Item 1. Financial Statements.
Condensed Consolidated Financial Statements
Destiny Media Technologies Inc.
(Unaudited)
November 30, 2018
(Expressed in United States dollars)
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Expressed in United States Dollars)
|
Unaudited
|
As at,
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
1,331,065
|
|
|
1,097,434
|
|
Short-term investments
[note 3]
|
|
1,137,180
|
|
|
1,151,952
|
|
Accounts receivable, net of
allowance for doubtful accounts of $8,686 [August 31, 2018 $6,031]
[note 9]
|
|
339,130
|
|
|
403,801
|
|
Other receivables
|
|
22,949
|
|
|
15,902
|
|
Prepaid expenses
|
|
40,751
|
|
|
57,252
|
|
Total current assets
|
|
2,871,075
|
|
|
2,726,341
|
|
Deposits
|
|
33,708
|
|
|
34,336
|
|
Property and equipment, net
[note 4]
|
|
149,362
|
|
|
160,273
|
|
Intangible assets, net
[note 4]
|
|
35,520
|
|
|
41,472
|
|
Total assets
|
|
3,089,665
|
|
|
2,962,422
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
|
|
152,562
|
|
|
141,273
|
|
Accrued liabilities
|
|
172,072
|
|
|
226,876
|
|
Deferred leasehold inducement
|
|
50,177
|
|
|
51,848
|
|
Deferred revenue
|
|
14,920
|
|
|
23,286
|
|
Obligation under capital lease
|
|
|
|
|
2,363
|
|
Total liabilities
|
|
389,731
|
|
|
445,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
[notes 6 and
7]
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
Common stock, par value $0.001
[note
5]
|
|
|
|
|
|
|
Authorized:
100,000,000 shares
Issued and outstanding: 55,013,874
shares
[August 31, 2018 issued and
outstanding 55,013,874 shares]
|
|
55,014
|
|
|
55,014
|
|
Additional paid-in capital
[note 5]
|
|
9,778,718
|
|
|
9,766,665
|
|
Accumulated deficit
|
|
(6,731,071
|
)
|
|
(6,951,261
|
)
|
Accumulated other comprehensive loss
|
|
(402,727
|
)
|
|
(353,642
|
)
|
Total stockholders equity
|
|
2,699,934
|
|
|
2,516,776
|
|
Total liabilities and stockholders equity
|
|
3,089,665
|
|
|
2,962,422
|
|
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED STATEMENTS OF
|
COMPREHENSIVE INCOME
|
(Expressed in United States dollars)
|
Unaudited
|
Three months ended November 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Service revenue
[note 9]
|
|
984,019
|
|
|
973,798
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
General and administrative
|
|
182,270
|
|
|
178,583
|
|
Sales and marketing
|
|
269,357
|
|
|
230,113
|
|
Research and development
|
|
298,012
|
|
|
304,438
|
|
Depreciation and amortization
|
|
20,624
|
|
|
25,697
|
|
|
|
770,263
|
|
|
738,831
|
|
Income from operations
|
|
213,756
|
|
|
234,967
|
|
Other income (expense)
|
|
|
|
|
|
|
Interest income
|
|
6,434
|
|
|
2,325
|
|
Other income (expense)
|
|
|
|
|
(3,802
|
)
|
|
|
|
|
|
|
|
Net income
|
|
220,190
|
|
|
233,490
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(49,085
|
)
|
|
(52,116
|
)
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
171,105
|
|
|
181,374
|
|
|
|
|
|
|
|
|
Net income per common share, basic and diluted
|
|
0.00
|
|
|
0.00
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
Basic
|
|
55,013,874
|
|
|
55,013,874
|
|
Diluted
|
|
55,013,874
|
|
|
55,013,874
|
|
See accompanying notes
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, 2017
|
|
55,013,874
|
|
|
55,014
|
|
|
9,712,213
|
|
|
(7,607,531
|
)
|
|
(266,891
|
)
|
|
1,892,805
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
656,270
|
|
|
(86,751
|
)
|
|
569,519
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
54,452
|
|
|
|
|
|
|
|
|
54,452
|
|
Balance, August 31, 2018
|
|
55,013,874
|
|
|
55,014
|
|
|
9,766,665
|
|
|
(6,951,261
|
)
|
|
(353,642
|
)
|
|
2,516,776
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
220,190
|
|
|
(49,085
|
)
|
|
171,105
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
12,053
|
|
|
|
|
|
|
|
|
12,053
|
|
Balance, November 30, 2018
|
|
55,013,874
|
|
|
55,014
|
|
|
9,778,718
|
|
|
(6,731,071
|
)
|
|
(402,727
|
)
|
|
2,699,934
|
|
See
accompanying
notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
