].
It is in management’s opinion that the Company is not exposed to significant credit risk.
As at November 30, 2017, one customer represented $125,862 (32%$327,957 (or 54%) of the trade receivables balance [August(August 31, 2017 –2023, one customer represented $377,672 (71%$143,689 (or 36%)]).
The Company has substantially all its assets in Canada and its current and planned future operations are, and will be, located in Canada.
11.
9. SUBSEQUENT EVENTS
In accordance with ASC 855 “Subsequent Events”, which establishes general standards1.After the quarter ending February 29, 2024, and prior to the issuance of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, we have evaluated all events or transactions that occurred after November 30, 2017 up through the date we issued the condensed consolidated financial statements and has determined that there was no other material event that occurred after the date of the balance sheets included in this report that has not already been disclosed.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the accompanying financial statements and notes thereto included within this Quarterly Report on Form 10-Q. In addition10-Q, the Company repurchased and canceled NTD common shares for a total of $NTD.
2.On April 2, 2024, the Company extended its Online Content Distribution Services Agreement (the "Agreement") with Universal Music Group Recording Services, Inc. The Agreement, effective April 1, 2024, extends coverage until September 30, 2024. The extension is expected to historical information, the information in this discussionprovide time to negotiate a longer-term agreement.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements withinmade pursuant to the meaningsafe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”),or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Theseor the Exchange Act. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements involve risks and uncertainties, including statements regarding the Company’s capital needs, business strategy and expectations. Any statements contained herein that are notother than statements of historical facts may be deemed tofact are statements that could be forward-looking statements.
In some cases, you You can identify these forward-looking statements by terminologythrough our use of words such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, estimate”, “predict”, “potential” or “continue”,"may," "can," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "seek," "estimate," "continue," "plan," "point to," "project," "predict," "could," "intend," "target," "potential" and other similar words and expressions of the negativefuture.
There are a number of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider variousimportant factors described in this Quarterly Report, including the risk factors under “Item 1A. Risk Factors.” of part II, and, from time to time, in other reports the Company files with the Securities and Exchange Commission. These factors maythat could cause the Company’s actual results to differ materially from those expressed in any forward-looking statement.statement made by us. These factors include, but are not limited to:
These forward-looking statements reflect our management's beliefs and views with respect to future events and are based on estimates and assumptions and are subject to risks and uncertainties, including those described in the Part II, Item 1A under the heading "Risk Factors." Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. The Company disclaims any obligationevents and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update these statements, or discloserevise any difference between its actual results and those reflected in these statements. Such information constitutes forward-looking statements withincontained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
In this report, "we," "us," "our," "our company", "Destiny" and similar references refer to Destiny Media Technologies, Inc., a Nevada corporation, and its wholly-owned subsidiaries: Destiny Software Productions, Inc. ("DSNY"), MPE Distributions, Inc. ("MPE"), Tonality, Inc. ("Tonality"), and Sonox Digital Inc. ("Sonox"), and (ii) the meaningterm "common stock" refers to the common stock, par value $0.001 per share, of the Private Securities Litigation Reform Act of 1995.Destiny Media Technologies, Inc., a Nevada corporation. The financial information included herein is presented in United States dollars unless otherwise indicated.
OVERVIEW AND CORPORATE BACKGROUND
Destiny Media Technologies Inc. was incorporated in August 1998 under the laws of the State of Colorado and the corporate jurisdiction was changed to Nevada effective October 8, 2014. We carry out our business operations through our wholly owned subsidiary,subsidiaries: Destiny Software Productions Inc., a British Columbia company that was incorporated in 1992, MPE Distribution, Inc., a Nevada company that was incorporated in 2007, Tonality Inc., a Nevada company that was incorporated in 2021, and Sonox Digital Inc. incorporated under the Canada Business Corporations Act in 2012. The “Company”, “Destiny Media”, “Destiny”, “we” or “us” refers to the consolidated activities of all four companies.
Our principal executive office is located at Suite 1110, 885428, 1575 West Georgia Street, Vancouver, British Columbia V6C 3E8.V6G 2V3. Our telephone number is (604) 609-7736 and our facsimile number is (604) 609-0611.
10
Our common stock trades on TSX Venture Exchange in Canada under the symbol “DSY”"DSY", on the OTCQB U.S. (“OTCQB”("OTCQB") under the symbol “DSNY”"DSNY", and on various German exchanges (Frankfurt, Berlin, Stuttgart and Xetra) under the symbol DME, WKN 935 410."DME1.F"
Our corporate website is located athttp://www.dsny.com.
OUR PRODUCTS AND SERVICES
Destiny develops and markets software as a service (SaaS) solutions that solve critical problems indigital distribution and promotion problems for businesses in the music industry of digital media content overindustry.
Play MPE®
Currently, the Internet. Destiny services are based around proprietary security, watermarking and instant play streaming media technologies.
TheCompany's core of the business is the Play MPE® promotional music marketing and digital distribution service.online platform. Play MPE® is a service for promoting and securely distributing broadcastdistributes promotional content (broadcast quality audio, video, images, promotional information, metadata and other digital content securely through the internet. The system is currently used by the recording industry for transferring pre-release broadcast qualitycontent) from record labels and artists to broadcasting professionals, music radio shows,curators and music videosreviewers to trusted recipients such asdiscover, download, broadcast and review the content. Curators include radio stations,programmers, digital streaming broadcasters, media reviewers, VIP’s, DJ’s,industry VIP's, DJ's, film and TV personnel, sports stadiums, retailers etc. In providing the distribution, Play MPE® provides several capabilities developed and retailers. The system replacesdesigned to address the physical distribution (mail, courier or hand delivery)unique needs of CD’s.both music promoters and broadcasters. Play MPE® was first to market, and is the largest provider of this service and provides the most feature rich platform in the world.
Record labels aroundand artists are Play MPE®'s customers. When adding music to the world, including all three majorPlay MPE® system, clients are targeting specific industry recipients who review and broadcast their music. Play MPE®'s primary value proposition in this marketing effort is a direct increase to record label and artist revenue through on-air broadcast royalties, streaming royalties and synchronization revenue (revenue collected when a song is placed within video advertisements, television, or film), and indirect increases in revenue through growing song and artists' popularity.
Also, Play MPE® provides numerous capabilities that dramatically reduce record label costs while providing functionality necessary for certain strategic marketing plans. The platform also provides administrative controls to enhance security for record label content. In doing so, Play MPE® satisfies a broad range of stakeholders representing diverse interests at record labels. Music is protected by Play MPE®'s patented proprietary watermarking system which provides watermarks unique to each recipient.
