UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 20212022
[ ] 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)
84-1516745 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Vancouver, British Columbia, Canada | |
(Address of principal executive offices) | (Zip Code) |
604-609-7736
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes [ ] No
[X]
Indicate by check mark whether the registrant has submitted electronically 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
[X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer [ ] | |
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 ActAct.
[ ]Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
[ ]Yes] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date:
The number of shares outstanding of the registrant's common stock, par value $0.001, as of January 7, 202211, 2023 was 10,147,771.10,122,261.
DESTINY MEDIA TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 1.Financial Statements.
Condensed Consolidated Interim Financial StatementsDESTINY MEDIA TECHNOLOGIES, INC.
Destiny Media Technologies Inc.Condensed Consolidated Balance Sheets
(Unaudited)
Notes | November 30, 2022 | August 31, 2022 | |||||||
ASSETS | |||||||||
Cash and cash equivalents | 3 | $ | 2,246,205 | $ | 2,095,928 | ||||
Accounts receivable, net of allowance for doubtful accounts of $36,924 (August 31, 2022- $39,518) | 7 | 380,092 | 483,774 | ||||||
Other receivables | 36,735 | 29,600 | |||||||
Prepaid expenses | 51,829 | 83,242 | |||||||
Deposits | 32,270 | 33,305 | |||||||
Total current assets | 2,747,131 | 2,725,849 | |||||||
Property and equipment, net | 4 | 268,314 | 311,792 | ||||||
Intangible assets, net | 5 | 758,313 | 529,717 | ||||||
Total assets | $ | 3,773,758 | $ | 3,567,358 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current | |||||||||
Accounts payable | $ | 105,069 | $ | 116,290 | |||||
Accrued liabilities | 338,570 | 319,738 | |||||||
Deferred revenue | 16,893 | 21,043 | |||||||
Total current liabilities | 460,532 | 457,071 | |||||||
Total liabilities | 460,532 | 457,071 | |||||||
Commitments and contingencies | 7 | - | - | ||||||
Stockholders' equity | |||||||||
Common stock, par value $0.001, authorized 20,000,000 shares. Issued and outstanding - 10,122,261 shares (August 31, 2022 - issued and outstanding 10,122,261 shares) | 6 | 10,122 | 10,122 | ||||||
Additional paid-in capital | 6 | 9,153,005 | 9,115,848 | ||||||
Accumulated deficit | (5,381,199 | ) | (5,639,465 | ) | |||||
Accumulated other comprehensive loss | (468,702 | ) | (376,218 | ) | |||||
Total stockholders' equity | 3,313,226 | 3,110,287 | |||||||
Total liabilities and stockholders' equity | $ | 3,732,603 | $ | 3,567,358 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
DESTINY MEDIA TECHNOLOGIES, INC.
(Unaudited)Condensed Consolidated Statements of Comprehensive Income
November 30, 2021(Unaudited)
Three Months Ended November 30, | |||||||||
Notes | 2022 | 2021 | |||||||
Service revenue | 8 | $ | 1,020,737 | $ | 1,134,151 | ||||
Cost of revenue | |||||||||
Hosting costs | 27,959 | 42,184 | |||||||
Internal engineering support | 12,570 | 8,400 | |||||||
Customer support | 71,228 | 47,603 | |||||||
Third-party and transactions costs | 17,690 | 19,376 | |||||||
129,447 | 117,563 | ||||||||
Gross margin | 891,290 | 1,016,588 | |||||||
87% | 90% | ||||||||
Operating expenses | |||||||||
General and administrative | 163,061 | 150,624 | |||||||
Sales and marketing | 174,226 | 415,810 | |||||||
Product development | 263,426 | 258,424 | |||||||
Depreciation and amortization | 4,5 | 36,379 | 27,172 | ||||||
637,092 | 852,030 | ||||||||
Income from operations | 254,198 | 164,558 | |||||||
Other income | |||||||||
Interest and other income | 7,668 | 1,043 | |||||||
Income before income tax | $ | 261,866 | $ | 165,601 | |||||
Current income tax expense | (3,600 | ) | - | ||||||
Net income | $ | 258,266 | $ | 165,601 | |||||
Foreign currency translation adjustments | (92,484 | ) | (38,768 | ) | |||||
Total comprehensive income | $ | 165,782 | $ | 126,833 | |||||
Net income per common share | |||||||||
Basic | $ | 0.03 | $ | 0.02 | |||||
Diluted | $ | 0.03 | $ | 0.02 | |||||
Weighted average common shares outstanding: | |||||||||
Basic | 10,122,261 | 10,257,964 | |||||||
Diluted | 10,122,261 | 10,337,338 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DESTINY MEDIA TECHNOLOGIES, INC.
(Expressed in United States dollars)Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended November 30, 2022 and 2021
Destiny Media Technologies Inc.(Unaudited)
Common stock | |||||||||||||||||||||
Notes | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity (Deficiency) | |||||||||||||||
Balance, August 31, 2022 | 10,122,261 | $ | 10,122 | $ | 9,115,848 | $ | (5,639,465 | ) | $ | (376,218 | ) | $ | 3,110,287 | ||||||||
Total comprehensive income | - | - | - | 258,266 | (92,484 | ) | 165,782 | ||||||||||||||
Stock-based compensation | 6(b) | - | - | 37,157 | - | - | 37,157 | ||||||||||||||
Balance, November 30, 2022 | 10,122,261 | $ | 10,122 | $ | 9,153,005 | $ | (5,381,199 | ) | $ | (468,702 | ) | $ | 3,313,226 | ||||||||
Balance, August 31, 2021 | 10,265,361 | $ | 10,266 | $ | 9,157,804 | $ | (5,788,539 | ) | $ | (261,133 | ) | $ | 3,118,398 | ||||||||
Total comprehensive income | - | - | - | 165,601 | (38,768 | ) | 126,833 | ||||||||||||||
Common shares retired | 6(a) | (30,300 | ) | (31 | ) | (44,135 | ) | - | - | (44,166 | ) | ||||||||||
Stock-based compensation | - | - | 25,906 | - | - | 25,906 | |||||||||||||||
Balance, November 30, 2021 | 10,235,061 | $ | 10,235 | $ | 9,139,575 | $ | (5,622,938 | ) | $ | (299,901 | ) | $ | 3,226,971 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Expressed in United States Dollars)
Unaudited
As at, | November 30, | August 31, | ||||
2021 | 2021 | |||||
$ | $ | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | 2,536,426 | 2,752,662 | ||||
Short-term investments [note 3] | 0 | 0 | ||||
Accounts receivable, net of allowance for doubtful accounts of $23,718, [August 31, 2021 - $19,743] | 564,677 | 400,233 | ||||
Other receivables | 60,168 | 53,172 | ||||
Prepaid expenses | 107,253 | 103,463 | ||||
Total current assets | 3,268,524 | 3,309,530 | ||||
Deposits | 35,077 | 35,556 | ||||
Property and equipment, net [note 4] | 130,863 | 143,487 | ||||
Intangible assets, net [note 4] | 247,448 | 187,622 | ||||
Right of use asset [note 5] | 131,384 | 190,253 | ||||
Total assets | 3,813,296 | 3,866,448 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current | ||||||
Accounts payable | 101,749 | 202,722 | ||||
Accrued liabilities | 322,331 | 309,839 | ||||
Deferred revenue | 3,944 | 8,511 | ||||
Current portion of operating lease liability [note 5] | 158,301 | 226,978 | ||||
Total current liabilities | 586,325 | 748,050 | ||||
Operating lease liability, net of current portion [note 5] | 0 | 0 | ||||
Total liabilities | 586,325 | 748,050 | ||||
Commitments and contingencies [note 7] | ||||||
Stockholders' equity | ||||||
Common stock, par value $0.001 [note 6] | ||||||
Authorized: 20,000,000 shares | ||||||
Issued and outstanding: 10,235,061 shares | ||||||
[August 31, 2021 - issued and outstanding 10,265,361 shares] | 10,235 | 10,266 | ||||