Three months ended November 30,
|
|
(Expressed in
United States dollars)
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
220,190
|
|
|
233,490
|
|
Items not involving cash:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
20,624
|
|
|
25,697
|
|
Stock-based
compensation
|
|
12,053
|
|
|
13,390
|
|
Deferred leasehold inducement
|
|
(735
|
)
|
|
3,133
|
|
Unrealized
foreign exchange
|
|
(6,385
|
)
|
|
379
|
|
Loss on disposal of property,
plant and equipment
|
|
|
|
|
3,801
|
|
Changes in non-cash working
capital:
|
|
|
|
|
|
|
Accounts receivable
|
|
56,985
|
|
|
112,078
|
|
Other
receivables
|
|
(6,158
|
)
|
|
9,191
|
|
Prepaid expenses and deposits
|
|
16,035
|
|
|
8,498
|
|
Accounts payable
|
|
40,614
|
|
|
114,107
|
|
Accrued liabilities
|
|
(80,884
|
)
|
|
(21,366
|
)
|
Deferred revenue
|
|
(8,073
|
)
|
|
(8,220
|
)
|
Short term receivable
|
|
|
|
|
32,200
|
|
Net cash provided by operating activities
|
|
264,266
|
|
|
526,378
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITY
|
|
|
|
|
|
|
Purchase of property, equipment and intangibles
|
|
(7,215
|
)
|
|
(74,063
|
)
|
Net cash used in investing activity
|
|
(7,215
|
)
|
|
(74,063
|
)
|
|
|
|
|
|
|
|
Effect of foreign exchange
rate changes on cash
|
|
(23,420
|
)
|
|
(42,680
|
)
|
|
|
|
|
|
|
|
Net increase in cash and
cash equivalents during the period
|
|
233,631
|
|
|
409,635
|
|
Cash
and cash equivalents, beginning of period
|
|
1,097,434
|
|
|
1,342,956
|
|
Cash and cash equivalents, end of period
|
|
1,331,065
|
|
|
1,752,591
|
|
|
|
|
|
|
|
|
Supplementary
disclosure
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
Income taxes paid
|
|
|
|
|
|
|
See accompanying notes
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
1. ORGANIZATION
Destiny Media Technologies Inc. (the Company or Destiny)
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 condensed consolidated interim
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
three months ended November 30, 2018 are not necessarily indicative of the
results that may be expected for the year ended August 31, 2019.
The balance sheet at August 31, 2018 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, 2018.
1
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
3. SHORT TERM INVESTMENTS
The Companys short-term investments consists of one-year
Guaranteed Investment Certificates with a major Canadian financial institution
that earn interest at variable interest rates ranging from 2.15 2.50% .
4. PROPERTY AND EQUIPMENT AND INTANGIBLES
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
|
Cost
|
|
|
amortization
|
|
|
value
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
November 30, 2018
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
131,678
|
|
|
102,479
|
|
|
29,199
|
|
Computer hardware
|
|
225,552
|
|
|
189,224
|
|
|
36,328
|
|
Computer software
|
|
209,778
|
|
|
200,962
|
|
|
8,816
|
|
Leasehold improvement
|
|
159,780
|
|
|
84,761
|
|
|
75,019
|
|
|
|
726,788
|
|
|
577,426
|
|
|
149,362
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
Patents, trademarks and lists
|
|
408,637
|
|
|
373,117
|
|
|
35,520
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
|
Cost
|
|
|
amortization
|
|
|
value
|
|
August
31, 2018
|
|
$
|
|
|
$
|
|
|
$
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
134,130
|
|
|
102,822
|
|
|
31,308
|
|
Computer hardware
|
|
226,679
|
|
|
189,724
|
|
|
36,955
|
|
Computer software
|
|
213,684
|
|
|
203,420
|
|
|
10,264
|
|
Leasehold improvements
|
|
162,754
|
|
|
81,008
|
|
|
81,746
|
|
|
|
737,247
|
|
|
576,974
|
|
|
160,273
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
Patents, trademarks and lists
|
|
412,072
|
|
|
370,600
|
|
|
41,472
|
|
Depreciation and amortization for the three months ended
November 30, 2018 was $20,624 (2017: $25,697)
2
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
5. 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 three months ended November 30, 2018, no shares were
issued.