Described more fully below, features within Play MPE® are grouped into four main categories: local distribution software, global distribution architecture, targeted recipient list curation and recipient players.
Customers range from small independent artists to the world’s largest record labels (Universal(the “Major Record Labels”). The Major Record Labels are Universal Music Group (“Universal”), Warner Music Group (“Warner”) and Sony Music Entertainment), are regularly usingEntertainment (“Sony”). These record labels directly own numerous sub-labels that include Capitol Music Group, Def Jam Recordings, Interscope Records, Island Records, Republic Records, Polydor, Deutsche Grammophon, Motown, Verve Label Group, Virgin Music Group, EMI, RCA Records, Epic Records, Columbia Records, Arista Records, Legacy Recordings, Provident Entertainment, Warner Records, Hollywood Records, Atlantic Records Group, 300 Elektra Entertainment, to name only a few. Play MPE® welcomes all of these labels into its customer base.
Customers choose Play MPE® for its powerful set of tools, ease of use and its effectiveness in achieving the record label's promotional objectives.
Play MPE® CASTER (local distribution software)
Play MPE®'s cloud-based Caster software includes local distribution functions that provide capabilities for a client to delivercreate and schedule release announcements and select its targeted audience. Play MPE® is designed uniquely to suit music marketing plans and its significant components include:
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Intuitive designs and functionality across all areas of this portion of the platform simplify the distribution process, reduce customer time required to distribute, and facilitate the inclusion of information to improve engagement which ultimately increases record label and artist revenue.
Caster is currently available in English, Spanish, German, Japanese and French.
When competing with an established service within a local market, it is these features balanced against changing consumer behaviors that determine Play MPE®'s ability to increase and acquire market share. Competing services offer the basic distribution requirements inherent in the service but do so while missing many features that provide efficient delivery, engaged recipients and accurate and complete distribution lists.
Caster consistently receives high reviews on the platform's ease of use, capabilities and on its ultimate effectiveness. Public reviews can be found at https://www.plaympe.com/testimonials/.
Play MPE® Quickshare
Play MPE®'s Quickshare provides a simplified distribution tool for Play MPE® customers to promote music directly to anyone inside or outside the Play MPE® platform. Quickshare is a simplified local distribution tool. With this feature, customers can send a link to a dedicated webpage to allow streaming or downloading of content outside of Play MPE® Player. The distribution does not include numerous features included within Caster's full version and distribution is intended only to replace other file sharing services while attracting greater use within the Play MPE® platform. The initial version will provide limited access and sharing capabilities free of charge and is a value added feature within Play MPE® local distribution suite of features.
Play MPE® CASTER (global architecture)
Play MPE®'s global distribution architecture was developed in close collaboration with our largest client to address the needs of its global approach to release distribution. This architecture provides functionality required for our largest client to conduct their unique approach to music distribution and provides numerous significant competitive advantages for this client. These features improve marketing coordination and revenue generation while reducing overall label staff time and costs.
Significant components include:
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Collectively, functionality in global release management provides numerous competitive advantages that reduce overall costs, and improve marketing collaboration while increasing record label revenue and cash flow. We are unaware of any other service that provides these global distribution functions.
Play MPE® CASTER (targeted list management services)
Recipient lists are bundles of active and engaged recipients with an interest in specific music types or genres. Lists are sold as a fixed price per list (or package). As recipient lists are adjusted in real time, changes in gross recipient numbers or active recipients does not directly or immediately impact revenue.
Fundamental to our customers' success in music marketing is reaching music curators capable of, and actively engaged in, remarketing the promoted content to a wider consumer audience. To limit unwanted access to new music and to increase recipient engagement, targeted and limited distribution is a vital component in music promotion. Thus, Play MPE® is a service usedpermissions-only access system and only recipients designated or targeted to receive content obtain access to that content. Current and correct identification of engaged recipients is therefore critical to our customers' success. While targeted distribution limits access to new content, this aspect also improves recipient side engagement by the recording industry for promoting and securely distributing broadcast quality audio, video, images, promotional information and other digital content securely through the internet. eliminating unwanted content.
Play MPE® actively manages curated and targeted distribution lists or "packages". List creation and list maintenance involve several proprietary processes that are designed to create complete, active, accurate, and targeted lists to facilitate efficient marketing campaigns. Play MPE® provides more than 400 unique targeted lists comprising of more than 17,000 unique and active recipients over 30 countries. To facilitate targeted music marketing campaigns, these lists are grouped by territory (typically by country), by genre of music, and by recipient type (see recipient player discussion). Relying on proprietary technical innovations and processes, these recipient lists are updated in real time. With an annual churn averaging between 27-34%, these recipient lists would quickly become inaccurate absent Play MPE®'s active curation. Play MPE® regularly monitors activity levels and recipients through proprietary analytics. Play MPE® provides the widest and most accurate distribution channels available in the industry.
For smaller record labels and independent artists, the provision of a list of destinations is a cloud-based enterprise SaaS service providing tiered, permission-based access, allowing our clientsrequirement for sale as these customers do not know who to assign varying rights, capabilities and responsibilities to different members of their staff.contact. For example, some customerlarger record labels, promotions staff may manage assets (album cover imagery, music videos, the raw music, promotional information and other metadata), while others manage hierarchical permission based lists of recipients. Larger labels are normally structured into label groups, each withcan upload their own labels with varying access (permissions) to various subsets of the master recipientcontact lists.
The release dates for music can be dependent on the territory and, where administrative settings permit, local promotions staff may generate a localized distribution of the song with modified marketing information in the local language. Local staff may select pre-existing assets from the system and combine them together with a local recipient lists to form a “send”. Our customers also choose the level of access for the recipients assigned to the release by designating whether the release can be streamed, downloaded, exported into an unlocked digital format or burned to a CD.
While many clients are set up to manage and upload recipient lists, many rely on the However, proprietary lists provided within the service. Our staff manages lists of recipients in various formats and geographies and thoseprocesses ensure Play MPE® lists are mademore accurate, complete and engaged. The majority of releases distributed through Play MPE®, include at least one targeted distribution list, curated by Play MPE®.
Play MPE® Player
Music curators review and download content through a cloud-based player and mobile apps (iOS and Android). Web players are currently available to our customers usingin 15 different languages: English, Spanish, Swedish, Finnish, Italian, Dutch, Portuguese, French, Japanese, German, Norwegian, Latvian, Lithuanian, Estonian, and Danish.
