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. See definitions of "large accelerated filer," "accelerated
filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act)
[
]Yes [X] No
Indicate the number of shares outstanding of each of the
issuers class of common stock, as of the latest practicable date:
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Financial Statements
Destiny Media Technologies Inc.
(Unaudited)
Nine
months ended May 31, 2017
(Expressed in United States dollars)
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in
United States dollars)
Unaudited
As at
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
August 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
1,164,575
|
|
|
662,743
|
|
Accounts receivable, net of allowance for
|
|
|
|
|
|
|
doubtful
accounts of $1,958 [Aug 31, 2016 $4,049]
|
|
418,182
|
|
|
628,135
|
|
Other receivables
|
|
13,385
|
|
|
15,051
|
|
Current portion of long term
receivable
[note 3]
|
|
90,091
|
|
|
113,834
|
|
Prepaid expenses
|
|
33,937
|
|
|
61,525
|
|
Deposits
|
|
22,282
|
|
|
|
|
Total current assets
|
|
1,742,452
|
|
|
1,481,288
|
|
Deposits
|
|
25,902
|
|
|
22,978
|
|
Long term receivable
[note 3]
|
|
|
|
|
61,642
|
|
Property and equipment, net
|
|
117,848
|
|
|
174,951
|
|
Intangible assets, net
|
|
88,425
|
|
|
110,017
|
|
Total assets
|
|
1,974,627
|
|
|
1,850,876
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
|
|
105,600
|
|
|
108,157
|
|
Accrued liabilities
|
|
174,102
|
|
|
190,077
|
|
Deferred leasehold inducement
|
|
2,808
|
|
|
28,962
|
|
Deferred revenue
|
|
1,924
|
|
|
23,563
|
|
Obligation under capital lease current portion [
note
5
]
|
|
7,228
|
|
|
5,240
|
|
Total current liabilities
|
|
291,662
|
|
|
355,999
|
|
Obligation under capital lease long term portion
[
note 5
]
|
|
|
|
|
6,472
|
|
Total liabilities
|
|
291,662
|
|
|
362,471
|
|
|
|
|
|
|
|
|
Commitments and contingencies
[notes 5 and
8]
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
Common stock, par value $0.001
[note
4]
Authorized: 100,000,000
shares
Issued and outstanding: 55,013,874
shares
[Aug 31, 2016 issued and
outstanding 55,013,874 shares]
|
|
55,014
|
|
|
55,014
|
|
Additional paid-in capital
|
|
9,703,286
|
|
|
9,666,080
|
|
Accumulated deficit
|
|
(7,694,166
|
)
|
|
(7,896,312
|
)
|
Accumulated other comprehensive (loss)
|
|
(381,169
|
)
|
|
(336,377
|
)
|
Total stockholders equity
|
|
1,682,965
|
|
|
1,488,405
|
|
Total liabilities and stockholders equity
|
|
1,974,627
|
|
|
1,850,876
|
|
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Expressed in United States
dollars)
Unaudited
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
$
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
[note 10]
|
|
897,475
|
|
|
875,502
|
|
|
2,571,582
|
|
|
2,487,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
137,382
|
|
|
202,016
|
|
|
526,159
|
|
|
595,605
|
|
Sales and marketing
|
|
232,483
|
|
|
257,536
|
|
|
735,895
|
|
|
910,322
|
|
Research and development
|
|
327,776
|
|
|
362,920
|
|
|
998,915
|
|
|
1,013,682
|
|
Depreciation and Amortization
|
|
37,048
|
|
|
60,746
|
|
|
120,538
|
|
|
163,771
|
|
|
|
734,689
|
|
|
883,218
|
|
|
2,381,507
|
|
|
2,683,380
|
|
Income (loss) from
operations
|
|
162,786
|
|
|
(7,716
|
)
|
|
190,075
|
|
|
(196,260
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
3,437
|
|
|
4,903
|
|
|
12,071
|
|
|
17,057
|
|
Net income (loss)
|
|
166,223
|
|
|
(2,813
|
)
|
|
202,146
|
|
|
(179,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(30,661
|
)
|
|
68,915
|
|
|
(44,792
|
)
|
|
31,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
135,562
|
|
|
66,102
|
|
|
157,354
|
|
|
(147,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share,
basic and
diluted
|
|
0.00
|
|
|
(0.00
|
)
|
|
0.00
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
55,013,874
|
|
|
55,013,874
|
|
|
55,013,874
|
|
|
54,645,261
|
|
See accompanying notes
Destiny
Media
Technologies
Inc.