[b] Stock option plans
The Company has two existing stock option plans (the Plans),
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 1,415,681 common shares remain eligible for issuance under the Plans. 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 November 30,
2018, and changes during the period then ended is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Value
|
|
Options
|
|
Shares
|
|
|
$
|
|
|
Term
|
|
|
$
|
|
Outstanding at August 31, 2018
|
|
1,631,250
|
|
|
0.39
|
|
|
3.49
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
(43,750
|
)
|
|
0.40
|
|
|
|
|
|
|
|
Outstanding at November 30, 2018
|
|
1,587,500
|
|
|
0.39
|
|
|
3.33
|
|
|
|
|
Exercisable at November 30, 2018
|
|
1,147,916
|
|
|
0.39
|
|
|
3.20
|
|
|
|
|
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 November 30,
2018.
3
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
5. STOCKHOLDERS EQUITY (contd.)
The following table summarizes information regarding the
non-vested stock purchase options outstanding as of November 30, 2018 and
changes during the period then ended:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of Options
|
|
|
Fair Value
|
|
|
|
|
|
|
$
|
|
Non-vested options at August 31, 2018
|
|
614,584
|
|
|
0.07
|
|
Granted
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
Vested
|
|
(175,000
|
)
|
|
0.07
|
|
Non-vested options at November 30, 2018
|
|
439,584
|
|
|
0.07
|
|
As of November 30, 2018, there was $30,605 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 0.82 years.
During the three months ended November 30, 2018, the total
stock-based compensation expense of $12,053 (2017: $13,390) is reported in the
statement of comprehensive income as follows:
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Stock-based compensation
|
|
|
|
|
|
|
General and administrative
|
|
7,151
|
|
|
8,023
|
|
Sales and
marketing
|
|
2,451
|
|
|
1,540
|
|
Research and development
|
|
2,451
|
|
|
3,827
|
|
Total stock-based compensation
|
|
12,053
|
|
|
13,390
|
|
4
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
5. STOCKHOLDERS EQUITY (contd.)
[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 in order to purchase Company shares under certain terms.
Independent directors are able to 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 Plan on behalf of Destiny and the
participants.
During the three months ended November 30, 2018, the Company
recognized compensation expense of $10,683 (2017: $7,126) in salaries and wages
on the consolidated statement of 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 $0.19 (2017:
$0.21) . The shares are held in trust by the Company for a period of one year
from the date of purchase.
6. COMMITMENTS
The Company entered into a new lease agreement commencing July
1, 2017 and expiring June 30, 2022 for the same premise consisting of
approximately 6,550 square feet. The Company has fiscal year payments committed
as follows:
|
|
$
|
|
|
|
|
|
2019
|
|
186,397
|
|
2020
|
|
255,165
|
|
2021
|
|
260,557
|
|
2022
|
|
222,315
|
|
During the year ended August 31, 2018, the Company became
entitled to a leasehold improvement allowance from its landlord in the amount of
$45,341, in connection with certain office leasehold improvements completed.
This amount was recorded as a deferred leasehold inducement and is being
amortized against rent expense over the remaining term of the lease.
During the three months ended November 30, 2018 the Company
incurred rent expense of $61,583 (2017 - $65,774) which has been allocated
between general and administrative expenses, research and development and sales
and marketing on the consolidated statement of comprehensive income. The rent
expense during the three months ended November 30, 2018 has included the
amortization of deferred lease inducements on a straight-line basis over the term
of the lease.
5
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
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 Companys 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 Companys 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.
8. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Standards
ASU No. 2014-09 Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from
Contracts with Customers
(ASU 2014-09). ASU 2014-09 provides a five-step
analysis of transactions to determine when and how revenue is recognized. The
premise of ASU 2014-09 is that a company should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for
those goods or services. The Company adopted this standard on September 1, 2018
using the modified retrospective method applied to open contracts at the date of
transition. Under this approach, the Company is not required to restate the
prior financial statements presented. The provisions under this ASU were applied
to all contracts at the date of initial adoption.
In order to comply with the guidance, beginning on September 1,
2018, the Company amended its revenue recognition policy and performed estimates
as outlined below. The adoption of ASU 2014-09 did not result in any adjustment
to the Companys consolidated balance sheet on the date of adoption. Refer to
the Companys Annual Report on Form 10-K for the fiscal year ended August 31,
2018 for a description of the Companys revenue recognition policy prior to
September 1, 2018.
6
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
8. NEW ACCOUNTING PRONOUNCEMENTS Continued
Recently Adopted Accounting Standards Continued
ASU No. 2014-09 Revenue from Contracts with Customers
Continued
Revenue Recognition Policy
The Companys revenue is derived from software as a service
(SaaS) arrangements. The Company accounts for revenue in accordance with ASC
606, which the Company adopted on September 1, 2018 using the modified
retrospective method.
The core principle of ASC 606 is to recognize revenue upon the
transfer of products or services to customers in an amount that reflects the
consideration the Company expects to be entitled to in exchange for those
products or services. ASC 606 prescribes a five-step model for recognizing
revenue from contracts with customers: (1) identify the contract(s) with
customers; (2) identify the separate performance obligations in the contract;
(3) determine the transaction price; (4) allocate the transaction price to the
separate performance obligations in the contract; and (5) recognize revenue when
(or as) the performance obligations are satisfied.
The Company applies the five-step model to recognize revenue as
follows:
Identification of the contract, or contracts, with the
customer
The Company considers the terms and conditions of written
contracts and its customary business practices in identifying its contracts
under ASC 606. The Company determines that it has a contract with a customer
when the contract is approved, the Company can identify each partys rights
regarding the services to be transferred, the Company can identify the payment
terms for the services, the Company has determined that the customer has the
ability and intent to pay, and the contract has commercial substance. In
general, contract terms will be reflected in a written document that is signed
by both parties.
Identification of the performance obligation in the
contract
Performance obligations are promises in a contract to transfer distinct products or services to a customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when the performance obligation is satisfied. A product or service is a distinct performance obligation if the customer can both benefit from the product or service either on its own or together with other resources that are readily available to the customer, and it is separately identifiable from other items within the context of the contract. Performance obligations are satisfied by transferring control of the product or service to the customer. Control of the product or service is transferred either at a point in time or over time depending on the performance obligation.
7
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
8. NEW ACCOUNTING PRONOUNCEMENTS Continued
Recently Adopted Accounting Standards Continued
ASU No. 2014-09 Revenue from Contracts with Customers
Continued
To the extent a contract includes multiple promised services or
products, the Company applies judgment to determine whether promised services or
products are capable of being distinct and distinct in the context of the
contract. If these criteria are not met the promised services are accounted for
as a combined performance obligation.
The Company generates revenue primarily from usage fees for the Company’s digital media distribution service. Usage fees are generally recognized as they are billed based on volume and size of distribution services provided in a given month. The Company’s other performance obligations include maintenance services, email and phone support, and unspecified software updates released when, and if, available. Under the guidance of ASC 606, the Company has concluded that maintenance services and unspecified software upgrades are not distinct in the context of the Company’s contracts because the Company’s service is considered a multi-tenant software environment, and these activities represent a single combined performance obligation in connection with the Company’s digital media distribution service, recognized at a point in time when the service is delivered to the customer. Support activities are considered a separate performance obligation which is satisfied over time; however, such activities are performed substantially concurrently with the satisfaction of digital media distribution services and as such, deferred revenue associated with such activities is immaterial at any given point in time.
Support activities are considered a separate performance obligation which is satisfied over time; however, such activities are performed substantially concurrently with the satisfaction of digital media distribution services.
From time to time, certain of the Company’s contracts contain additional separate performance obligations, including specific enhancements and upgrades.