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Recipients on the Play MPE® system. The Play MPE® system provides Play MPE® staff with the feedbackplatform have a wide variety of personas and resources necessary to manage and maintain this network of recipients, which is not available with physical distributioninclude programming directors for internet streaming, satellite or by smaller competitors. Customers select lists of recipientsterrestrial radio, retail store curators, sports stadium DJs, clubs, events, music reviews in newspapers or magazines, on-air personalities, music supervisors who program TV, movies, commercials or video games, or "A&R" representatives at larger record labels. Each recipient within the proprietary network based on music format and geography.
When the release is sent, the “send” appears in the “available tracks” section of a recipient’s account. Recipients can access these tracks through proprietary iPhone, Mac and Windows based players, or through partner sites. In addition, we have made it even easier for decision makers in radio, press, TV, and film to use the Play MPE® service withplatform has a secure streaming audio preview feature. The enhancement allowsunique library of music catered to, and appropriate for, that recipient.
Recipients enjoy many features that make it easy to access, collaborate, review, and search for content. Play MPE® recipients's mobile apps offer off-line listening capabilities, the ability to quickly hearutilize Google Chromecast and Apple Airplay streaming capabilities, creation of playlists, sorting, flagging and archiving features, and easier access to release metadata. Recipient side satisfaction directly increases activity which directly improves the effectiveness of promotional efforts of record label customers.
MTR™
MTR™ (or "Music Tracking Radar" or "Meter" https://www.plaympe.com/track/) is a short previewdigital tracking service that tracks and reports the number and times an individual track is played. MTR™ uses a proprietary algorithm to uniquely identify and match a track. The Company launched MTR™ in beta in fourth quarter of 2023. During the beta phase of this new product, the Company will test monitoring uptime, customer acquisition activities and add functionality for sale at scale. The beta version of the platform will initially monitor digital broadcasts of 800 stations in Canada.
Digital transmission of music has provided the music industry new opportunities to reach and target its audience. These opportunities include digital streaming providers, social media, radio broadcasting, narrowcasting, and other transmissions. Traditional terrestrial radio and newer internet only stations now stream to digital receivers. With this industry change, a song directlyproduct like MTR™ is now possible.
MTR™ is a standalone business distinct from the notification email without having to login.
Destiny's servers also generate a marketing website (http://daily.plaympe.com) which promotes new music. The system automatically generates charts of the most popular music on the system. These charts can be syndicated to third parties.
All exported songs are marked in real time with Destiny’s watermark technology, which has received three US patents and a number of analogous patents globally. Songs that appear on the internet are scanned by the International Federation of the Phonographic Industry’s (“IFPI”) for our watermark. Headquartered in London, UK, the IFPI is the organization that represents the interests of the recording industry worldwide and one of its missions is to safeguard the rights of record producers. IFPI web crawlers visit torrents, peer to peer networks and websites searching for unauthorized content. When problem files are identified, the IFPI software looks for Destiny’s watermark in the content to identify the originating source.
After the content is released, all activity by the recipient is logged in real time, providing record labels and promotions staff real time detail on which songs are accessed, streamed, downloaded and exported. This contrasts with physical distribution, where record labels may be unsure whether the courier package went to the correct individual or whether it was ever opened. This activity information provides invaluable feedback in real time to marketing and promotions staff who can cater their programs appropriately. Recipients receive a custom library of available tracks and are able to repeat the download if music is lost.
Real time usage statistics for Play MPE® are available at: http://www.dsny.com/play-mpe-stats
Ongoing development work is progressing towards a completely browser based encoder. When all stages are complete, this systemplatform. The Company expects that MTR™'s initial customers will be accessible on any computer without installation and will completely replace many ofoverlap with the current Windows based desktop tools. It is expected that this new solution will increase usage of Play MPE® by providingcustomer base. Play MPE® customers have expressed an easier to use, more intuitive experience, providing access to both Mac and PC users, providing new release creation workflows, and more configuration options. It also allows for easy translation to accelerate international expansion.interest in this type of service.
We continue to invest in various development projects which should lead to higher usage.
Clipstream®
The Company also has a legacy business,developed Clipstream®, in for the online video industry for which it is pursuing strategic alternatives. The Clipstream® Online Video Platform (OVP) is a self-service system, for encoding, hosting and reporting on video playback which can be embedded in third party websites or emails. Playback is currently through the Company’sCompany's proprietary JavaScript codec engine, which is only available on the internet through the Company. The unique software basedsoftware-based approach to rendering video, is protected by over two dozenhas patents claiming initial priority to 2011 [NTD: Does this need to be updated?].2011. This product is marketed in a limited way and has incidental revenues.revenues and is not supported or marketed.
In November 2017, after completing a detailed reviewProducts under development
Destiny is currently developing additional functionality and complimentary services that are expected to expand the Company's addressable market, or act as catalysts to the Company's sales activities for Play MPE®. These are described more fully in business development section of the resources required to progress Clipstream® further, the Company transitioned the product to maintenance only and stopped development of new major features. Business development will focusour Annual Report on identifying strategic alternativesForm 10-K for the product, business, and intellectual property outside the Company.fiscal year ended August 31, 2023, filed on November 28, 2023.
14
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017FEBRUARY 29, 2024 AND NOVEMBER 30, 2016FEBRUARY 28, 2023
| Three Months Ended | |||||||||
| February 29, 2024 | February 28, 2023 | Change | |||||||
| Service revenue | $ | 986,338 | $ | 899,042 | $ | 87,296 | |||
| Cost of revenue | 135,346 | 126,594 | 8,752 | ||||||
| Gross margin | 850,992 | 772,448 | 78,544 | ||||||
| Operating expenses | 996,465 | 782,501 | 213,964 | ||||||
| Income from operations | (145,473 | ) | (10,053 | ) | (135,420 | ) | |||
| Other income | 15,461 | 8,777 | 6,684 | ||||||
| Net income | $ | (130,012 | ) | $ | (1,276 | ) | $ | (128,736 | ) |
Revenue
Revenue
Total revenue for the three months ended November 30, 2017 increased by 9%February 29, 2024 was $986,338 compared to $973,798 (2016 - $892,229). Play MPE®the revenue accountedof $899,042 for 97% of the Company’s revenue (2016 - 99%) and increased by 8% over the comparable period in fiscal 2017. The increase in Play MPE® revenue in the three months ended November 30, 2017 is the result ofFebruary 28, 2023, an increase in North American revenues, mostly as a result of continued consistent growth in US independent customers, which increased9.7% period over period. After adjusting for foreign exchange rates, the Company's revenue for the three-month period grew by 25% over the comparable period in fiscal 2017. 9.0%.