CONDENSED
CONSOLIDATED
STATEMENTS
OF
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 (loss)
|
|
|
|
|
|
|
|
|
|
|
202,146
|
|
|
(44,792
|
)
|
|
157,354
|
|
Stock based compensation Note 4
|
|
|
|
|
|
|
|
37,206
|
|
|
|
|
|
|
|
|
37,206
|
|
Balance, May 31, 2017
|
|
55,013,874
|
|
|
55,014
|
|
|
9,703,286
|
|
|
(7,694,166
|
)
|
|
(381,169
|
)
|
|
1,682,965
|
|
See
accompanying
notes
Destiny Media Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in
United States dollars)
Unaudited
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income (loss)
|
|
202,146
|
|
|
(179,203
|
)
|
Items not involving cash:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
120,538
|
|
|
163,771
|
|
Stock-based
compensation
|
|
37,206
|
|
|
37,206
|
|
Deferred leasehold inducement
|
|
(25,644
|
)
|
|
(25,557
|
)
|
Unrealized
foreign exchange
|
|
2,475
|
|
|
(3,590
|
)
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Accounts
receivable
|
|
193,701
|
|
|
(33,979
|
)
|
Other receivables
|
|
1,228
|
|
|
7,733
|
|
Prepaid expenses
and deposits
|
|
(164
|
)
|
|
13,283
|
|
Accounts payable
|
|
(3,878
|
)
|
|
(57,454
|
)
|
Accrued
liabilities
|
|
(9,954
|
)
|
|
8,233
|
|
Deferred revenue
|
|
(21,230
|
)
|
|
(101
|
)
|
Long term receivable
|
|
78,759
|
|
|
75,932
|
|
Net cash provided by operating activities
|
|
575,183
|
|
|
6,274
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITY
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
(49,457
|
)
|
|
(157,083
|
)
|
Net cash used in investing activity
|
|
(49,457
|
)
|
|
(157,083
|
)
|
|
|
|
|
|
|
|
FINANCING ACTIVITY
|
|
|
|
|
|
|
Common stock issued in private placements
|
|
|
|
|
496,360
|
|
Net cash provided in financing activity
|
|
|
|
|
496,360
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on
cash
|
|
(23,894
|
)
|
|
23,535
|
|
|
|
|
|
|
|
|
Net increase in cash during the period
|
|
501,832
|
|
|
369,086
|
|
Cash, beginning of the period
|
|
662,743
|
|
|
387,316
|
|
Cash, end of the period
|
|
1,164,575
|
|
|
756,402
|
|
|
|
|
|
|
|
|
Supplementary disclosure
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
Income taxes paid
|
|
|
|
|
|
|
See accompanying notes
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
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 Companys 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 and under the symbol DME on the Berlin, Frankfurt, Xetra and
Stuttgart exchanges in Germany.
2. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated
financial statements have been prepared by management in accordance 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 for annual financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine months ended May 31, 2017 are not necessarily indicative of the results
that may be expected for the year ended August 31, 2017.
The balance sheet at August 31, 2016 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by United States generally accepted
accounting principles for annual financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended August 31, 2016.
1
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
3. LONG TERM RECEIVABLE
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 sum of $825,000 Australian dollars (AUD) (US
$858,194), receivable in monthly installments over the course of 72 months,
beginning on March 31, 2012 and ending on February 28, 2018. The balance is due
to be paid in equal monthly installments of $14,050AUD until the end 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 May 31, 2017, installments of $957,050AUD including
interest of $253,199AUD have been received.
The following table summarizes the changes regarding the
carrying value of the remaining receivable balance during the nine-month period
ended May 31, 2017 and for the year ended August 31, 2016:
|
|
May 31, 2017
|
|
|
August 31, 2016
|
|
|
|
$
|
|
|
$
|
|
Beginning balance
|
|
175,476
|
|
|
265,530
|
|
Gross installments received
|
|
(95,182
|
)
|
|
(123,442
|
)
|
Interest included in above
|
|
10,661
|
|
|
23,172
|
|
Foreign exchange impact
|
|
(864
|
)
|
|
10,216
|
|
Ending balance
|
|
90,091
|
|
|
175,476
|
|
The foreign exchange impact in above table is partially
allocated into other comprehensive income (loss) and partially allocated into
exchange gain (loss) on income statement.