Additional paid-in capital [note 6] | 9,139,575 | 9,157,804 | ||||
Accumulated deficit | (5,622,938 | ) | (5,788,539 | ) | ||
Accumulated other comprehensive loss | (299,901 | ) | (261,133 | ) | ||
Total stockholders' equity | 3,226,971 | 3,118,398 | ||||
Total liabilities and stockholders' equity | 3,813,296 | 3,866,448 |
See accompanying notes
Destiny Media Technologies Inc.3
2021 | 2020 | |||||
$ | $ | |||||
Service revenue [note 9] | 1,134,151 | 1,123,977 | ||||
Cost of revenue | ||||||
Hosting costs | 42,184 | 30,042 | ||||
Internal engineering support | 8,400 | 6,327 | ||||
Customer support | 47,603 | 35,852 | ||||
Third party and transaction costs | 19,376 | 18,092 | ||||
117,563 | 90,313 | |||||
Gross Margin | 1,016,588 | 1,033,664 | ||||
Operating expenses | ||||||
General and administrative | 150,624 | 159,549 | ||||
Sales and marketing | 415,810 | 302,474 | ||||
Product development | 258,424 | 298,088 | ||||
Depreciation and amortization | 27,172 | 24,315 | ||||
852,030 | 784,426 | |||||
Income from operations | 164,558 | 249,238 | ||||
Other income | ||||||
Interest income | 1,043 | 1,464 | ||||
Net income | 165,601 | 250,702 | ||||
Net income per common share, basic and diluted | 0.02 | 0.02 | ||||
Weighted average common shares outstanding: | ||||||
Basic | 10,257,964 | 10,450,656 | ||||
Diluted | 10,337,338 | 10,450,656 |
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Expressed in United States dollars)
Unaudited
Three months ended November 30,
2021 | 2020 | |||||
$ | $ | |||||
Net income | 165,601 | 250,702 | ||||
Foreign currency translation adjustments | (38,768 | ) | 28,042 | |||
Total comprehensive income | 126,833 | 278,744 |
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in United States dollars)
Unaudited
Three months ended November 30, 2021 and 2020
Accumulated | Total | |||||||||||||||||
Additional | other | stockholders' | ||||||||||||||||
Common stock | paid-in | Accumulated | comprehensive | equity | ||||||||||||||
Shares | Amount | capital | Deficit | loss | ||||||||||||||
# | $ | $ | $ | $ | $ | |||||||||||||
Balance, August 31, 2021 | 10,265,361 | 10,266 | 9,157,804 | (5,788,539 | ) | (261,133 | ) | 3,118,398 | ||||||||||
Total comprehensive income | - | - | - | 165,601 | (38,768 | ) | 126,833 | |||||||||||
Shares repurchased for cancellation | (30,300 | ) | (31 | ) | (44,135 | ) | (44,166 | ) | ||||||||||
Stock based compensation [note 6] | - | - | 25,906 | - | - | 25,906 | ||||||||||||
Balance, November 30, 2021 | 10,235,061 | 10,235 | 9,139,575 | (5,622,938 | ) | (299,901 | ) | 3,226,971 | ||||||||||
Balance, August 31, 2020 | 10,450,646 | 10,451 | 9,366,290 | (6,171,068 | ) | (345,456 | ) | 2,860,217 | ||||||||||
Total comprehensive income | - | - | - | 250,702 | 28,042 | 278,744 | ||||||||||||
Stock based compensation [note 6] | - | - | 12,849 | - | - | 12,849 | ||||||||||||
Balance, November 30, 2020 | 10,450,646 | 10,451 | 9,379,139 | (5,920,366 | ) | (317,414 | ) | 3,151,810 |
See accompanying notes
Destiny Media Technologies Inc.
Three months ended November 30, | (Expressed in United States dollars) | |||||
2021 | 2020 | |||||
$ | $ | |||||
OPERATING ACTIVITIES | ||||||
Net income | 165,601 | 250,702 | ||||
Items not involving cash: | ||||||
Depreciation and amortization [note 4] | 27,172 | 24,315 | ||||
Stock-based compensation | 25,906 | 12,849 | ||||
Deferred leasehold inducement | 0 | 0 | ||||
Unrealized foreign exchange (gain) loss | 3,436 | 11,372 | ||||
Changes in non-cash working capital: | ||||||
Accounts receivable | (177,303 | ) | 98,548 | |||
Other receivables | (6,212 | ) | (4,763 | ) | ||
Prepaid expenses and deposits | (4,971 | ) | 16,497 | |||
Accounts payable | (94,434 | ) | 102,318 | |||
Accrued liabilities | 12,709 | (66,893 | ) | |||
Deferred revenue | (4,530 | ) | (909 | ) | ||
Operating lease liability | 0 | (2,382 | ) | |||
Net cash (used in) provided by operating activities | (52,626 | ) | 441,654 | |||
INVESTING ACTIVITIES | ||||||
Redemption (purchase) of short-term investments, net | 0 | 763,749 | ||||
Development of software | (72,290 | ) | 0 | |||
Purchase of property, equipment and intangibles | (7,997 | ) | (5,188 | ) | ||
Net cash provided by (used in) investing activities | (80,287 | ) | 758,561 | |||
FINANCING ACTIVITY | ||||||
Repurchase of common stock for retirement | (44,166 | ) | 0 | |||
Net cash used in financing activity | (44,166 | ) | 0 | |||
Effect of foreign exchange rate changes on cash | (39,157 | ) | 35,307 | |||
Net increase (decrease) in cash and cash equivalents | (216,236 | ) | 1,235,522 | |||
Cash and cash equivalents, beginning of period | 2,752,662 | 1,841,340 | ||||
Cash and cash equivalents, end of period | 2,536,426 | 3,076,862 | ||||
Supplementary disclosure | ||||||
Interest paid | 0 | 0 | ||||
Income taxes paid | 0 | 0 | ||||
Non-cash investing and financing activities | ||||||
Right of use asset | 0 | 0 | ||||
Operating lease liability | 0 | 0 |
DESTINY MEDIA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended November 30, | ||||||||||
Notes | 2022 | 2021 | ||||||||
Operating Activities | ||||||||||
Net income | $ | 258,266 | $ | 165,601 | ||||||
Adjustments to reconcile net income to net cash provided (used) in operations: | ||||||||||
Depreciation and amortization | 4,5 | 36,379 | 27,172 | |||||||
Stock-based compensation | 6(b) | 37,157 | 25,906 | |||||||
Allowance for doubtful accounts | 1,370 | - | ||||||||
Unrealized foreign exchange loss | (12,869 | ) | 3,436 | |||||||
Changes in non-cash working capital: | ||||||||||
Accounts receivable | 99,817 | (177,303 | ) | |||||||
Other receivables | (6,951 | ) | (6,212 | ) | ||||||
Prepaid expenses and deposits | 30,234 | (4,971 | ) | |||||||
Accounts payable | 442 | (94,434 | ) | |||||||
Accrued liabilities | 19,200 | 12,709 | ||||||||
Deferred revenue | (3,508 | ) | (4,530 | ) | ||||||
Net cash provided by (used in) operating activities | 459,537 | (52,626 | ) | |||||||
Investing Activities | ||||||||||
Development of software | (248,309 | ) | (72,290 | ) | ||||||
Purchase of property, equipment, and intangibles | 4,5 | - | (7,997 | ) | ||||||
Net cash used in investing activities | (248,309 | ) | (80,287 | ) | ||||||
Financing Activities | ||||||||||
Common stock repurchased for cancellation | 6(a) | - | (44,166 | ) | ||||||
Net cash used in financing activities | - | (44,166 | ) | |||||||
Effect of foreign exchange rate changes on cash | (60,951 | ) | (39,157 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 150,277 | (216,236 | ) | |||||||
Cash and cash equivalents, beginning of period | 2,095,928 | 2,752,662 | ||||||||
Cash and cash equivalents, end of period | $ | 2,246,205 | $ | 2,536,426 | ||||||
Supplementary disclosure: | ||||||||||
Interest paid | $ | - | $ | - | ||||||
Income taxes paid | $ | 3,600 | $ | - |
SeeThe accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTE 1. ORGANIZATION
Destiny Media Technologies Inc. (the "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's stock is listed for trading under the symbol "DSNY" on the OTCQB U.S. in the United States, under the symbol "DSY" on the TSX Venture Exchange (the "TSX") and under the symbol "DME" on the Berlin, Frankfurt, Xetra and Stuttgart exchanges in Germany.