The growth in USrevenue for the quarter arose from both our Major Label customers (9.1%) and independent customerslabels (10.3%). Commencing in the first quarter of fiscal 2023, the Company began capitalizing on its international presence by introducing international bundles. The Company's goal was partially offset by a small decrease in revenue from Europe and Australia/New Zealand, dueto provide easy access to a combinationlarger international distribution to clients desiring a more global campaign. The Company has received a very positive response to these bundles and this initiative has increased the size of factors.the average purchase and accounts for approximately one third of the growth seen in the current quarter. The Company is currently making investments to further expand its international recipient base to further expand the appeal and value of these distributions. The larger portion of growth for independent labels comes from increased sales which is in line with historical trends.
Gross Margin
Gross margin for the three months ended February 29, 2024 was 86.3% of revenue, compared to 85.9% for the three months ended February 28, 2023. The Company's cost of revenue consists of data hosting and processing charges, third party transaction related costs, and engineering, technical and customer support costs. These costs are driven by the size and volume of customer transactions processed, as well as the relative proportion of "full-service" versus "self-service" revenue. Our self-service sales are derived from customers who have been provided with a customer account to access our encoder to independently upload and publish releases. Our full-service revenue is derived from customers who are fully serviced by our internal staff, who prepare and publish releases on their behalf. During the three months ended November 30, 2017, 46% ofFebruary 29, 2024, our Play MPE® revenues were denominated in Euros and 7% were denominated in Australian Dollars (2016: 50% and 8%, respectively). During the three months ended November 30, 2017, the effect of foreign exchange fluctuations in these currencies had a favorable impact on our reported revenues from these currencies.
Operating Expenses
Overview
As our technologies and products are developed and maintained in-house, the majority of our expenditures are on salaries and wages and associated personnel expenses; including office space, supplies and benefits. Our operations are primarily conducted in Canada. Therefore, the majority of our costs are incurred in Canadian dollars while the majority of our revenues are denominated in US dollars and Euros. Thus, operating expenses and the results of operations are impacted,gross margin increased compared to the extent they are not hedged,same period last year, mainly driven by revenue growth outpacing the rise and fallincrease in cost of the relative values of the US dollar to these currencies. The Company maintains the majority of its financial reserves in Canadian or US dollars to mitigate the downside risk of adverse exchange rates on its operating expenditures.revenue.
Overall operatingOperating Expenses
Operating costs fell by 7% to $738,831 (2016 – $792,864) during the three months ended November 30, 2017.February 29, 2024 increased by 27.3% to $996,465 (February 28, 2023 - $782,501). The majority of this decline isincrease in operating costs was primarily the result of reductionsthe following:
Salariestotal operating expenses for the three months ended February 29, 2024.
| 30- | ||||||||||||
| General and administrative | 30-November | November | $ | % | ||||||||
| 2017 | 2016 | Change | Change | |||||||||
| (3 months) | (3 months) | |||||||||||
| $ | $ | |||||||||||
| Wages and benefits | 64,454 | 89,781 | (25,327 | ) | (28.2% | ) | ||||||
| Rent | 8,449 | 9,246 | (797 | ) | (8.6% | ) | ||||||
| Telecommunications | 8,176 | 10,099 | (1,923 | ) | (19.0% | ) | ||||||
| Bad debt (recovery) | - | (1,323 | ) | 1,323 | (100.0% | ) | ||||||
| Office and miscellaneous | 24,948 | 43,469 | (18,521 | ) | (42.6% | ) | ||||||
| Professional fees | 44,908 | 27,634 | 17,274 | 62.5% | ||||||||
| 150,935 | 178,906 | (27,971 | ) | (15.6% | ) |
Our general and administrative expenses consist primarilygrowth of salaries and related personnel costs including overhead, professionalwages capitalization in the prior year, the amortization of computer software in the current period resulted in a 6.5% increase in total operating expenses.
For ease of reference the following table has been prepared to present operating results had the Company not capitalized software for the three months ended February 29, 2024 and February 28, 2023.
| Three Months Ended | ||||||
| February 29, 2024 | February 28, 2023 | |||||
| Net loss for the period | $ | (130,012 | ) | $ | (1,276 | ) |
| Capitalized software under development | (102,780 | ) | (203,732 | ) | ||
| Adjustment to amortization for capitalized software | 2,408 | - | ||||
| Adjusted net loss for the period | $ | (230,384 | ) | $ | (205,008 | ) |
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| Three Months Ended | ||||||||||||
| General and administrative expenses | February 29, 2024 | February 28, 2023 | $ Change | % Change | ||||||||
| Wages and benefits | $ | 90,829 | $ | 41,633 | 49,196 | 118.2% | ||||||
| Professional fees | 19,286 | 84,252 | (64,966 | ) | (77.1%) | |||||||
| Office and miscellaneous | 24,251 | 21,806 | 2,445 | 11.2% | ||||||||
| Shareholder relations | 41,790 | 35,246 | 6,544 | 18.6% | ||||||||
| Rent | 8,991 | 11,217 | (2,226 | ) | (19.8%) | |||||||
| Foreign exchange loss (gain) | 7,550 | (34,502 | ) | 42,052 | (121.9%) | |||||||
| Telecommunications | 1,206 | 2,120 | (914 | ) | (43.1%) | |||||||
| Bad debt | (2,589 | ) | 4,496 | (7,085 | ) | (157.6%) | ||||||
| Other | 13,941 | 9,077 | 4,864 | 53.6% | ||||||||
| Total general and administrative expenses | $ | 205,255 | $ | 175,345 | 29,910 | 17.1% | ||||||
The rise in wages and benefits can be primarily attributed to a temporary reduction in full-time equivalent staffing for the comparative period ending February 28, 2023. Professional fees and other general office expenditures. decreased from the prior period due to one-time litigation expenses, which were resolved favorably in the Company's favor in the preceding year.