Payments to be received over the next two fiscal years as
follows:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
29,284
|
|
|
2,060
|
|
|
31,344
|
|
2018
|
|
60,807
|
|
|
1,830
|
|
|
62,637
|
|
|
|
90,091
|
|
|
3,890
|
|
|
93,981
|
|
2
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
4. STOCKHOLDERS EQUITY
[a] Common stock issued and authorized
The Company is authorized to issue up to 100,000,000 shares of
common stock, par value $0.001 per share.
During the nine months ended May 31, 2017, no shares were
issued.
[b] Stock option plans
The Company has two existing stock option plans (the Plan),
namely the 2006 Stock Option Plan and the 2015 Stock Option Plan, under which up
to 7,750,000 shares of the common stock, has been reserved for issuance. A total
of 2,253,181 common shares remain eligible for issuance under the plan. The
options generally vest over a range of periods from the date of grant, some are
immediate, and others are 12 or 24 months. Any options that do not vest as the
result of a grantee leaving the Company are forfeited and the 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 option activity under the Plans as of May 31,
2017, and changes during the period ended are presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Value
|
|
Options
|
|
Shares
|
|
|
$
|
|
|
Term
|
|
|
$
|
|
Outstanding at August 31, 2016
|
|
950,000
|
|
|
0.40
|
|
|
1.58
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(200,000
|
)
|
|
0.40
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at May 31, 2017
|
|
750,000
|
|
|
0.40
|
|
|
1.03
|
|
|
|
|
Exercisable at May 31, 2017
|
|
750,000
|
|
|
0.40
|
|
|
1.03
|
|
|
|
|
3
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
4. STOCKHOLDERS EQUITY (contd.)
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the quoted price of the
Companys common stock for the options that were in-the-money at May 31, 2017.
The following table summarizes information regarding the
non-vested stock purchase options outstanding as of May 31, 2017:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of Options
|
|
|
Grant Date
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
$
|
|
Non-vested options at August 31, 2016
|
|
281,250
|
|
|
0.08
|
|
Granted
|
|
|
|
|
|
|
Vested
|
|
(281,250
|
)
|
|
0.08
|
|
Non-vested options at May 31, 2017
|
|
|
|
|
|
|
During the nine month periods ended May 31, 2017 and 2016,
stock-based compensation expense has been reported in the consolidated statement
of operations and comprehensive income as follows:
|
|
Three
Months Ended
|
|
|
Nine Months
Ended
|
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Stock-based
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative
|
|
8,764
|
|
|
7,152
|
|
|
26,292
|
|
|
21,455
|
|
Sales and marketing
|
|
1,075
|
|
|
3,266
|
|
|
3,638
|
|
|
9,798
|
|
Research and development
|
|
2,563
|
|
|
1,984
|
|
|
7,276
|
|
|
5,953
|
|
Total stock-based compensation
|
|
12,402
|
|
|
12,402
|
|
|
37,206
|
|
|
37,206
|
|
[c] Employee Stock Purchase Plan
The Companys 2011 Employee Stock Purchase Plan (the Plan)
became effective on February 22, 2011. Under the Plan, employees of Destiny are
able to contribute up to 5% of their annual salary into a pool which is matched
equally by Destiny. Independent directors are able to contribute a maximum of
$12,500 each for a combined maximum annual purchase of $25,000.
4
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
4. STOCKHOLDERS EQUITY (contd.)
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 will also be responsible for the
administration of the Plan on behalf of Destiny and the participants.
During the nine months ended May 31, 2017, the Company
recognized compensation expense of $37,580 (2016 - $25,896) in salaries and
wages on the consolidated statement of operations and comprehensive income in
respect of the Plan, representing the Companys employee matching of cash
contributions to the plan. The shares were purchased on the open market at an
average price of $0.21 (2016 - $0.22) . The shares are held in trust by the
Company for a period of one year from the date of purchase.
[d] Warrants
As at May 31, 2017, the Company has the following common stock
warrants outstanding:
|
|
Number of
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Common
|
|
|
Exercise
|
|
|
Date
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
of
|
|
|
Value
|
|
|
|
Issuable
|
|
|
$
|
|
|
Expiry
|
|
|
$
|
|
$0.30 Warrants
|
|
1,010,000
|
|
|
0.30
|
|
|
October 20,2017
|
|
|
|
|
|
|
1,010,000
|
|
|
|
|
|
|
|
|
|
|
The Company will have the right to accelerate the expiry date
of all of the warrants if, at any time, the average closing price of the
Companys common shares is equal to or greater than $1.25 for 20 consecutive
trading days. In the event of acceleration, the expiry date will be accelerated
to a date that is 30 days after the Company issues a news release announcing
that it has elected to exercise this acceleration right.