2. BASIS OF PRESENTATION
The accompanying unaudited 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.
The accompanying unaudited condensed consolidated interim 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 14, 2022 (the "2022 Form 10-K"). The balance sheet as of August 31, 2022 was derived from audited consolidated financial statements included in the 2022 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, 2021 aremay not necessarilybe indicative of the results that may be expected for the year ended August 31, 2022.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 unaudited condensed consolidated financial statements reflect 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 periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature.
Use of Estimates
The balance sheet at August 31, 2021 has been derived frompreparation of the audited consolidated financial statements atin accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that date but does not include allaffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the information and footnotes required by United States generally accepted accounting principles for annual financial statements.
For further information, refer todate of the consolidated financial statements and footnotes thereto included in the Company's annual reportreported amounts of revenue and expenses during the reported periods. The Company bases its estimates on Form 10-K forhistorical experience and on various other assumptions that management believes are reasonable under the year ended August 31, 2021.
COVID-19 Pandemic
In March 2020circumstances, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company's. This outbreak could decrease spending, adversely affect demand for the Company's product and harm the Company's business and results of operations. It iswhich form the basis for making judgments about carrying values of assets and liabilities that are not possible forreadily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to the Company to predict the duration or magnituderecoverability of the adverse resultslong-term assets including property and equipment, intangible assets, amortization expense, and valuation of the outbreak and its effects on the Company's business or results of operations at this time.
1
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
November 30, 2021stock-based compensation.
5
3. SHORT TERM INVESTMENTSCASH AND CASH EQUIVALENTS
4. PROPERTY AND EQUIPMENT AND INTANGIBLES
Cost | Accumulated | Net book | |||||||
November 30, 2021 | $ | $ | $ | ||||||
Property and equipment | |||||||||
Furniture and fixtures | 132,814 | 115,655 | 17,159 | ||||||
Computer hardware | 297,888 | 235,062 | 62,826 | ||||||
Computer software | 377,245 | 339,074 | 38,171 | ||||||
Leasehold improvement | 157,449 | 144,742 | 12,707 | ||||||
965,396 | 834,533 | 130,863 | |||||||
Intangibles | |||||||||
Software under development | 236,724 | 6,189 | 230,535 | ||||||
Patents, trademarks and lists | 443,333 | 426,420 | 16,913 | ||||||
680,057 | 432,609 | 247,448 |
November 30, 2022 | |||||||||
Property and Equipment | Cost | Accumulated Amortization | Net Book Value | ||||||
Furniture and fixtures | $ | 132,130 | $ | (119,161 | ) | $ | 12,969 | ||
Computer hardware | 310,306 | (255,705 | ) | 54,601 | |||||
Computer software | 652,753 | (452,009 | ) | 200,744 | |||||
Leasehold improvements | - | - | - | ||||||
Total property and equipment | $ | 1,095,189 | $ | (826,875 | ) | $ | 268,314 | ||
August 31, 2022 | |||||||||
Property and Equipment | Cost | Accumulated Amortization | Net Book Value | ||||||
Furniture and fixtures | $ | 136,369 | $ | (122,279 | ) | $ | 14,090 | ||
Computer hardware | 320,260 | (259,339 | ) | 60,921 | |||||
Computer software | 673,691 | (436,910 | ) | 236,781 | |||||
Leasehold improvements | - | - | - | ||||||
Total property and equipment | $ | 1,130,320 | $ | (818,528 | ) | $ | 311,792 |
Accumulated | Net book | ||||||||
Cost | amortization | value | |||||||
August 31, 2021 | $ | $ | $ | ||||||
Property and equipment | |||||||||
Furniture and fixtures | 133,049 | 114,740 | 18,309 | ||||||
Computer hardware | 293,930 | 231,180 | 62,750 | ||||||
Computer software | 377,777 | 333,751 | 44,026 | ||||||
Leasehold improvements | 157,934 | 139,532 | 18,402 | ||||||
962,690 | 819,203 | 143,487 | |||||||
Intangibles | |||||||||
Software under development | 167,069 | 0 | 167,069 | ||||||
Patents, trademarks and lists | 441,178 | 420,625 | 20,553 | ||||||
608,247 | 420,625 | 187,622 |
2
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
November 30, 2021
Depreciation and amortization for the three-month periodthree months ended November 30, 2022 was $33,902 (November 30, 2021 was $27,172 (2020: $24,315)- $16,905).
35. INTANGIBLE ASSETS, NET
November 30, 2022 | |||||||||
Intangible Assets | Cost | Accumulated Amortization | Net Book Value | ||||||
Software under development | $ | 747,815 | $ | - | $ | 747,815 | |||
Patents, trademarks, and lists | 449,916 | (439,418 | ) | 10,499 | |||||
Total intangible assets | $ | 1,195,765 | $ | (439,418 | ) | $ | 758,313 | ||
August 31, 2022 | |||||||||
Intangible Assets | Cost | Accumulated Amortization | Net Book Value | ||||||
Software under development | $ | 516,397 | $ | - | $ | 516,397 | |||
Patents, trademarks, and lists | 464,285 | (450,965 | ) | 13,320 | |||||
Total intangible assets | $ | 980,682 | $ | (450,965 | ) | $ | 529,717 |
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
Depreciation and amortization for the three months ended November 30, 2022 was $2,477 (November 30, 2021 - $10,267).
5. RIGHT OF USE ASSET
The Company entered into a lease agreement commencing July 1, 2017 and expiring June 30, 2022 consisting of approximately 6,600 square feet. Subsequent to November 30, 2021, the Company entered into an agreement to terminate the office lease effective January 31, 2022.
On adoption of ASC 842, Lease Accounting, the Company recognized right-of-use assets and a corresponding increase in lease liabilities, in the amount of $671,911 which represented the present value of future lease payments using a discount rate of 8% per year. Property tax and insurance payments paid to the lessor are included in the calculation of future lease payments.
Right of Use Asset Continuity | November 30, 2021 | August 31, 2021 | ||||
$ | $ | |||||
Balance, September 1 | 190,253 | 403,961 | ||||
Depreciation | (57,284 | ) | (224,154 | ) | ||
Foreign Currency Translation Adjustment | (1,585 | ) | 10,446 | |||
Balance, End of Period | 131,384 | 190,253 |
The Company has operating lease payments committed as follows:
$ | |||
2022 | 162,414 | ||
Total lease payments payable | 162,414 | ||
Less amounts representing interest | (4,113 | ) | |
Total Operating Lease Liability | 158,301 | ||
Less current portion of operating lease liability | (158,301 | ) | |
Long term portion of operating lease liability | 0 |
Operating Lease Liability Continuity | November 30, 2021 | August 31, 2021 | ||||
$ | $ | |||||
Balance, September 1 | 226,978 | 457,324 | ||||
Less Lease Payments | (70,873 | ) | (270,898 | ) | ||
Interest | 4,113 | 28,714 | ||||
Foreign Currency Translation Adjustment | (1,917 | ) | 11,838 | |||
Balance, End of Period | 158,301 | 226,978 |
During the three-month period ended November 30, 2021 the Company recorded depreciation expense of $57,284 (2020: $54,636) which has been allocated between general and administrative expenses, research and development and sales and marketing on the consolidated statement of comprehensive income. The total rent commitment, net of the leasehold improvement allowance, is being amortized to rent expense on a straight-line basis over the term of the lease.