Determination of the transaction price
The transaction price is determined based on the consideration
to which the Company expects to be entitled in exchange for providing services
to the customer.
8
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
8. NEW ACCOUNTING PRONOUNCEMENTS Continued
Recently Adopted Accounting Standards Continued
ASU No. 2014-09 Revenue from Contracts with Customers
Continued
Digital media distribution services may be subject to either
fixed or variable pricing. Variable consideration is allocated entirely to
distinct service periods when it can be tied to a single performance obligation.
Variable consideration is estimated and included in the transaction price if, in
the Companys judgment, it is probable that there will not be a significant
future reversal of cumulative revenue under the contract. When variable
consideration is contingent and cannot be tied to a single performance
obligation performed in a particular billing period, the Company estimates
contingent variable consideration using the most likely method and recognizes
consideration to the extent that the estimate for variable consideration is not
constrained pursuant to the guidance provided in ASU 606.
A significant financing component generally does not exist
under the Companys standard contracting and billing practices.
Allocation of the transaction price to the performance
obligations in the contract
If the contract contains a single combined performance obligation, the entire transaction price is allocated to the single combined performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on its standalone selling price (“SSP”) in relation to the total fair value of all performance obligations in the arrangement. The majority of the Company’s contracts contain two separate performance obligations that are performed concurrently. The Company allocates consideration to each performance obligation under the guidance of ASC 606 on a relative standalone selling price (SSP) basis. Where SSP is not directly observable, the Company determines the SSP using information that may include market conditions and other observable inputs.
Consideration associated with support activities is estimated using a cost-plus reasonable margin approach, as there is no observable SSP.
Consideration associated with specified enhancements and upgrades is estimated using a cost-plus reasonable margin approach, as there is no observable SSP.
Recognition of revenue when, or as, the Company satisfies a
performance obligation
The Company recognizes revenue when the services are delivered
to its customers, in an amount that reflects the consideration the Company
expects to be entitled to in exchange for those services. The Company is
principally responsible for the satisfaction of its distinct performance
obligations, which are satisfied either at a point in time or over a period of
time.
9
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
8. NEW ACCOUNTING PRONOUNCEMENTS Continued
Recently Adopted Accounting Standards Continued
ASU No. 2014-09 Revenue from Contracts with Customers
Continued
Performance obligations satisfied at a point in
time
Media distribution services
Media distribution services comprise the majority of distinct
performance obligations that are satisfied at a point in time, and revenue is
recognized at the point in which the distribution service has been completed.
Consideration for these services is typically billed in the same period that the service has been
delivered to the customer.
Performance obligations satisfied over a period of
time
Customer support activities comprise the majority of distinct performance obligations that are satisfied over a period of time.
Revenue from support activities is recognized over an estimated support period since this activity is considered a ‘stand-ready obligation’. This support period is substantially concurrent with the performance of media distribution services, as these services are performed substantially in conjunction with the related distribution. Any support activities provided outside of this billing period are not considered material.
Revenue from specified enhancements and upgrades is recognized over an estimated performance period.
Contract Costs
Contract costs consists of two components, customer acquisition
costs and costs to fulfill a contract. Customer acquisition costs are
capitalized only if the costs are incrementally incurred to obtain a customer
contract and may consist of sales commissions paid to sales personnel or
third-party resellers. Generally, the Company does not incur any contract costs outside of the period that the related revenue is recognized.
10
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
8. NEW ACCOUNTING PRONOUNCEMENTS Continued
Recently Adopted Accounting Standards Continued
ASU No. 2014-09 Revenue from Contracts with Customers
Continued
Contract Modifications
Contract modifications may create new, or change existing,
enforceable rights and obligations of the parties to the contract. We generally
modify an existing contract using an addendum or signed change order. A contract
modification is accounted for as a new contract if it reflects an increase in
scope that is regarded as distinct from the original contract and is priced
in-line with the standalone selling price for the related product or services
obligated. If a contract modification is not considered a new contract, the
modification is combined with the original contract and the impact on the
revenue recognition profile depends on whether the remaining products and
services are distinct from the original contract. If the remaining goods or
services are distinct from those in the original contract, all remaining
performance obligations will be accounted for on a prospective basis with
unrecognized consideration allocated to the remaining performance obligations.