5
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
5. COMMITMENTS
The Company previously entered into a sublease agreement
commencing May 1, 2015 and expiring June 29, 2017 for a premise with free
occupation from December 2014 to May 2015. During the quarter the Company
entered a new lease agreement for the same premise from July 1 2017 to June 30,
2022. The Company has fiscal year payments committed as follows:
|
|
$
|
|
|
|
|
|
2017
|
|
59,462
|
|
2018
|
|
227,180
|
|
2019
|
|
232,431
|
|
2020
|
|
239,298
|
|
2021
|
|
244,550
|
|
2022
|
|
208,841
|
|
During the nine months ended May 31, 2017 the Company incurred
rent expense of $172,801 (2016 - $163,078) which has been allocated between
general and administrative expenses, research and development and sales and
marketing on the consolidated statement of operations and comprehensive income.
The rent expense during the nine months ended May 31, 2017 has included the
allocation of rental payments on a straight-line basis.
In February 2015, the Company entered into a capital lease. The
Company is committed to make payments under its capital leases for the remaining
terms of the leases as follows:
|
|
$
|
|
2017
|
|
1,049
|
|
2018
|
|
6,504
|
|
Total lease payments
|
|
7,553
|
|
Less: Amounts representing interest
|
|
(325
|
)
|
Balance of obligation
|
|
7,228
|
|
Less: Current portion
|
|
(7,228
|
)
|
Long term portion
|
|
Nil
|
|
6
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
6. RELATED PARTY TRANSACTIONS
There were no related party transactions during the nine months
ended May 31, 2017 and comparative period ended May 31, 2016.
7. INCOME TAX
The Company has adopted the provisions of ASC 740, Income
taxes. This standard clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements and prescribes a recognition
threshold and measurement process for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The
standard also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The Company
and its subsidiaries are subject to U.S. federal income tax, Canadian income
tax, as well as income tax of multiple state and local jurisdictions. Based on
the Companys evaluation, the Company has concluded that there are no
significant uncertain tax positions requiring recognition in the Companys
financial statements. The Companys evaluation was performed for the tax years
ended August 31, 1999 through August 31, 2016, the tax years which remain
subject to examination by major tax jurisdictions as of May 31, 2017. The
Company may from time to time be assessed interest or penalties by major tax
jurisdictions, although any such assessments historically have been minimal and
immaterial to the Companys financial results. In the event the Company has
received an assessment for interest and/or penalties, it has been classified in
the financial statements as selling, general and administrative expense.
8. CONTINGENCIES
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.
7
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
9. NEW ACCOUNTING PRONOUNCEMENTS
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). ASU 2014-09 supersedes
the revenue recognition requirements in Revenue Recognition (Topic 605), and
requires entities to recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled to in exchange for those goods or services. The
FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date (ASU 2015-14) in August 2015. The amendments
in ASU 2015-14 defer the effective date of ASU 2014-09. Public business
entities, certain not-for-profit entities, and certain employee benefit plans
should apply the guidance in ASU 2014-09 to annual reporting periods beginning
after December 15, 2017, including interim reporting periods within that
reporting period. Earlier adoption is permitted only as of annual reporting
periods beginning after December 15, 2016, including interim reporting periods
within that reporting period. Further to ASU 2014-09 and ASU 2015-14, the FASB
issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
(ASU 2016-08) in March 2016, ASU No. 2016-10, Revenue from Contracts with
Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU
2016-10) in April 2016, and ASU No. 2016-12, Revenue from Contracts with
Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (ASU
2016-12), respectively. The amendments in ASU 2016-08 clarify the
implementation guidance on principal versus agent considerations, including
indicators to assist an entity in determining whether it controls a specified
good or service before it is transferred to the customers. ASU 2016-10 clarifies
guideline related to identifying performance obligations and licensing
implementation guidance contained in the new revenue recognition standard. The
updates in ASU 2016-10 include targeted improvements based on input the FASB
received from the Transition Resource Group for Revenue Recognition and other
stakeholders. It seeks to proactively address areas in which diversity in
practice potentially could arise, as well as to reduce the cost and complexity
of applying certain aspects of the guidance both at implementation and on an
ongoing basis. ASU 2016-12 addresses narrow-scope improvements to the guidance
on collectability, non-cash consideration, and completed contracts at
transition. Additionally, the amendments in this ASU provide a practical
expedient for contract modifications at transition and an accounting policy
election related to the presentation of sales taxes and other similar taxes
collected from customers. The effective date and transition requirements for ASU
2016-08, ASU 2016-10 and ASU 2016-12 are the same as ASU 2014-09. We are
currently in the process of evaluating the impact of the adoption of ASU
2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 on our consolidated financial
statements.