On December 17, 2021, the Company entered into an agreement to terminate the property lease effective January 31, 2022.
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Destiny Media Technologies Inc.6. STOCKHOLDERS' EQUITY
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
November 30, 2021
6. STOCKHOLDERS' EQUITY
[a]Common stock issued and authorized
The Company is authorized to issue up to 20,000,000 shares of common stock, par value $0.001 per share. During the three months ended November 30, 2022 the Company did not issue any common stock .
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6. STOCKHOLDERS' EQUITY (cont'd)
[b]Stock option plans
Effective January 15, 2021,Pursuant to the Company commenced a Normal Course Issuer Bid ("NCIB"), pursuant to which the Company may purchase up to a maximum of 522,532 common shares, through the TSX Venture Exchange (the "TSX") at the market price at the time of purchase, subject to daily limits and compliance with the applicable rules of the TSX and Canadian securities laws. During the three-month period ended November 30, 2021, the Company repurchased and cancelled 30,300 common shares for $44,166. As at November 30, 2021 a total of 215,585 shares had been repurchased for $304,570 under the NCIB.
[b]Stock option plan
The Company has a stock option plan, namely theCompany's 2015 Stock Option Plan (the "Plan""2015 Plan"), under which up to 530,000 shares of common stock hashave been reserved for issuance. A total of Nil420,000 common shares remain eligible for issuance under the 2015 Plan. Subsequent to November 30, 2021,On February 18, 2022, the Company approved, subject toreceived shareholder approval afor the 2022 Stock Option plan,Plan (the "2022 Plan") (together with the 2015 Plan, the "Plans"), whereby 1,000,000 common shares would beare reserved for issuance. As of November 30, 2022, 524,000 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 arevest over 12 or 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.
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Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
November 30, 2021
6. STOCKHOLDERS' EQUITY (cont'd.)
[b]Stock option plan (cont'd.)
Stock-Based Payment Award Activity
A summary of stock option activity under the PlanPlans as of November 30, 2021,2022, and changes during the period then ended is presented below:were the following:
Weighted | Number of | Weighted Average | Weighted Average Contractual Term | Aggregate Intrinsic | ||||||||||||||||||||
Weighted | Average | Aggregate | ||||||||||||||||||||||
Average | Remaining | Intrinsic | ||||||||||||||||||||||
Exercise Price | Contractual | Value | ||||||||||||||||||||||
Options | Shares | $ | Term | $ | ||||||||||||||||||||
Outstanding at August 31, 2021 | 410,000 | 1.34 | 2.26 | 0 | 410,000 | $ | 1.34 | 2.26 | $ | - | ||||||||||||||
Granted | 521,000 | 1.50 | 5.00 | 0 | 561,000 | $ | 1.50 | 5.00 | $ | - | ||||||||||||||
Forfeited | (10,000 | ) | 1.00 | 3.41 | 0 | (91,583 | ) | $ | 1.38 | 3.85 | $ | - | ||||||||||||
Outstanding at November 30, 2021 | 921,000 | 1.43 | 2.76 | 28,700 | ||||||||||||||||||||
Exercisable at November 30, 2021 | 380,000 | 1.37 | 1.80 | 15,200 | ||||||||||||||||||||
Repurchased | (82,500 | ) | $ | 1.00 | 2.25 | $ | - | |||||||||||||||||
Expired | (203,917 | ) | $ | 1.46 | 0.50 | $ | - | |||||||||||||||||
Outstanding at August 31, 2022 | 593,000 | $ | 1.49 | 3.79 | $ | - | ||||||||||||||||||
Forfeited | (4,250 | ) | $ | 1.50 | 3.92 | $ | - | |||||||||||||||||
Expired | (2,750 | ) | $ | 1.50 | 3.92 | $ | - | |||||||||||||||||
Outstanding at November 30, 2022 | 586,000 | $ | 1.49 | 3.54 | $ | - | ||||||||||||||||||
Exercisable at November 30, 2022 | 330,083 | $ | 1.48 | 3.24 | $ | - |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's common stock for the options that were in-the-money atas of November 30, 2021.2022.
The following table summarizes information regarding the non-vested options outstanding as of November 30, 20212022, and changes during the period then ended:period:
Weighted | |||||||||||||
Average | |||||||||||||
Grant Date | |||||||||||||
Number of Options | Fair Value | ||||||||||||
$ | Number of Options | Weighted | |||||||||||
Non-vested options at August 31, 2021 | 98,750 | 0.48 | 98,750 | $ | 0.48 | ||||||||
Granted | 521,000 | 1.11 | 561,000 | $ | 1.50 | ||||||||
Forfeited | (91,583 | ) | $ | 1.38 | |||||||||
Vested | (239,958 | ) | $ | 1.44 | |||||||||
Expired | (7,667 | ) | $ | 1.50 | |||||||||
Non-vested options at August 31, 2022 | 320,542 | $ | 1.50 | ||||||||||
Vested | (73,750 | ) | 0.49 | (60,375 | ) | $ | 1.50 | ||||||
Forfeited | (5,000 | ) | 0.49 | (4,250 | ) | $ | 1.50 | ||||||
Non-vested options at November 30, 2021 | 541,000 | 1.08 | |||||||||||
Non-vested options at November 30, 2022 | 255,917 | $ | 1.50 |
As of November 30, 2021,2022, there was $534,838$141,020 (November 30, 2021 - $534,838) of total unrecognized compensation cost related to non-vested stock-based compensation awards. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1 year (November 30, 2021 - 2.21 years.years).
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6
Destiny Media Technologies Inc.6. STOCKHOLDERS' EQUITY (cont'd)
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS[b]Stock option plans (cont'd)
During the three months ended November 30, 2021
6. STOCKHOLDERS' EQUITY (cont'd.)
[b]Stock option plan (cont'd.)
Stock-Based Payment Award Activity (cont'd.)
Total2022, the total stock-based compensation expense of $25,906 was recognized during the three month period ended November 30, 2021, (2020: $12,849) is reported in the statement of comprehensive income as follows:
2021 | 2020 | |||||||||||
$ | $ | Three Months Ended November 30, | ||||||||||
Stock-based compensation | 2022 | 2021 | ||||||||||
General and administrative | 2,424 | 4,531 | $ | 19,149 | $ | 2,424 | ||||||
Sales and marketing | 13,950 | 4,644 | 6,686 | 13,950 | ||||||||
Product development | 9,532 | 3,674 | 11,322 | 9,532 | ||||||||
Total stock-based compensation | 25,906 | 12,849 | $ | 37,157 | $ | 25,906 |
Valuation Assumptions
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions:
2021 | 2020 | |||||
Expected term of stock options (years) | 3.25 | 3.25 | ||||
Expected volatility | 122.7% | 105.4% | ||||
Risk-free interest rate | 0.35% | 0.35% | ||||
Dividend yields | 0 | 0 | ||||
Weighted average grant date fair value | $ | 0.40 | $ | 0.34 |
Expected volatilities are based on historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the options is based on US Treasury bill rates in effect at the time of grant.
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Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
November 30, 2021
6. STOCKHOLDERS' EQUITY (cont'd.)
[c] Employee Stock Purchase Plan
The Company's 2011 Employee Stock Purchase Plan (the "Plan""ESPP") became effective on February 22, 2011. Under the Plan,ESPP, employees of the Company are able tocan contribute up to 5% of their annual salary into a pool which is matched equally by the Company in order to purchase Companythe Company's common shares under certain terms. Directors are able tocan 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 Exchange by a third-party plan agent. The third-party plan agent is also responsible for the administration of the PlanESPP on behalf of the Company and the participants.