If the remaining goods or services are not distinct, the modification will be
treated as if it were a part of the existing contract, and the effect that the
contract modification has on the transaction price, and on our measure of
progress toward satisfaction of the performance obligations, is recognized as an
adjustment to revenue (either as an increase in or a reduction of revenue) at
the date of the contract modification on a cumulative catch-up basis.
ASU 2016-15 Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash
Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15"). ASU 2016-15 reduces the existing diversity in practice in
financial reporting across all industries by clarifying certain existing
principles in ASC 230, Statement of Cash Flows, ("ASC 230") including providing
additional guidance on how and what an entity should consider in determining the
classification of certain cash flows. In addition, in November 2016, the FASB
issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash ("ASU
2016-18"). ASU 2016-18 clarifies certain existing principles in ASC 230,
including providing additional guidance related to transfers between cash and
restricted cash and how entities present, in their statement of cash flows, the
cash receipts and cash payments that directly affect the restricted cash
accounts. This amendment was effective for the Company beginning on September 1,
2018. The adoption of ASU 2016-15 and ASU 2016-18 did not have any material
effect on the Companys consolidated financial statements.
11
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
8. NEW ACCOUNTING PRONOUNCEMENTS Continued
Accounting Standards Not Yet Effective
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842) (ASU 2016-02). The amendments in this update increase
transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for
the Company beginning on September 1, 2019. The Company is currently evaluating
the impact of the new guidance on its consolidated financial statements.
November 30, 2018
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. The Company is in the
process of determining the effect the adoption of this standard will have on its
consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income
StatementReporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income (ASU
2018-02), which provides financial statement preparers with an option to
reclassify stranded tax effects within accumulated other comprehensive income to
retained earnings in each period in which the effect of the change in the U.S.
federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion
thereof) is recorded. The amendments in this ASU are effective for all entities
for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption of ASU 2018-02 is permitted, including
adoption in any interim period for the public business entities for reporting
periods for which financial statements have not yet been issued. The amendments
in this ASU should be applied either in the period of adoption or
retrospectively to each period (or periods) in which the effect of the change in
the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is
recognized. The Company does not expect that the adoption of this guidance will
have a material impact on its consolidated financial statements.
12
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
8. NEW ACCOUNTING PRONOUNCEMENTS Continued
Accounting Standards Not Yet Effective – Continued
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock
Compensation (Topic 718), Improvements to Nonemployee Share-based Payments (ASU
2018-07). This ASU expands the scope of Topic 718 to include share-based
payment transactions for acquiring goods and services from nonemployees. The
effective date for the standard is for interim periods in fiscal years beginning
after December 15, 2018, with early adoption permitted, but no earlier than the
Companys adoption date of Topic 606. The new guidance is required to be applied
retrospectively with the cumulative effect recognized at the date of initial
application. The Company will not early adopt this standard and is currently evaluating the effect ASU 2018-07 will
have on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value
Measurement - Disclosure Framework (Topic 820). The updated guidance improves
the disclosure requirements on fair value measurements. The updated guidance if
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. Early adoption is permitted for any removed
or modified disclosures. The Company is currently assessing the timing and
impact of adopting the updated provisions to its consolidated financial
statements.
13
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL
STATEMENTS
November 30, 2018
9. 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:
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Play MPE®
|
|
|
|
|
|
|
United States
|
|
455,225
|
|
|
438,139
|
|
Europe
|
|
429,996
|
|
|
436,143
|
|
Australia
|
|
84,207
|
|
|
73,333
|
|
Total Play MPE®
Revenue
|
|
969,428
|
|
|
947,615
|
|
|
|
|
|
|
|
|
Clipstream ®
|
|
|
|
|
|
|
United States
|
|
14,591
|
|
|
26,183
|
|
Total Clipstream ®
Revenue
|
|
14,591
|
|
|
26,183
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
984,019
|
|
|
973,798
|
|
Revenue in the above table is based on location of the
customers billing address. Some of these customers have distribution centers
located around the globe and distribute around the world. During the three
months ended November 30, 2018, the Company generated 37% of total revenue from
one customer [2017 - 39%].