| Three Months Ended | ||||||||||||
| Sales and marketing expenses | February 29, 2024 | February 28, 2023 | $ Change | % Change | ||||||||
| Wages and benefits | $ | 250,120 | $ | 213,672 | 36,448 | 17.1% | ||||||
| Advertising and marketing | 22,430 | 28,652 | (6,222 | ) | (21.7%) | |||||||
| Rent | 10,858 | 12,859 | (2,001 | ) | (15.6%) | |||||||
| Telecommunications | 1,593 | 3,117 | (1,524 | ) | (48.9%) | |||||||
| Total sales and marketing expenses | $ | 285,001 | $ | 258,300 | 26,701 | 10.3% | ||||||
The decreaseincrease in wages and benefits is as a resultprimarily attributed to the addition of staffing reductions experiencedkey personnel in the fourth quarter of fiscal 2017, as discussed above. The decrease in office and miscellaneous is mostly due favorable foreign exchange impacts, as well as a reduction in certain public company related expenditures. department along with staff turnover during the current period.
| Three Months Ended | ||||||||||||
| Product development expenses | February 29, 2024 | February 28, 2023 | $ Change | % Change | ||||||||
| Wages and benefits | $ | 342,594 | $ | 233,820 | 108,774 | 46.5% | ||||||
| Software services | 27,318 | 23,538 | 3,780 | 16.1% | ||||||||
| Rent | 18,200 | 24,744 | (6,544 | ) | (26.4%) | |||||||
| Telecommunications | 31,071 | 30,802 | 269 | 0.9% | ||||||||
| Product development expenses | $ | 419,183 | $ | 312,904 | 106,279 | 34.0% | ||||||
The increase in professional fees is a due to a temporary increase incurred in connection with legal advice related to employment matters.
| 30- | 30- | |||||||||||
| Sales and marketing | November | November | $ | % | ||||||||
| 2017 | 2016 | Change | Change | |||||||||
| (3 months) | (3 months) | |||||||||||
| $ | $ | |||||||||||
| Wages and benefits | 172,114 | 181,509 | (9,395 | ) | (5.2% | ) | ||||||
| Rent | 25,502 | 20,563 | 4,939 | 24.0% | ||||||||
| Telecommunications | 24,679 | 22,460 | 2,219 | 9.9% | ||||||||
| Travel | 4,467 | 2,065 | 2,402 | 116.3% | ||||||||
| Advertising and marketing | 32,367 | 20,809 | 11,558 | 55.5% | ||||||||
| 259,129 | 247,406 | 11,723 | 4.7% |
Sales and marketing expenses consist primarily of salaries and related personnel costs including overhead, advertising and promotional fees, and marketing-related travel costs. The decrease in wages and benefits is attributablelinked to reduced staffing costs.This decrease was offset bya lower amount capitalized to capital software assets and software under development intangible assets in the current period. During the comparative period, the Company prioritized the development of its new product, MTR™, which subsequently underwent a beta launch in the summer of 2023. Following the launch, there has been a reduction in the capitalization of wages and salaries associated with the MTR™ product.
Depreciation and Amortization
Depreciation and amortization expense increased to $87,026 for the three months ended February 29, 2024 from $35,952 for the three months ended February 28, 2023, an increase in advertising and marketing costs attributableof 142.1% due to increased marketing related travel and seasonal expenditures.
| 30- | 30- | |||||||||||
| Research and development | November | November | $ | % | ||||||||
| 2017 | 2016 | Change | Change | |||||||||
| (3 months) | (3 months) | |||||||||||
| $ | $ | |||||||||||
| Wages and benefits | 220,704 | 247,846 | (27,142 | ) | (11.0% | ) | ||||||
| Rent | 32,509 | 28,021 | 4,488 | 16.0% | ||||||||
| Telecommunications | 31,459 | 30,605 | 854 | 2.8% | ||||||||
| Research and development | 18,398 | 18,202 | 196 | 1.1% | ||||||||
| 303,070 | 324,674 | (21,604 | ) | (6.7% | ) |
Research anddepreciation of additionally capitalized software development costs consistassociated with Play MPE® recipient player applications during the period.
Other Income
Interest income earned on the Company's mutual funds was $15,461 for the three months ended February 29, 2024 (February 28, 2023 - $8,777).
16
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
| Six Months Ended | |||||||||
| February 29, 2024 | February 28, 2023 | Change | |||||||
| Service revenue | $ | 2,141,140 | $ | 1,919,779 | $ | 221,361 | |||
| Cost of revenue | 298,764 | 256,041 | 42,723 | ||||||
| Gross margin | 1,842,376 | 1,663,738 | 178,638 | ||||||
| Operating expenses | 1,749,859 | 1,419,593 | 330,266 | ||||||
| Income from operations | 92,517 | 244,145 | (151,628 | ) | |||||
| Other income | 26,987 | 16,445 | 10,542 | ||||||
| Net income | $ | 119,504 | $ | 260,590 | $ | (141,086 | ) | ||
Revenue
Total revenue for the six months ended February 29, 2024 was $2,141,140 compared to the revenue of $1,919,779 for the six months ended February 28, 2023, an increase of 11.5% period over period. After adjusting for foreign exchange rates, the Company's revenue for the six-month period grew by 9.9%.
The revenue increase in the first half of fiscal 2024 was driven by both our Major Label customers (7.5%) and independent labels (15.6%). Consistent with the results for the current three-month period, the Company’s revenue for the six months was bolstered by the introduction of international distribution channels in the prior year. The use of these bundles continues to grow and increase the average distribution size. For the six-month period ended February 29, 2024, these international bundles accounted for almost half of the growth from independent labels. The larger impact in the Company’s first quarter is primarily attributed to a newly added international list dedicated to holiday music. While the Company is uniquely capable of providing international distribution channels, the Company is making investments to expand the depth and breadth of the options available due to the success seen in the early stages of this initiative.
Gross Margin
Gross margin for the six months ended February 29, 2024 was 86.0% of revenue, compared to 86.7% for the six months ended February 28, 2023. The Company's cost of revenue consists of data hosting and processing charges, third party transaction related costs, and engineering, technical and customer support costs. These costs are driven by the size and volume of customer transactions processed, as well as the relative proportion of "full-service" versus "self-service" revenue. Our self-service sales are derived from customers who have been provided with a customer account to access our encoder to independently upload and publish releases. Our full-service revenue is derived from customers who are fully serviced by our internal staff, who prepare and publish releases on their behalf. During the six months ended February 29, 2024, our gross margin decreased compared to the same period last year, primarily due to slower revenue growth compared to the increase in cost of revenue.