During the three monththree-month period ended November 30, 2021,2022, the Company recognized compensation expense of $17,227 (2020: $15,186)$18,672 (November 30, 2021 - $17,227) in salaries and wages on the consolidated statement of comprehensive income in respect of the Plan,ESPP, representing the Company's employee matching of cash contributions to the Plan. During the three month period ended November 30, 2021, theESPP. The shares were purchased on the open market at an average price of $1.48 (2020 : $0.67)$0.53 (November 30, 2021 - $1.48). The shares are held in trust by the Company for a period of one year from the date of purchase.
[d] Earnings Per Share
Net income (loss) per common share (basic) is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during 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 common shares outstanding during the period, 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.
2021 | 2020 | |||||
$ | $ | |||||
Net Income | 165,601 | 250,702 | ||||
Weighted average shares outstanding | 10,257,964 | 10,450,656 | ||||
Dilutive impact of outstanding stock options | 79,374 | 0 | ||||
Diluted weighted average common shares outstanding | 10,337,338 | 10,450,656 |
At For the three ended November 30, 2021,2022 the Company had an aggregateoutstanding options, in the amount of 921,000 (August 31, 2021: 410,000) stock options outstanding.
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Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
November 30, 2021586,000, were anti-dilutive and have been excluded from the calculation of diluted income (loss) per share.
7. CONTINGENCIES
The Company is subject to claims and legal proceedings that arise in the ordinary 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 the Company or that the resolution of any such matter will not have a material adverse effect upon the Company's financial statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its consolidated financial statements.
On September 5, 2017, the Company's former President and Chief Executive Officer 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 is 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.
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8. NEW ACCOUNTING PRONOUNCEMENTS7. CONTINGENCIES (cont'd)
Recently Adopted Accounting StandardsRisk and Uncertainties
None
9
Destiny Media Technologies Inc.Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations, and financial results.
NOTES TO CONDENSED CONSOLIDATED INTERIMMost countries have at various times instituted quarantines, restrictions on travel, "stay at home" rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. The spread of COVID-19 has adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce our ability to access capital in the future, which could negatively affect our liquidity.
FINANCIAL STATEMENTSIf the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, our business operations, including those of our customers, could be interrupted. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs. It is not possible to reliably measure or quantify the impact COVID-19 has had on the financial results of the Company. If the COVID-19 pandemic continues for an extended period, it may materially adversely impact business operations and, consequently, future financial results.
November 30, 2021
9.8. CONCENTRATIONS AND ECONOMIC DEPENDENCE
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 months ended November 30, 2022 and 2021, by product and location of customer, iswas as follows:
2021 | 2020 | |||||
$ | $ | |||||
Play MPE® | ||||||
United States | 577,149 | 533,460 | ||||
Europe | 484,336 | 508,317 | ||||
Australia | 64,032 | 75,779 | ||||
Africa | 6,954 | 3,528 | ||||
Total Play MPE® Revenue | 1,132,471 | 1,121,084 | ||||
Clipstream ® | ||||||
United States | 1,680 | 2,893 | ||||
Total Clipstream ® Revenue | 1,680 | 2,893 | ||||
Total Revenue | 1,134,151 | 1,123,977 |
Three Months Ended November 30, | ||||||
2022 | 2021 | |||||
Play MPE® | ||||||
North America | $ | 534,844 | $ | 577,149 | ||
Europe | 438,681 | 484,336 | ||||
Australasia | 40,024 | 64,032 | ||||
Africa | 7,188 | 6,954 | ||||
Total Play MPE® | 1,020,737 | 1,132,471 | ||||
Clipstream® | ||||||
North America | - | 1,680 | ||||
Total | $ | 1,020,737 | $ | 1,134,151 |
Revenue in the above table is based on location of the customer's billing address. Some of these customers have distribution centrescenters located around the globe and distribute around the world. During the three month periodmonths ended November 30, 2021,2022, the Company generated 37%39% of total revenue from one customer respectively (2020 : 38%(November 30, 2021 - 37%).
It is in management's opinion that the Company is not exposed to significant credit risk.
As at November 30, 2021,2022, one customer represented $272,449$137,858 (or 48%35.7%) of the trade receivables balance (August 31,(November 30, 2021 - one customer represented $142,758 (or 36%$272,449 or 48%).
The Company has substantially all its assets in Canada and its current and planned future operations are, and will be, located in Canada.
10. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the current period's presentation. These reclassifications did not affect prior periods' net earnings.
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Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
November 30, 2021
11. SUBSEQUENT EVENTS9
On December 17, 2021 the Company entered into an agreement to terminate the office lease effective January 31, 2022. The Company's lease was previously expected to terminate June 30, 2022.
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.FORWARD LOOKING STATEMENTS
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the accompanying financial statements and notes thereto included within this Quarterly ReportThis report on Form 10-Q. In addition to historical information, the information in this discussion10-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. You can identify these forward-looking statements through our use of words such as "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 future.
In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", estimate", "predict", "potential" or "continue", the negativeThere 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. The Company disclaimsstatement 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 as of the date of this Annual Report on Form 10-K and are subject to risks and uncertainties. We discuss many of these risks in greater detail under "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.
You should read this Annual Report on Form 10-K and the documents that we reference and have filed as exhibits to the Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Annual Report on Form 10-K by these cautionary statements. Except as required by law, we undertake no obligation to publicly update these statements or disclose any difference between its actual results and those reflected in these statements. Such information constitutes forward-looking statements, within the meaningwhether as a result of the Private Securities Litigation Reform Act of 1995.new information, future events 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 term "common stock" refers to the common stock, par value $0.001 per share, of 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.
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Our common stock trades on TSX Venture Exchange in Canada under the symbol "DSY", on the OTCQB U.S. ("OTCQB") under the symbol "DSNY", and on various German exchanges (Frankfurt, Berlin, Stuttgart and Xetra) under the symbol DME, WKN 935 410.
Our corporate website is located at http://www.dsny.com.
OUR PRODUCTS AND SERVICES
Destiny develops and markets software as a service (SaaS) solutions that solve critical digital distribution and promotion problems for businesses in the music industry. The
Play MPE®
Currently, the Company's core of our business is Play MPE®.the Play MPE® is a service for promoting and securely distributing broadcastonline platform. Play MPE® distributes promotional content (broadcast quality audio, video, images, promotional information and other digital content through the internet. The system is currently used by the recording industry for transferring pre-release broadcast quality music, radio shows, and music videos to trusted recipients such as radio stations, media reviewers, VIP's, DJ's, film and TV personnel, sports stadiums and retailers. Music is protected by Play MPE®'s patented proprietary watermarking system which provides watermarks unique to each recipient.
Destiny is currently developing additional functionality and services that are expected to increase the services to existing platform users and therefore expand Play MPE®'s addressable market, or act as catalysts to the Company's sales activities. As well, the Company is investing into research and development on incremental product offerings expected to add addressable market opportunities.
Play MPE®
The Company's core business is the Play MPE® platform. Play MPE® is a two-sided B2B marketplace that enablescontent) from music labels and artists to distribute promotional content and musical assets on the one side, and for music broadcasting professionals, music curators and music reviewers to discover, download, broadcast and review the music, oncontent. Curators include radio programmers, digital streaming broadcasters, media reviewers, VIP's, DJ's, film and TV personnel, sports stadiums, retailers etc. In providing the other.distribution, Play MPE® provides a software-based toolseveral capabilities developed and designed to assist record labelsaddress the unique needs of music promoters. Play MPE® was first to market, and artistsis the largest provider of this service and provides the most feature rich platform in marketing their music. the world.
Record labels and artists are Play MPE®'s customers and pay for submission into the system. Recipients are provided no charge access to review music.customers. When adding music to the Play MPE® system, record labelsclients are targeting specific industry recipients who review and broadcast their music. WithPlay MPE®'s primary value proposition in this marketing effort is a direct increase to record labels are targeting an increase in theirlabel and artist revenue directly through on-air broadcast royalties, streaming royalties and synchronization revenue (revenue when the reproduction of a song is coordinated with video advertisements, television, or film), and indirect increases in revenue through growing song and artists' popularity (for example concert ticket sales etc.).popularity.