It is in managements opinion that the Company is not exposed
to significant credit risk.
As at November 30, 2018, two customers represented $206,827
(61%) of the trade receivables balance [August 31, 2018 one customer
represented $102,313 (25%)].
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.
14
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, we or us 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 software as a service (SaaS)
solutions that solve critical problems in digital distribution and promotion for
businesses in the music industry. The core of our business is the Play MPE®
promotional music marketing and digital distribution service. Play MPE® is a
service for promoting and securely distributing 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, VIPs, DJs, film and TV
personnel, sports stadiums and retailers. The system replaces the physical
distribution (mail, courier or hand delivery) of CDs.
Our customers range from small independent artists, small to
large independent record labels (Indies), to promoters, to the worlds largest
record labels (the Major Record Labels) (Universal Music Group, Warner Music
Group and Sony Music Entertainment). Our Major Record Label clients have offices
around the world and typically represent the worlds largest recording artists.
All three Major Record Labels, and thousands of Indies use Play MPE® for
promotional distribution.
Play MPE®
Play MPE® is a cloud-based enterprise SaaS service providing
tiered, permission based, access allowing our clients to assign varying rights,
capabilities and responsibilities to different members of their staff. For
example, some customer staff may manage assets (album cover imagery, music
videos, the raw music, promotional information and other metadata), while others
manage hierarchical permission-based lists of recipients. Larger labels are
normally structured into sublabel groups, each with their own labels with
varying access (permissions) to various subsets of the master recipient
lists.
The release dates for music can be dependent on the territory
and, where administrative settings permit, local promotions staff may generate a
localized distribution of the song with modified marketing information in the
local language. Local staff may select pre-existing assets from the system and
combine them together with a local recipient lists to form a send. Our
customers also choose the level of access for the recipients assigned to the
release by designating whether the release can be streamed, downloaded, exported
into an unlocked digital format or burned to a CD.
While many clients are set up to manage and upload recipient
lists, many rely on the proprietary lists provided within the service. Our staff
manages lists of recipients in various formats and geographies and those lists
are made available to our customers using the Play MPE® system. The Play MPE®
system provides Play MPE® staff with the feedback and resources necessary to
manage and maintain this network of recipients, which is not available with
physical distribution or by smaller competitors. Customers select lists of
recipients within the proprietary network based on music format and
geography.
When the release is sent, the send appears in the available
tracks section of a recipients account. Recipients can access these tracks
through proprietary iPhone, Android, Mac and Windows based players, or through
partner sites. Our servers also generate a marketing website
(
http://daily.plaympe.com
) which promotes new music. The system
automatically generates charts of the most popular music on the system. These
charts can be syndicated to third parties.
All exported songs are marked in real time with Destinys
watermark technology, which has received three US patents and a number of
analogous patents globally. Songs that appear on the internet are scanned by the
International Federation of the Phonographic Industrys (IFPI) for our
watermark. Headquartered in London, UK, the IFPI is the organization that
represents the interests of the recording industry worldwide and one of its
missions is to safeguard the rights of record producers. IFPI web crawlers visit
torrents, peer to peer networks and websites searching for unauthorized content.
When problem files are identified, the IFPI software looks for Destinys
watermark in the content to identify the originating source.
After the content is released, all activity by the recipient is
logged in real time, providing record labels and promotions staff real time
detail on which songs are accessed, streamed, downloaded and exported. This
contrast with physical distribution where record labels may be unsure whether
the courier package went to the correct individual or whether it was ever
opened. This information provides invaluable feedback in real time to marketing
and promotions staff who can cater their programs appropriately. Recipients
receive a custom library of available tracks and are able to repeat the download
if music is lost.
During fiscal 2018, we launched version 8 of our release
publishing tools for Play MPE®. These new browser-based tools are accessible on
any computer without installation and completely replace the Windows based
desktop tools previously used by our customers. It is expected that this new
solution will increase usage of Play MPE® by providing an easier to use, faster,
more intuitive and streamlined experience, access to both Mac and PC users, new
release creation workflows, and more configuration options. It also allows for
easy translation into multiple languages to accelerate international expansion.
The new encoder has been fully adopted by our sales department and is being
integrated by our customers into their own internal workflows.