Operating Expenses
Operating costs during the six months ended February 29, 2024 increased by 23.3% to $1,749,859 (February 28, 2023 - $1,419,593). This rise can be primarily attributed to the following factors:
For ease of reference the following table has been prepared to present operating results had the Company not capitalized software for the six months ended February 29, 2024 and February 28, 2023.
| Six Months Ended | ||||||
| February 29, 2024 | February 28, 2023 | |||||
Net income for the period | $ | 119,504 | $ | 256,990 | ||
| Capitalized software under development | (280,182 | ) | (452,074 | ) | ||
| Adjustment to amortization for capitalized software | 3,445 | - | ||||
| Adjusted net loss for the period | $ | (157,233 | ) | $ | (195,084 | ) |
17
| Six Months Ended | ||||||||||||
| General and administrative expenses | February 29, 2024 | February 28, 2023 | $ Change | % Change | ||||||||
| Wages and benefits | $ | 164,275 | $ | 158,601 | 5,674 | 3.6% | ||||||
| Professional fees | 42,430 | 138,635 | (96,205 | ) | (69.4%) | |||||||
| Office and miscellaneous | 48,864 | 45,313 | 3,551 | 7.8% | ||||||||
| Shareholder relations | 55,296 | 49,947 | 5,349 | 10.7% | ||||||||
| Rent | 20,546 | 22,968 | (2,422 | ) | (10.5%) | |||||||
| Foreign exchange gain | (1,714 | ) | (107,944 | ) | 106,230 | (98.4%) | ||||||
| Telecommunications | 2,733 | 4,401 | (1,668 | ) | (37.9%) | |||||||
| Bad debt | (2,010 | ) | 3,126 | (5,136 | ) | (164.3%) | ||||||
| Other | 22,727 | 23,359 | (632 | ) | (2.7%) | |||||||
| Total general and administrative expenses | $ | 353,147 | $ | 338,406 | 14,741 | 4.4% | ||||||
Professional fees with respectdecreased from the prior period due to product development and deployment. one-time litigation expenses, which were resolved through a favorable judgment in the Company's favor in the prior year.
| Six Months Ended | ||||||||||||
| Sales and marketing expenses | February 29, 2024 | February 28, 2023 | $ Change | % Change | ||||||||
| Wages and benefits | $ | 433,705 | $ | 349,066 | 84,639 | 24.2% | ||||||
| Advertising and marketing | 45,168 | 52,879 | (7,711 | ) | (14.6%) | |||||||
| Rent | 18,892 | 26,049 | (7,157 | ) | (27.5%) | |||||||
| Telecommunications | 3,093 | 4,532 | (1,439 | ) | (31.8%) | |||||||
| Total sales and marketing expenses | $ | 500,858 | $ | 432,526 | 68,332 | 15.8% | ||||||
The decreaserise in wages and benefits is attributableattributed to reduced staffing costs, including Clipstream® related staffing costs.a one-time consulting fee, as well as staff turnover and the addition of key personnel in the department in the current period.
| Six Months Ended | ||||||||||||
| Product development expenses | February 29, 2024 | February 28, 2023 | $ Change | % Change | ||||||||
| Wages and benefits | $ | 577,417 | $ | 423,289 | 154,128 | 36.4% | ||||||
| Software services | 49,820 | 43,993 | 5,827 | 13.2% | ||||||||
| Rent | 36,076 | 48,913 | (12,837 | ) | (26.2%) | |||||||
| Telecommunications | 64,417 | 60,135 | 4,282 | 7.1% | ||||||||
| Product development expenses | $ | 727,730 | $ | 576,330 | 151,400 | 26.3% | ||||||
The increase in wages and benefits is linked to a lower amount capitalized to capital software assets and software under development intangible assets in the current period. During the comparative period, the Company prioritized the development of its new product, MTR™, which subsequently underwent a beta launch in the summer of 2023. Following the launch, there has been a reduction in the capitalization of wages and salaries associated with the MTR™ product.
Depreciation and Amortization
Depreciation and amortization expense arises from property and equipment, and from patents and trademarks. Amortization decreasedincreased to $25,697$168,124 for the threesix months ended November 30, 2017February 29, 2024 from $41,878$72,331 for the threesix months ended November 30, 2016, a decreaseFebruary 28, 2023, an increase of $16,181 or 39% from an overall reduction in132.4% due to depreciation of additionally capitalized software development costs associated with Play MPE® recipient player applications during the capital asset balance subject to amortization.period.
Other earnings and expensesIncome
Interest income decreased to $2,325earned on the Company's mutual funds was $26,987 for the threesix months ended November 30, 2017 from $4,763 for the three months ended November 30, 2016, a decrease of $2,438. The interest income is derived from the amount receivable pursuant to our previous litigation settlement. The decrease in interest income is the result of a lower settlement receivable balance from the settlement receivable being paid down during the year.February 29, 2024 (February 28, 2023 - $16,445).
Net incomeIncome (Loss)
During the three and six months ended November 30, 2017 we hadFebruary 29, 2024 the Company reported a net loss of $130,012 and net income of $233,490 (2016$119,504, respectively (February 28, 2023 – $104,128). The increase innet loss of $1,276 and net income is attributable to our increased revenue in Play MPE® and reduced operating expenses in overall spending on salaries and wages, depreciation and amortization, telecommunications and favorable foreign exchange fluctuations.of $256,990, respectively).
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For the three and six months period ended November 30, 2017,February 29, 2024, adjusted EBITDA increased to $273,385 (2016 –$145,063)was $(47,792) and $285,101, respectively (February 28, 2023 - $63,984 and $388,118, respectively). Adjusted EBITDA is not defined under generally accepted accounting principles (“GAAP”)U.S. GAAP, and it may not be comparable to similarly titled measures reported by other companies. We used Adjusted EBITDA, along with other GAAP measures, as a measure of our profitability because Adjusted EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments and the effect of non-cash stock-based compensation expense.