Also, Play MPE® provides numerous capabilities that dramatically reduce record label costs and provide controls necessary for certain strategic marketing plans and controls to secure 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;labels (the "Major Record Labels") (Universal. The Major Record Labels are Universal Music Group ("Universal"), Warner Music Group "Warner"("Warner") and Sony Music Entertainment "Sony"("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 Label and Artists Services, EMI, RCA Records, Epic Records, Columbia Records, Arista Records, Legacy Recordings, Provident Entertainment, Warner Records, Warner Bros, 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. Recipients enjoy easy access to desirable music in high quality audio files.
Play MPE® CASTER (Distribution(local distribution software)
Play MPE®'s Caster is a full-servicesoftware includes local distribution management system that includes a complete set of operational functions that provide all necessary software toolscapabilities for a client to enablecreate and schedule release announcements and select its targeted audience. Play MPE® is designed uniquely to suit music marketing plans and significant components include:
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This full suite of tools within Play MPE® was developed for(see description below) or by selecting their managed recipient lists.
Intuitive designs and functionality across all areas of this portion of the music industryplatform simplify the distribution process, reduce customer time required to distribute, and in close collaboration with Universalfacilitate the inclusion of information to cater the functions to its global marketing workflow. Many clients do not use the full suite of tools. However, this full set of tools is critical to Universal's global promotional campaign workflowimprove engagement which ultimately increases record label and the core reason Play MPE® distributes internationally for Universal.artist revenue.
Caster is currently available in English, Spanish, German, Japanese and French.
Play MPE®When competing with an established service within a local market, it is a permissions-only access system suchthese features balanced against changing consumer behaviors that only recipients designated or targeted to receive content obtain access to that content. Record labels can usedetermine 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 and capabilities and on its ultimate effectiveness. Public reviews can be found at https://www.plaympe.com/testimonials/
Play MPE® CASTER (global architecture)
Play MPE®'s global distribution architecture was developed in close collaboration with Universal to address the needs of its global approach to release distribution. This architecture provides functionality required for Universal to conduct their unique approach to music distribution and provides numerous significant competitive advantages for Universal. These features improve marketing coordination and revenue generation while reducing overall label costs.
Significant components include:
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Collectively, functions in global release management system is critically important to bothprovide 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 hubs at Universal and the Play MPE® operations team to efficiently maintain accurate and active recipient lists.functions.
Within Play MPE®'s contacts CASTER (targeted list management platform, the Company's operations team offers for sale carefully curatedservices)
Recipient lists are bundles of active and actively maintainedengaged recipients with an interest in specific music types. Lists are sold as a fixed price per list (or list bundle). As recipient lists with more than 14,000 music curators around the world. These lists include complete listsare adjusted in 12 countries, and lists under constructionreal time, changes in an additional 38. These selectable lists eliminate the need for our clients to maintain currentgross recipient contact information. These lists offer significant value to all customers, but are necessary for smaller independent labels and artists who donumbers or active recipients does not have the resources to maintain current contacts. Without these curators lists, many sales would not be possible. As active lists in new territories are completed, Play MPE® will grow revenue.
In addition to the contacts management functionality, the Play MPE® product and engineering staff are developing new technical processes to facilitate list development and maintenance. With these technical solutions, it is expected that Play MPE® will expand saleable lists and thereby increasedirectly 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 permissions-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 eliminating unwanted content.
Play MPE® actively manages curated and targeted distribution lists. 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 300 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 requirement for sale as these customers do not know who to contact. For larger record labels, promotions staff can upload their own contact lists. However, proprietary processes ensure Play MPE® lists are more accurate, complete and engaged. The majority of releases distributed through Play MPE®, include a targeted distribution list, curated by Play MPE®.
Play MPE® Player
Music curators enjoy free access to review and download content through an easy-to-usea web-based player orand mobile player apps (iOS and Android). Web-playersWeb players are currently available in 15 different languages;languages: English, Spanish, Swedish, Finnish, Italian, Dutch, Portuguese, French, Japanese, German, Norwegian, Latvian, Lithuanian, Estonian, and Danish.
In developingRecipients on the Play MPE®'s platform have a wide variety of personas and include programming directors for internet streaming, satellite or terrestrial 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 interfaces,within the Company's productPlay MPE® platform has a unique library of music catered to, and engineering teams focus on providing a very positive user experience. appropriate for, that recipient.
Recipients enjoy many features that make it easy to access, collaborate, review, and search for content. Play MPE®'s mobile apps offer off-line listening capabilities, the ability to utilize Google Chromecast and Apple Airplay streaming capabilities, creation of playlists, sorting, flagging and archiving features, and easier access to access release metadata. Recipient side satisfaction directly increases activity which directly improves the effectiveness of promotional efforts of record label customers.
Recipients on the Play MPE® platform have a wide variety of personas and include programming directors for internet streaming, satellite or terrestrial radio, retail store broadcasters, 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 Play MPE® platform has a unique library of music catered and appropriate for that recipient.
Clipstream®
The Company also developed Clipstream® 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's proprietary JavaScript codec engine, which is only available on the internet through the Company. The unique software-based approach to rendering video, has patents claiming initial priority to 2011. This product has incidental revenues and is not supported or marketed.13
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODSMONTHS ENDED NOVEMBER 30, 20212022 AND 20202021
Revenue
Total revenue for the three-month period endingthree months ended November 30, 2021 increased2022 decreased by approximately 1% ($1,134,151 in 2021 - $1,123,977 in 2020).10% to $1,020,737 compared to the revenue of $1,134,151 for the three months ended November 30, 2021. Adjusted for impacts of foreign currency translation Play MPE® represents virtually allrevenue declined by 4.1%. While unfavorable foreign exchange is the single largest source of the Company's revenue. Play MPE®'s yearrevenue decline, adverse economic impacts affecting our independent customers led to datea 13% reduction in revenue from our smaller independent record labels. These declines are expected to be temporary and to reverse as artist touring revenue rebounds following the lockdowns associated with the global pandemic.
On the positive side, with efforts on product and business development, and adjusting for foreign exchange, global revenue from Universal Music Group grew by 1% (or 1.7% after adjusting for favorable foreign exchange)8.7%, and global revenue from Warner Music Group by 10.5%. Play MPE® continuedThe Company has emphasized stronger commercial relationships with the Major Labels to experienceprovide a corner stone to stronger long term revenue growth.
Product investments over the last several years have been focused on providing global distribution functionality in a browser-based platform that provides significant competitive advantages. These advantages are seen most prominently in a global distribution context and broadly consist of a significant reduction of global distribution costs, increased control over content, and various aspects that enhance the effectiveness of our client's marketing efforts which has a direct improvement to our customers' revenue. These investments delayed development efforts to expand services and add items that will assist in growing our customer base and has delayed revenue growth from smaller independent record labels. The Company is now moving resources to expand our addressable market and increase customer acquisition.
The Company's revenues are denominated predominantly in US Dollars, Euros and Australian Dollars. Major Label revenue is predominantly (90%) denominated in Euro and, as a result of the decline in the independent labels invalue of the Euro relative to the United States Europe, and Australia with an averagedollar, global Major Label revenue was adversely impacted in spite of growth of 3% in thiswithin the European segment.
Operating ExpensesGross Margin
OverviewGross margin for the three months ended November 30, 2022 was 87.3% of revenue, which represents a decrease of 2.8% from the three months ended November 30, 2021. 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, 2022, our gross margin decreased over the comparative period predominately due to increase in staffing costs associated with the technical and customer support departments.
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Operating Expenses
As our technologies and products are developed and maintained in-house, the majority of our expenditures are on salaries and wages and associated expenses such as office space, supplies and benefits. Our operations are primarily conducted in Canada and therefore, our costs are primarily incurred in Canadian dollars while our revenues are primarily denominated in Euros and US 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. The Company maintains a large portion of its financial reserves in Canadian dollars to mitigate the downside risk of adverse exchange rates on its operating expenditures.