8
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
9. NEW ACCOUNTING PRONOUNCEMENTS (contd.)
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of
Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU
2014-15). ASU 2014-15 will explicitly require management to assess an entitys ability to continue as a going
concern, and to provide related footnote disclosure in certain circumstances.
The new standard will be effective for all entities in the first annual period
ending after December 15, 2016. We are currently evaluating the impact of the
adoption of this new standard on our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income
Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU
2015-17). Topic 740, Income Taxes, requires an entity to separate deferred
income tax liabilities and assets into current and noncurrent amounts in a
classified statement of financial position. Deferred tax liabilities and assets
are classified as current or noncurrent based on the classification of the
related asset or liability for financial reporting. Deferred tax liabilities and
assets that are not related to an asset or liability for financial reporting are
classified according to the expected reversal date of the temporary difference.
To simplify the presentation of deferred income taxes, the amendments in ASU
2015-17 require that deferred income tax liabilities and assets be classified as
noncurrent in a classified statement of financial position. For public business
entities, the amendments in this update are effective for financial statements
issued for annual periods beginning after December 15, 2016, and interim periods
within those annual periods. We do not expect the adoption of ASU 2015-17 to
have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842) (ASU 2016-02). The amendments in this update create Topic 842,
Leases, and supersede the leases requirements in Topic 840, Leases. Topic 842
specifies the accounting for leases. The objective of Topic 842 is to establish
the principles that lessees and lessors shall apply to report useful information
to users of financial statements about the amount, timing, and uncertainty of
cash flows arising from a lease. The main difference between Topic 842 and Topic
840 is the recognition of lease assets and lease liabilities for those leases
classified as operating leases under Topic 840. Topic 842 retains a distinction
between finance leases and operating leases. The classification criteria for
distinguishing between finance leases and operating leases are substantially
similar to the classification criteria for distinguishing between capital leases
and operating leases in the previous leases guidance. The result of retaining a
distinction between finance leases and operating leases is that under the lessee
accounting model in Topic 842, the effect of leases in the statement of
comprehensive income and the statement of cash flows is largely unchanged from
previous GAAP. The amendments in ASU 2016-02 are effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal
years for public business entities. Early application of the amendments in ASU
2016-02 is permitted. We are currently in the process of evaluating the impact
of the adoption of ASU 2016-02 on our consolidated financial statements.
9
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
9. NEW ACCOUNTING PRONOUNCEMENTS (contd.)
In June 2016, the FASB issued ASU No. 2016-13, Financial
InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (ASU 2016-13). Financial InstrumentsCredit 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. We
are currently evaluating the impact of the adoption of ASU 2016-13 on our
consolidated financial statements.
10
Destiny Media Technologies Inc.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars)
Unaudited
Nine months ended May 31, 2017 and 2016
10. 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, by product and location of
customer, is as follows:
|
|
Three
Months Ended
|
|
|
Nine Months
Ended
|
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Play MPE®
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
388,472
|
|
|
368,449
|
|
|
1,059,599
|
|
|
1,020,476
|
|
Europe
|
|
425,017
|
|
|
422,699
|
|
|
1,262,277
|
|
|
1,224,132
|
|
Australasia
|
|
74,522
|
|
|
69,345
|
|
|
218,106
|
|
|
201,388
|
|
Total Play MPE®
|
|
888,011
|
|
|
860,493
|
|
|
2,539,982
|
|
|
2,445,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clipstream ®
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
9,464
|
|
|
15,009
|
|
|
31,600
|
|
|
41,124
|
|
Outside of North America
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Clipstream ®
|
|
9,464
|
|
|
15,009
|
|
|
31,600
|
|
|
41,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
897,475
|
|
|
875,502
|
|
|
2,571,582
|
|
|
2,487,120
|
|
Revenue in the above table is based on location of the
customer. Some of these customers have distribution centers located around the
globe and distribute around the world. During the nine months ended May 31,
2017, the Company generated 40% of total revenue from one customer [2016 42%].
It is in managements opinion that the Company is not exposed
to significant credit risk.
As at May 31, 2017, one customer represented $238,170 (57%) of
the trade receivables balance [August 31, 2016 one customer represented
$354,459 (63%)].
The Company has substantially all its assets in Canada and its
current and planned future operations are, and will be, located in Canada.