We believe Adjusted EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to Adjusted EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based compensation from our earnings which can vary based on share price, share price volatility, and expected life of the equity instruments we grant. In addition, this stock-based compensation expense does not result in cash payments by us.the Company. Adjusted EBITDA has limitations as a profitability measure in that it does not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures foron capital assets, the effect of non-cash stock-based compensation expense and the effect of asset impairments. The following is a reconciliation of net income from operations to Adjusted EBITDA over the eight most recently completed fiscal quarters:EBITDA:
| 2018 Q1 | 2017 Q4 | 2017 Q3 | 2017 Q2 | 2017 Q1 | 2016 Q4 | 2016 Q3 | 2016 Q2 | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 | Q4 2022 | Q3 2022 | |||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | 233,490 | 86,635 | 166,223 | (68,205 | ) | 104,128 | (9,048 | ) | (2,813 | ) | (75,383 | ) | ||||||||||||||||||||||||||||||||||||
| Amortization, stock based compensation and deferred leasehold inducements | 42,220 | 40,664 | 40,998 | 45,404 | 45,698 | 22,169 | 64,408 | 57,404 | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (130,012 | ) | 249,516 | (28,944 | ) | 107,052 | (1,276 | ) | 258,266 | 194,673 | (3,242 | ) | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | 10,655 | 13,805 | 34,605 | 38,085 | 38,085 | 37,157 | (21,281 | ) | 75,163 | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 87,026 | 81,098 | 128,842 | 37,182 | 35,952 | 36,379 | 52,603 | 36,313 | ||||||||||||||||||||||||||||||||||||||||
| Interest income | (2,325 | ) | (2,243 | ) | (3,437 | ) | (3,871 | ) | (4,763 | ) | (4,075 | ) | (4,902 | ) | (6,033 | ) | (15,461 | ) | (11,526 | ) | (10,460 | ) | (9,593 | ) | (8,777 | ) | (7,668 | ) | (4,460 | ) | (1,686 | ) | ||||||||||||||||
| Adjusted EBITDA | 273,385 | 125,056 | 203,784 | (26,672 | ) | 145,063 | 9,046 | 56,693 | (24,012 | ) | $ | (47,792 | ) | 332,893 | 124,043 | 172,726 | 63,984 | 324,134 | 221,535 | 106,548 | ||||||||||||||||||||||||||||
LIQUIDITY AND FINANCIAL CONDITION
At November 30, 2017,As at February 29, 2024, we had cash of $1,752,591held $1,539,685 (August 31, 2017 – $1,342,956)2023 - $2,002,769) in cash and cash equivalents. The Company's cash equivalents consist of investments in mutual funds with a major Canadian financial institution that earn interest at variable interest rates ranging from 4.55% - 4.90%. We
At February 29, 2024, we had working capital of $1,819,453 as at November 30, 2017$1,895,969 compared to working capital of $1,661,850$2,185,960 as at August 31, 2017.2023. The decrease in our working capital was primarily due to operating results.
CASH FLOWSCash Flows
The following table sets forth a summary of the net cash flow activity for the periods indicated:
| Six Months Ended | ||||||||||||
| Net cash and cash equivalents provided by (used in) | February 29, 2024 | February 28, 2023 | $ Change | % Change | ||||||||
| Operating activities | $ | 133,673 | $ | 402,169 | (268,496 | ) | (66.8%) | |||||
| Investing activities | (281,563 | ) | (456,792 | ) | 175,229 | (38.4%) | ||||||
| Financing activity | (306,680 | ) | - | (306,680 | ) | (100.0%) | ||||||
| Effect of foreign exchange rate changes on cash | (8,514 | ) | (67,286 | ) | 58,772 | (87.3%) | ||||||
| Net decrease in cash and cash equivalents | $ | (463,084 | ) | $ | (121,909 | ) | (341,175 | ) | 279.9% | |||
Operating Activities
Net cash provided by operating activities during the six months ended February 29, 2024 was $526,378$133,673 (February 28, 2023 -$402,169). The primary reason for the three months ended November 30, 2017, compared to net cash provided of $338,614 for the three months ended November 30, 2016. The increasedecrease in net cash flows provided in thefrom operating activities was most notably dueis related to an increase in net income over the comparative period.timing of receipts from our customers.
Investing Activities
Net cash used in investing activities was $74,063 for the threesix months ended November 30, 2017,February 29, 2024 was $281,563, compared to net cash used of $23,668 for the three months ended November 30, 2016. The increase in net cash used in investing activities is largely attributable to expenditures on leasehold improvements related to office renovations associated with a renewalof $456,792 for the six months ended February 28, 2023. The period-over-period decrease was mainly driven by the lower proportion of software development salaries and wages capitalized in our office premises lease.the current period.
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Financing Activity
There were noNet cash flows fromused in financing activitiesactivity during the threesix months ended November 30, 2017February 29, 2024 was $306,680 (February 28, 2023 - $Nil) - this cash was used to repurchase and 2016.retire 309,300 shares of common stock (February 28, 2023 – no shares of common stock were repurchased) of the Company under the Normal Course Issuer Bid (“NCIB”).
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 9 “Recent Accounting Pronouncements” in Notes to Interim Condensed Consolidated Financial Statements for the three months ended November 30, 2017.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES
We prepareOur management's discussion and analysis of our interim condensed consolidatedfinancial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles generally accepted in the United States, or GAAP. The preparation of America, andour financial statements requires us to make estimates and assumptions that affect ourthe reported amounts of assets, liabilities revenue and expenses and the related disclosuresdisclosure of contingent liabilities.assets and liabilities in our financial statements and accompanying notes. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other assumptionsfactors that we believe are reasonable inunder the circumstances.circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.estimates under different assumptions or conditions.
The followingFor a description of our critical accounting policies, affectsee the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgements and Estimates” and “Financial Statements and Supplementary Data – Note 2, Summary of Significant Accounting Policies” contained in our more significant estimates and assumptions used in preparing our consolidated financial statements.
Revenue Recognition
We recognize revenue in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 985-605,Revenue Recognition. Accordingly, revenue is recognized when there is persuasive evidence of an arrangement, delivery2023 Form 10-K. There have not been any material changes to the customer has occurred,critical accounting policies discussed therein during the fee is fixedthree and determinable, and collectability is considered probable.six months ended February 29, 2024.
The majorityOFF-BALANCE SHEET ARRANGEMENTS
As of our revenue is generated from digital media distribution service. The service is billed on usage which is based on the volume and size of distributions provided on a monthly basis. All revenues are recognized on a monthly basis as the services are delivered to customers, except where extended payment terms exist. Such revenues are only recognized when the extended payment term expires.
At present, the Company does not have a standard business practice for contracts that contain extended payment terms, and therefore recognizes revenue from such contracts when the payment terms lapse and all other revenue criteria have been met.
Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If we made different judgments or utilized different estimates for any period material differences in the amount and timing of revenue recognized could result.
Stock-Based Compensation
We recognize the costs of employee services received in share-based payment transactions according to the fair value provisions of the current share-based payment guidance. The fair value of employee services received in stock-based payment transactions is estimated at the grant date and recognized over the requisite service period. Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life.