Total operatingOperating costs during the three-month periodthree months ended November 30, 2022 decreased by 25.2% to $637,092 (November 30, 2021 increased by 8.6% to $852,029 (2020 - $784,426). Operating Costs in the comparative period, include one-time, non-recuring costs associated with staff restructuring. Adjusting for these one-time costs associated with staff restructuring, overall costs increased by 11.8%$852,029). The increasedecrease in costs iswas primarily the result of expanded business development staffingthe following two main factors:
General and administrative | November 30 | November 30 | ||||||||||||||||||||||
2021 | 2020 | Three Months Ended November 30, | ||||||||||||||||||||||
(3 months) | (3 months) | Change | Change | |||||||||||||||||||||
$ | $ | $ | % | |||||||||||||||||||||
General and administrative expenses | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
Wages and benefits | $ | 116,968 | $ | 69,575 | 47,393 | 68.1% | ||||||||||||||||||
Professional fees | 54,383 | 18,295 | 36,088 | 197.3% | ||||||||||||||||||||
Office and miscellaneous | 20,924 | 27,404 | (6,480 | ) | -23.6% | |||||||||||||||||||
Shareholder relations | 4,226 | 3,629 | 597 | 16.5% | ||||||||||||||||||||
Rent | 11,751 | 5,744 | 6,007 | 104.6% | ||||||||||||||||||||
Foreign exchange | (73,442 | ) | (3,080 | ) | (70,362 | ) | 2,284.5% | |||||||||||||||||
Telecommunications | 2,281 | 821 | 1,460 | 177.8% | ||||||||||||||||||||
Bad debt | 4,316 | - | 4,316 | 0.0% | (1,370 | ) | 4,316 | (5,686 | ) | -131.7% | ||||||||||||||
Office and miscellaneous | 50,478 | 40,241 | 10,237 | 25.4% | ||||||||||||||||||||
Professional fees | 18,295 | 46,825 | (28,530 | ) | (60.9% | ) | ||||||||||||||||||
Rent | 5,744 | 6,715 | (971 | ) | (14.5% | ) | ||||||||||||||||||
Telecommunications | 821 | 776 | 45 | 5.8% | ||||||||||||||||||||
Travel | 1,395 | 1,112 | 283 | 25.4% | ||||||||||||||||||||
Wages and benefits | 69,575 | 63,880 | 5,695 | 8.9% | ||||||||||||||||||||
150,624 | 159,549 | (8,925 | ) | (5.6% | ) | |||||||||||||||||||
Other | 27,340 | 23,920 | 3,420 | 14.3% | ||||||||||||||||||||
Total general and administrative expenses | $ | 163,061 | $ | 150,624 | 12,437 | 8.3% |
Our general and administrative expenses consist of salaries and related personnel costs including overhead, office rent, professional fees, shareholder relations, and general office supplies. Generalexpenses. The increase in salaries and administrative costs also include professional fees and general travel expenditures.wages can be explained by increased non-cash stock-based compensation due to the number of share-based awards. The decreaseincrease in professional fees iswas due to a reductionthe timing of various corporate administration costs and a reduction of litigation costs.activities.
Sales and marketing | November 30 | November 30 | ||||||||||||||||||||||
2021 | 2020 | Three Months Ended November 30, | ||||||||||||||||||||||
(3 months) | (3 months) | Change | Change | |||||||||||||||||||||
$ | $ | $ | % | |||||||||||||||||||||
Sales and marketing expenses | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
Wages and benefits | $ | 135,394 | $ | 344,415 | (209,021 | ) | -60.7% | |||||||||||||||||
Advertising and marketing | 33,011 | 9,020 | 23,991 | 266.0% | 24,227 | 33,011 | (8,784 | ) | -26.6% | |||||||||||||||
Rent | 33,062 | 31,536 | 1,526 | 4.8% | 13,190 | 33,062 | (19,872 | ) | -60.1% | |||||||||||||||
Telecommunications | 5,322 | 4,053 | 1,269 | 31.3% | 1,415 | 5,322 | (3,907 | ) | -73.4% | |||||||||||||||
Wages and benefits | 344,415 | 257,865 | 86,550 | 33.6% | ||||||||||||||||||||
415,810 | 302,474 | 113,336 | 37.5% | |||||||||||||||||||||
Total sales and marketing expenses | $ | 174,226 | $ | 415,810 | (241,584 | ) | -58.1% |
Sales and marketing expenses consist of salaries and related personnel costs including overhead, office rent, and telecommunications costs. Sales and marketing expenses also include advertising and marketing expenditures, which consist of promotional materials, online or print advertising, business development tools, and marketing or business development related travel costs, including attendance at conference or trade shows, and record label and client visits. The increase in staffing costs primarily relates to the employment of additional staff designed to grow Play MPE®‘s market share. The increase in advertising and marketing expenses is related to increased advertising, sponsorship, and attendance at industry events in the first quarter.
Product Development | November 30 | November 30 | ||||||||||
2021 | 2020 | |||||||||||
(3 months) | (3 months) | Change | Change | |||||||||
$ | $ | $ | % | |||||||||
Rent | 22,591 | 25,079 | (2,488 | ) | (9.9% | ) | ||||||
Software services | 18,177 | 17,576 | 601 | 3.4% | ||||||||
Telecommunications | 16,318 | 16,805 | (487 | ) | (2.9% | ) | ||||||
Wages and benefits | 201,338 | 238,628 | (37,290 | ) | (15.6% | ) | ||||||
258,424 | 298,088 | 39,664 | (13.3% | ) |
Product development costs consist primarily of salaries and related personnel costs including overhead and consulting fees with respect to product development and deployment. The increasedecrease in wages and benefits is related to an increasethe result of lower overall staffing numbers in staffingbusiness development as well as a shift in focus of staff towards product development, offset by $72,290 capitalized as internal use software in the quarter (November 30, 2020: $Nil). development.
Three Months Ended November 30, | ||||||||||||
Product development expenses | 2022 | 2021 | $ Change | % Change | ||||||||
Wages and benefits | $ | 189,469 | $ | 201,338 | (11,869 | ) | -5.9% | |||||
Software services | 20,455 | 18,177 | 2,278 | 12.5% | ||||||||
Rent | 24,169 | 22,591 | 1,578 | 7.0% | ||||||||
Telecommunications | 29,333 | 16,318 | 13,015 | 79.8% | ||||||||
Product development expenses | $ | 263,426 | $ | 258,424 | 5,002 | 1.9% |
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Throughout the second half of the prior year, the Company increased product development staffing in order to build upon earlier research and development of a new product complementary to Play MPE®. Overall staffing costs for product development, including those capitalized in the current and prior periods, increased by approximately 55%. The decline in current operating costs represents a large increase in the amount of costs capitalized. During the period ended November 30, 2022, $248,309 in wages and benefits paid to engineering and product development staff were capitalized to software under development intangible assets (November 30, 2021 - $72,290).
Depreciation and Amortization
Depreciation and amortization expense increased to $27,172 for the three-month period ended November 30, 2021 from $24,315$36,379 for the period ended November 30, 2020, an2022 (November 30, 2021 - $27,172). The increase of 11.7%33.9% was due to a amortizationdepreciation of additionally capitalized software development costs associated with Play MPE® recipient player applications.applications during the year.
Other earnings and expensesIncome
Interest income earned on the Company's Guaranteed Investment Certificates was $1,043$7,668 for the three-month period ended November 30, 2022 (November 30, 2021 (2020: $1,464) and is derived from one-year Guaranteed Investment Certificates.- $1,043). The interest income more than doubled year over year due to increased interest rates in Canada.