11
Item 2. Managements 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 addition to historical information, the
information in this discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). These forward-looking statements involve risks and
uncertainties, including statements regarding the Companys capital needs,
business strategy and expectations. Any statements contained herein that are not
statements of historical facts may be deemed to be forward-looking
statements.
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
negative of such terms or other comparable terminology. Actual events or results
may differ materially. In evaluating these statements, you should consider
various 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 may cause the Companys actual results to differ materially from any
forward-looking statement. The Company disclaims any 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 meaning of the Private Securities
Litigation Reform Act of 1995.
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, Destiny Software Productions
Inc., a British Columbia company that was incorporated in 1992, MPE
Distribution, Inc. a Nevada company that was incorporated in 2007 and Sonox
Digital Inc incorporated under the Canada Business Corporations Act in 2012. The
Company, Destiny Media, Destiny or we refers to the consolidated
activities of all four companies.
Our principal executive office is located at Suite 1110, 885
West Georgia Street, Vancouver, British Columbia V6C 3E8. Our telephone number
is 604-609-7736 and our facsimile number is 604-609-0611.
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 services that enable the secure
distribution of digital media content over the Internet. Destiny services are
based around proprietary security, watermarking and instant play streaming media
technologies.
The Play MPE® digital distribution service is used commercially
by the recording industry to distribute new music and music videos to trusted
recipients such as radio and press before that content is generally available
for sale to the public.
Clipstream® is a suite of products and services under
development, which are based around the Company's new cross platform Javascript
and HTML 5 canvas tag rendering engine. Video is encoded into a proprietary
streaming media technology which has been under development since 2010.
Provisional patent priority is claimed to August 2011. The Company had another
streaming media product with the same brand that launched in 2000 which is only
loosely related to this new generation technology.
The unique patented approach in the rendering engine has a
large number of advantages over the more typical reliance on video plug-ins, the
HTML 5 video tag and dedicated playback applications for mobile.
Play MPE®
Play MPE® is a digital delivery service for securely moving
broadcast quality audio, video, images, promotional information and other
digital content securely 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, VIPs, DJs, film and TV personnel, sports stadiums and
retailers. The system replaces the physical distribution (mail, courier or hand
delivery) of CDs. The financial model is transaction based, where the price per
delivery varies with the number of songs and videos delivered.
Record labels around the world, including all three major
labels (Universal Music Group, Warner Music Group and Sony Music Entertainment),
are regularly using Play MPE® to deliver their content to radio.
Clipstream®
The Clipstream® Online Video Platform (OVP) is a self-service,
high capacity, and high performance system, for encoding, hosting and reporting
on video playback which can be embedded in third party websites or emails.
Playback is through the Companys proprietary JavaScript codec engine, which is
only available on the internet through the Company. Until additional features
are added, this product is marketed in a limited way and has incidental
revenues.
The Clipstream® JavaScript codec engine is based on the latest
compression techniques from the next-generation HEVC standard. The unique
software based approach to rendering video, protected by over two dozen patents
claiming initial priority to 2011, has a number of advantages over the
traditional approach of using plug-ins (for example, Flash), or browser
supported formats (for example, H.264). With the JavaScript codec approach, the
Company can offer new features such as enhanced security, interactivity, and
future proofing of their content. A new feature can be created and applied cross
platform for all HTML5 compliant devices without a rollout period. This feature
is currently only available as a component of the Clipstream® OVP solution but
the Company will seek licensing opportunities in the future.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 2017
AND MAY 31, 2016
Revenue
Total revenue for the nine months ended May 31, 2017 increased
by 3% to $2,571,582 (2016 - $2,487,120). Play MPE® revenue currently accounts
for 99% of the Companys revenue (2016 - 98%). The increase in Play MPE® in the
nine months ended May 31, 2017 is the result of increases in all of geographic
areas. Total quarterly revenue grew year over year for the sixth consecutive
quarter.
During the nine months ended May 31, 2017, 50% of our Play MPE®
revenues were denominated in Euros and 8% were denominated in Australian Dollars
(2016: 50% and 8%, respectively).
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 expenses; office space, supplies and benefits. Our operations are
primarily conducted in Canada.
Overall costs dropped by 11% to $2,381,507 (2016 $2,683,380)
during the nine months ended May 31, 2017. The majority of this decline is the
result of reductions in Clipstream marketing, staff health benefits, accrued
vacation, telecommunication costs and public company expenditures.
The Company maintains most of its financial reserves in
Canadian dollars to mitigate the downside risk of adverse exchange rates.