We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards. The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of share-based awards, including the option’s expected term and the price volatility of the underlying stock. Our current estimate of volatility is based on historical and market-based implied volatilities of our stock price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to vest. Our estimate of the forfeiture rate is based primarily on our historical experience. To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the quarter of revision, as well as in the following quarters. In the future, as empirical evidence regarding these input estimates is available to provide more directionally predictive results, we may change or refine our approach of deriving these input estimates.
Research and Development Expense for Software Products
Research and development expense includes costs incurred to develop intellectual property. The costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. We have determined that technological feasibility is established at the time a working model of software is completed. Because we believe our current process for developing software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.
Significant management judgments and estimates must be made in connection with determination of any amounts identified for capitalization as software development costs in any accounting period. If we made different judgments or utilized different estimates for any period material differences in the amount and timing of capitalized development costs could occur.
Accounts Receivable and Allowance for Doubtful Accounts
We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required. Accounts outstanding beyond the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer's current ability to pay its obligation to us. We write-off accounts receivable when they are identified as uncollectible. All outstanding accounts receivable accounts are periodically reviewed for collectability on an individual basis.
Income Taxes
Deferred income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates by tax jurisdiction at each balance sheet date. Deferred income tax assets also result from unused loss carry-forwards and other deductions. The valuation of deferred income tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate all available evidence, such as recent and expected future operating results by tax jurisdiction, and current and enacted tax legislation and other temporary differences between book and tax accounting to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. There is a risk that management estimates for operating results could vary significantly from actual results, which could materially affect the valuation of the future income tax asset. AlthoughFebruary 29, 2024, the Company has tax loss carry-forwards and other deferred income tax assets, management has determined certain of these deferred tax assets do not meet the moreno off-balance sheet arrangements that have or are reasonably likely than not criteria, and accordingly, these deferred income tax asset amounts have been completely offset by a valuation allowance.
Contingencies
As discussed under “Item 1. Legal Proceedings” in Part II and in Note 8 “Contingencies” in Notes to Interim Condensed Consolidated Financial Statements, the Company is subject from time to time to various legal proceedings and claims that arise in the ordinary course of business. In accordance with US GAAP, the Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. In management’s opinion, the Company does not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate materially adversely affectfuture material effect on its financial condition, changes in financial condition, revenues or operating results. However, the outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operatingexpenses, results of a particular reporting period could be materially adversely affected.operations, liquidity, capital expenditures or capital resources.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Impairment of Long-Lived Assets
We evaluate the recoverability of our long-lived assets including tangible assets in accordance with authoritative guidance. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we recognize such impairment in the event the carrying amount of such assets exceeds the future undiscounted cash flows attributable to such assets. We have not recorded any impairment losses to date.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Exchange Risk
Our revenues are denominated primarily in United States dollars and Euros while our operating expenses are incurred primarily in Canadian dollars. Thus, operating expenses and the results of operations are impacted, to the extent they are not hedged, by the rise and fall of the relative values of the Canadian dollar to these currencies. During the three months ended November 30, 2017, as a result ofWe do not believe aggregated foreign exchange fluctuations in the Euro, and the Australian, Canadian, and US dollars have had a material effect on our results of operations during the Company recognized positive impacts on reported net income.periods presented.
ItemITEM 4. Controls and Procedures.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with this quarterly report, as required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company'sCompany's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company'sCompany's management, including our company's Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our company'sCompany's Chief Executive Officer and Chief Financial Officer concluded that as of November 30, 2017,February 29, 2024, our disclosure controls and procedures were effective as at the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
During the three months ended November 30, 2017, thereThere were no changes inthat would impact our internal controls over financial reporting. Subsequentfor the period from September 1, 2023 to November 30, 2017, the Board of Directors appointed Sandra Boenisch as the Company’s Chief Financial Officer. The appointment was effective December 15, 2017. Mr. Vandenberg stepped down as Chief Financial Officer and will remain the Company’s Chief Executive Officer and President. This change had a material effect on our internal controls over financial reporting with respect to achieving adequate segregation of duties between the CEO and the CFO.February 29, 2024.
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PART II –- OTHER INFORMATION
ItemITEM 1. Legal Proceedings.LEGAL PROCEEDINGS.
On November 8, 2011, the Company was served with a Notice of Civil Claim in the Supreme Court of British Columbia from Noramco Capital Corporation for $100,000. The claim asserts that the Company has repudiated a subscription agreement entered into in August 2000. Management believes the claim is without merit and that the likelihood that the outcome of this matter will have a material adverse impact on its result of operations, cash flows and financial condition of the Company is remote. The Company has filed a counterclaim against Noramco and the alleged major beneficial shareholder of Noramco, R. A. Bruce McDonald, for damages arising from a proposed private placement in 2000 which did not close.
On September 5, 2017, the Company’sCompany's former President and Chief Executive Officer Mr. Steve Vestergaard, filed a Notice of Civil Claim in the Supreme Court of British Columbia against the Company, its subsidiaries, independent directors, and current Chief Executive Officer, claiming damages for conspiracy, breach of contract, wrongful dismissal, defamation and aggravated and punitive damages. The Company believes the claims are without merit and will defendis defending itself against the claims. The quantum of loss, if any, is not determinable at this time and management believes it is unlikely that the outcome of this matter will have an adverse impact on its results of operations, cash flows and financial condition.
ItemITEM 1A. Risk Factors.RISK FACTORS.
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in “Item"Item 1 –- Risk Factors”Factors" in our Form 10-K for the fiscal year ended August 31, 20172023 filed with the SEC on November 29, 2017.SEC. These risks could materially and adversely affect our business, financial condition and results of operations. The risks described in our Form 10-K have not changed materially, however, they are not the only risks we face. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.
ItemITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ItemITEM 3. Defaults Upon Senior Securities.DEFAULTS UPON SENIOR SECURITIES.
None.
ItemITEM 4. Mine Safety Disclosures.MINE SAFETY DISCLOSURES.
Not Applicable.
Item
ITEM 5. Other Information.OTHER INFORMATION.
None.
ItemITEM 6. Exhibits.EXHIBITS.
| 31.1* | Section 302 Certification of Chief Executive Officer |
| 31.2* | Section 302 Certification of Chief Financial Officer |
| 32.1* | Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
| Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DESTINY MEDIA TECHNOLOGIES, INC.
| By: | /s/Frederick Vandenberg | |
| Frederick Vandenberg | ||
| Chief Executive Officer, President | ||
| (Principal Executive Officer) | ||
| Date: | ||
| By: | /s/ | |
| Chief Financial Officer, Treasurer | ||
| (Principal Financing and Accounting Officer) | ||
| Date: | April 15, 2024 |
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