Net incomeIncome (Loss)
During the three-month periodthree months ended November 30, 20212022 we had net income of $165,601 (2020$258,266 (November 30, 2021 - $250,702).$165,601)
For the three-month periodthree months ended November 30, 2021,2022, adjusted EBITDA was $217,635 (2020$324,134 (November 2021 - EBITDA $286,402)$217,635). 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 (loss) from operations to Adjusted EBITDA over the eight most recently completed fiscal quarters:
2022 Q1 | 2021 Q4 | 2021 Q3 | 2021 Q2 | 2021 Q1 | 2020 Q4 | 2020 Q3 | 2020 Q2 | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | |||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Net Income (loss) | 165,601 | 91,699 | 69,594 | (29,466 | ) | 250,702 | 158,187 | 54,899 | (155,331 | ) | ||||||||||||||||||||||||||||||||||||||
Amortization, stock-based compensation and deferred leasehold inducements | 53,077 | 40,589 | 39,806 | 39,533 | 37,164 | 49,085 | 48,470 | 37,307 | ||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) | $ | 258,266 | 193,673 | $ | (3,242 | ) | $ | (202,610 | ) | $ | 165,601 | $ | 91,699 | $ | 69,594 | $ | (29,466 | ) | ||||||||||||||||||||||||||||||
Stock-based compensation | 37,157 | (21,281 | ) | 75,163 | 68,789 | 25,905 | 12,620 | 13,133 | 26,400 | |||||||||||||||||||||||||||||||||||||||
Depreciation, amortization, and deferred leasehold inducements | 36,379 | 52,603 | 36,313 | 26,574 | 27,172 | 27,969 | 26,673 | 13,133 | ||||||||||||||||||||||||||||||||||||||||
Interest income | (1,043 | ) | (869 | ) | (823 | ) | (875 | ) | (1,464 | ) | (4,672 | ) | (5,266 | ) | (8,110 | ) | (7,668 | ) | (4,460 | ) | (1,686 | ) | (1,964 | ) | (1,043 | ) | (869 | ) | (823 | ) | (875 | ) | ||||||||||||||||
Adjusted EBITDA | 217,635 | 131,419 | 108,577 | 9,192 | 286,402 | 202,600 | 98,103 | (126,134 | ) | $ | 324,134 | 220,535 | $ | 106,548 | $ | (109,211 | ) | $ | 217,635 | $ | 131,419 | $ | 108,577 | $ | 9,192 |
LIQUIDITY AND FINANCIAL CONDITION
As at November 30, 2021, we2022, the Company held $2,536,426 (August$2,246,205 (August 31, 20212022 - $2,752,662)$2,095,928) in cash and cash equivalents and short-term investments.equivalents. Our short-term investmentscash equivalents consisted of one-year Guaranteed Investment Certificates (GICs) held through a major Canadian financial institution and had reached maturity prior to November 30, 2021.their maturity.
AtAs at November 30, 2021,2022, we had working capital of $2,682,199$2,286,599 compared to $2,561,480$2,268,778 as at August 31, 2021. During2022.
16
Cash Flows
The following table sets forth a summary of the three-month period ended November 30, 2021,net cash flow activity for each of the Company completed NCIB purchases totaling $44,166. periods indicated:
Three Months Ended November 30, | ||||||||||||
Net cash and cash equivalents provided by (used in) | 2022 | 2021 | $ Change | % Change | ||||||||
Operating activities | $ | 459,537 | $ | (52,626 | ) | 512,163 | -973.2% | |||||
Investing activities | (248,309 | ) | (80,287 | ) | (168,022 | ) | -209.3% | |||||
Financing activities | - | (44,166 | ) | 44,166 | -100.0% | |||||||
Effect of foreign exchange rate changes on cash | (60,951 | ) | (39,157 | ) | (21,794 | ) | -55.7% | |||||
Net increase (decrease) in cash and cash equivalents | $ | 150,277 | $ | (216,236 | ) | 366,513 | -169.5% |
Operating Activities
Net cash used inprovided by operating activities forduring the three-month period ended November 30, 2022 was $459,537 (November 30, 2021 was $52,626 (2020: net cash provided by operating activities of $441,654)- $52,626). The primary reason for the decreaseincrease in cash flows from operating activities is related to changes in working capital which are expected to reverse over time.was the timing of receipts from our customers.
Investing Activities
Net cash used in investing activities for the three-month period ended November 30, 20212022 was $80,287 (2020:$248,309, compared to cash provided fromused in investing activities of $758,561).$80,287 for the period ended November 30, 2021. During the three-month period ended November 30, 2021, $72,2902022, the contributions made towards investing activities was used in software under development.cash spent on new capital assets and internally developed computer software.
Financing Activities
Net cash used in financing activities during the three-month period ended November 30, 2022 was Nil (November 30, 2021 was $44,166 (2020: $nil), related to cash used to repurchase and retire 30,300 shares of common stock (2020: Nil) of the Company under the NCIB.- $44,166).
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.
For a description of our critical accounting policies, see the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" and "Financial Statements and Supplementary Data - Note 2, Summary of Significant Accounting Policies" contained in our 2022 Form 10-K. There have not been no significantany material changes into the critical accounting policies and estimates described in our Annual Report on Form 10-K fordiscussed therein during the yearthree months ended August 31, 2021 as filed with the SEC on November 23, 2021 except for those described in Note 8, "New Accounting Pronouncements" in the notes to our Interim Condensed Consolidated Financial Statements included in this Form 10-Q.30, 2022.
NEW ACCOUNTING PRONOUNCEMENTSOFF-BALANCE SHEET ARRANGEMENTS
Please referAs of November 30, 2022, the Company has no off-balance sheet arrangements that have or are reasonably likely to Note 8 "New Accounting Pronouncements"have a current or future material effect on its financial condition, changes in the notes to our Interim Condensed Consolidated Financial Statements included in this Form 10-Q.financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3.17
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 month periods ended November 30, 2021, 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 a positive impact on reported revenues and a negative impact on reported operating expenditures, for an overall marginal positive impact on reported net income.
Item 4.Controls and Procedures.years presented.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
DisclosureWe maintain disclosure controls and procedures and other procedures that are designed to ensureprovide reasonable assurance that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periodperiods specified in the SEC's rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensureprovide reasonable assurance that such information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and our 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 haveWe carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our company's disclosure controls and procedures. This evaluation was carried outprocedures, as defined in Rule 13(a)-15(e) under the supervision and with the participation of our Company's management, including our company's Chief Executive Officer and Chief Financial Officer.Exchange Act. Based upon thaton this evaluation, our company's Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that as of November 30, 2021, our disclosure controls and procedures were effective, as at the end of the period covered by this report.November 30, 2022.
Changes in Internal Control over Financial Reporting
There were no changes that would impactin our internal controls forcontrol over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the period from September 1, 2021 toExchange Act during the quarter ended November 30, 2021. 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Item 1.From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as described below, we are not aware of any such legal proceedings or claims against us.Legal Proceedings.
ITEM 1A. RISK FACTORS.
Item 1A.Risk Factors.
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company's. This outbreak could decrease spending, adversely affect demand for the Company's product and harm the Company's business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company's business or results of operations at this time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Item 3.Defaults Upon Senior Securities.
ITEM 4. MINE SAFETY DISCLOSURES.
Item 4.Mine Safety Disclosures.
ITEM 5. OTHER INFORMATION.
Item 5.Other Information.
ITEM 6. 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 |
101.INS* | 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 |
Inline XBRL Taxonomy Extension | |
Inline XBRL Taxonomy Extension | |
Inline XBRL Taxonomy Extension | |
Inline XBRL Taxonomy Extension | |
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.
By: | /s/Frederick Vandenberg | |
Frederick Vandenberg Chief Executive Officer, President (Principal Executive Officer) Date: Jan 03, 2023 | ||
By: | /s/ Olya Massalitina | |
Olya Massalitina Chief Financial Officer, Treasurer (Principal Financing and Accounting Officer) Date: Jan 03, 2023 |
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