General and
administrative
|
|
31-May
|
|
|
31-May
|
|
|
$
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
|
|
(9 months)
|
|
|
(9 months)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Wages and benefits
|
|
271,316
|
|
|
247,997
|
|
|
23,319
|
|
|
9.4%
|
|
Rent
|
|
27,207
|
|
|
22,892
|
|
|
4,315
|
|
|
18.8%
|
|
Telecommunications
|
|
26,706
|
|
|
30,008
|
|
|
(3,302
|
)
|
|
(11.0%
|
)
|
Bad debt
|
|
(1,997
|
)
|
|
4,211
|
|
|
(6,208
|
)
|
|
(147.4%
|
)
|
Office and miscellaneous
|
|
109,304
|
|
|
191,777
|
|
|
(82,473
|
)
|
|
(43.0%
|
)
|
Professional fees
|
|
93,623
|
|
|
98,720
|
|
|
(5,097
|
)
|
|
(5.2%
|
)
|
|
|
526,159
|
|
|
595,605
|
|
|
(69,446
|
)
|
|
(11.7%
|
)
|
Our general and administrative expenses consist primarily of
salaries and related personnel costs including overhead, professional fees, and
other general office expenditures. The decrease in office and miscellaneous is
partially due to the reduction of public company expenditures and partially due
to the positive foreign exchange impacts.
Sales and marketing
|
|
31-May
|
|
|
31-May
|
|
|
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
|
|
(9 months)
|
|
|
(9 months)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Wages and
benefits
|
|
544,895
|
|
|
594,475
|
|
|
(49,580
|
)
|
|
(8.3%
|
)
|
Rent
|
|
60,100
|
|
|
58,892
|
|
|
1,208
|
|
|
2.1%
|
|
Telecommunications
|
|
58,993
|
|
|
77,199
|
|
|
(18,206
|
)
|
|
(23.6%
|
)
|
Travel
|
|
12,841
|
|
|
25,471
|
|
|
(12,630
|
)
|
|
(49.6%
|
)
|
Advertising and marketing
|
|
59,066
|
|
|
154,285
|
|
|
(95,219
|
)
|
|
(61.7%
|
)
|
|
|
735,895
|
|
|
910,322
|
|
|
(174,427
|
)
|
|
(19.2%
|
)
|
Sales and marketing expenses consist primarily of salaries and
related personnel costs including overhead, sales commissions, advertising and
promotional fees, and travel costs. The decrease in wages and benefits is
attributable to reduced staffing costs.
The decrease in advertising and
marketing is attributable to decreased online advertising of Clipstream® and
Play MPE®.
Research and development
|
|
31-May
|
|
|
31-May
|
|
|
$
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
|
|
(9 months)
|
|
|
(9 months)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Wages and
benefits
|
|
777,228
|
|
|
810,464
|
|
|
(33,236
|
)
|
|
(4.1%
|
)
|
Rent
|
|
85,494
|
|
|
81,295
|
|
|
4,199
|
|
|
5.2%
|
|
Telecommunications
|
|
83,919
|
|
|
106,567
|
|
|
(22,648
|
)
|
|
(21.3%
|
)
|
Research and development
|
|
52,274
|
|
|
15,356
|
|
|
36,918
|
|
|
240.4%
|
|
|
|
998,915
|
|
|
1,013,682
|
|
|
(14,767
|
)
|
|
(1.5%
|
)
|
Research and development costs consist primarily of salaries
and related personnel costs including overhead and consulting fees with respect
to product development and deployment. The overall decrease in Research and
development is attributable to the consulting costs incurred to optimize server
infrastructure.
The decrease in wages and benefits is attributable to
reduced staffing costs. The decrease in telecommunications is attributable to
reduced costs related to internet gateway.
Amortization
Amortization expense arises from property and equipment, and
from patents and trademarks. Amortization decreased to $120,538 for the nine
months ended May 31, 2017 from $163,771 for the nine months ended May 31, 2016,
a decrease of $43,233 or 26% from an overall reduction in capital expenditures
consistent with our outsourcing of infrastructure related costs.
Other earnings and expenses
Interest income decreased to $12,071 for the nine months ended
May 31, 2017 from $17,057 for the nine months ended May 31, 2016, a decrease of
$4,986. 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.
Net income
During the nine months ended May 31, 2017 we have net income of
$202,146 (2016 net loss of $179,203). The increase in net income is
attributable to our increased revenue in Play MPE® and reduced operating
expenses in overall spending on salaries and wages, marketing,
telecommunications and public company expenditures.
For the nine months period ended May 31, 2017, adjusted EBITDA
increased to $322,175 (2016 loss of $20,618). Adjusted EBITDA is not defined
under generally accepted accounting principles (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 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. 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 for 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:
|
|
2015 Q4
|
|
|
2016 Q1
|
|
|
2016 Q2
|
|
|
2016 Q3
|
|
|
2016 Q4
|
|
|
2017 Q1
|
|
|
2017 Q2
|
|
|
2017 Q3
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net Income (Loss)
|
|
(957,451
|
)
|
|
(101,007
|
)
|
|
(75,383
|
)
|
|
(2,813
|
)
|
|
(9,048
|
)
|
|
104,128
|
|
|
(68,205
|
)
|
|
166,223
|
|
Amortization, stock
based compensation
and deferred leasehold inducement
|
|
85,222
|
|
|
53,608
|
|
|
57,404
|
|
|
64,408
|
|
|
22,169
|
|
|
45,698
|
|
|
45,404
|
|
|
40,998
|
|
Interest income
|
|
(8,214
|
)
|
|
(6,122
|
)
|
|
(6,033
|
)
|
|
(4,902
|
)
|
|
(4,075
|
)
|
|
(4,763
|
)
|
|
(3,871
|
)
|
|
(3,437
|
)
|
Income tax
|
|
842,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
(38,443
|
)
|
|
(53,521
|
)
|
|
(24,012
|
)
|
|
56,693
|
|
|
18,094
|
|
|
145,063
|
|
|
(26,672
|
)
|
|
203,784
|
|
LIQUIDITY AND FINANCIAL CONDITION
We had cash of $1,164,575 as at May 31, 2017 (August 31, 2016
$662,743). We had working capital of $1,450,790 as at May 31, 2017 compared to
working capital of $1,125,289 as at August 31, 2016.
CASH FLOWS
Net cash provided by operating activities was $575,183 for the
nine months ended May 31, 2017, compared to net cash provided of $6,274 for the
nine months ended May 31, 2016. The increase in net cash flows provided in the
operating activities was due to increasing net income and a decrease in our
accounts receivable during the period.
Net cash used in investing activities was $49,457 for the nine
months ended May 31, 2017, compared to net cash used of $157,083 for the nine
months ended May 31, 2016. The decrease in net cash used in investing activities
is largely attributable to software testing services and other software
purchases aimed at improving product quality in the comparative period.
The cash provided by financing activities was $Nil for the nine
months ended May 31, 2017, compared to $496,360 for the nine months ended May
31, 2016. The change was the result of a private placement in the comparative
period.
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 9 Recent Accounting Pronouncements in
Notes to Interim Condensed Consolidated Financial Statements for the nine months
ended May 31, 2017.
CRITICAL ACCOUNTING POLICIES
We prepare our interim condensed consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America, and make estimates and assumptions that affect our
reported amounts of assets, liabilities, revenue and expenses, and the related
disclosures of contingent liabilities. We base our estimates on historical
experience and other assumptions that we believe are reasonable in the
circumstances. Actual results may differ from these estimates.
The following critical accounting policies affect our more
significant estimates and assumptions used in preparing our consolidated
financial statements.
Revenue Recognition
We recognize revenue in accordance with Financial Accounting
Standards Boards (FASB) Accounting Standards Codification (ASC) 985-605,
Revenue Recognition
. Accordingly, revenue is recognized when there is
persuasive evidence of an arrangement, delivery to the customer has occurred,
the fee is fixed and determinable, and collectability is considered probable.
The majority 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 options 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. Although 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 more 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 managements 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 affect its financial condition 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 operating results of a particular
reporting period could be materially adversely affected.
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 primarily in United States dollars and Euros
while our operating expenses are 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 Canadian dollar to these
currencies. During the nine months ended May 31, 2017, as a result of
fluctuations in the Euro, and the Australian, Canadian, and US dollars, the
Company recognized positive impacts on reported net income.
Item 4. 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's
disclosure controls and procedures. This evaluation was carried out under the
supervision and with the participation of our company's management, including
our company's Chief Executive Officer and Chief Financial Officer. Based upon
that evaluation, our company's Chief Executive Officer and Chief Financial
Officer concluded that as of May 31, 2017, our disclosure controls and
procedures are effective as at the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
On June 28, 2017, the Board of Directors has appointed Fred
Vandenberg to the role of President and Chief Executive Officer to replace Mr.
Steve Vestergaard. Mr. Vandenberg will remain in the CFO role on an interim
basis. Where internal controls have relied on a separation of duties between the
CFO and the CEO, our internal controls have changed temporarily in that respect.
The Company continues to maintain a strong control environment.