We continue to invest in additional development of Play MPE®
Version 8 and related tools and applications, which should lead to higher usage.
Clipstream®
The Company also has a legacy business, Clipstream®, in 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 Companys proprietary
JavaScript codec engine, which is only available on the internet through the
Company. The unique software-based approach to rendering video, is protected by
over two dozen patents claiming initial priority to 2011. This product is
marketed in a limited way and has incidental revenues.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER
30, 2018 AND NOVEMBER 30, 2017
Revenue
Total revenue for the three months ended November 30, 2018 increased by 1.0% over the comparable quarter in 2017, to $984,019 (2017 - $973,798). Play MPE® revenue accounted for 99% of the Company’s revenue (2017 - 97%) and increased by 2.3% over the comparable period in 2017. Removing the effect of foreign exchange fluctuations, our Play MPE® revenue growth was 4.1% over the comparable quarter in 2017. An increase in revenue from a Major Record Label customer in the United States and Europe, along with an increase in revenue from Independent customers in Australia were largely offset by negative foreign exchange fluctuations in the Euro and Australian Dollar.
During the three months ended November 30, 2018, 44% of our
Play MPE® revenues were denominated in Euros and 8% were denominated in
Australian Dollars (2017: 46% and 7%, 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 other
associated expenses such as office space, supplies and benefits. Our operations
are primarily conducted in Canada. 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.
Overall operating costs during the three months ended November 30, 2018 increased by 4.3% to $770,263 (2017 – $738,831). This increase is primarily the result of an increased staffing costs.
Salaries and wages increased by 9.6% over the comparative fiscal quarter as a result of additions to our marketing and business development staff, salary adjustments, non-recurring recruitment charges and added skills in UX design and QA review.
General and administrative
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30-Nov
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|
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30-Nov
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(3 months)
|
|
|
(3 months)
|
|
|
Change
)
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Bad debt
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2,651
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-
|
|
|
2,651
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|
|
0.0%
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|
Office and miscellaneous
|
|
29,169
|
|
|
24,948
|
|
|
4,221
|
|
|
16.9%
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|
Professional fees
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|
54,009
|
|
|
44,908
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|
|
9,101
|
|
|
20.3%
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|
Rent
|
|
8,543
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|
|
8,449
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|
|
94
|
|
|
1.1%
|
|
Telecommunications
|
|
817
|
|
|
1,076
|
|
|
(259
|
)
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|
-24.1%
|
|
Travel
|
|
1,041
|
|
|
4,467
|
|
|
(3,426
|
)
|
|
-76.7%
|
|
Wages and benefits
|
|
86,040
|
|
|
94,735
|
|
|
(8,695
|
)
|
|
-9.2%
|
|
|
|
182,270
|
|
|
178,583
|
|
|
3,687
|
|
|
2.1%
|
|
Our general and administrative expenses consist of salaries and
related personnel costs including overhead, office rent, and general office
supplies. General and administrative costs also include professional fees and
general travel expenditures. The decrease in wages and benefits is a result of
general and administrative staffing reductions. The increase in office and
miscellaneous costs is primarily due to transitionary costs in respect of
administrative software services. The increase in professional fees has been
incurred in connection with employment litigation matters.
Sales and marketing
|
|
30-Nov
|
|
|
30-Nov
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(3 months)
|
|
|
(3 months)
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Advertising and marketing
|
|
26,588
|
|
|
32,367
|
|
|
(5,779
|
)
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-17.9%
|
|
Rent
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|
23,744
|
|
|
25,502
|
|
|
(1,758
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)
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-6.9%
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|
Telecommunications
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|
34,214
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|
|
37,635
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|
(3,421
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)
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-9.1%
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|
Wages and benefits
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|
184,811
|
|
|
134,609
|
|
|
50,202
|
|
|
37.3%
|
|
|
|
269,357
|
|
|
230,113
|
|
|
39,244
|
|
|
17.1%
|
|
Sales and marketing expenses consist of salaries and related
personnel costs including overhead, office rent, and telecommunications costs.
Sales and marketing also includes advertising and marketing expenses, 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 label visits. The
increase in staffing costs relates to the addition of marketing and business
development staff, as well as an increase in wages to existing staff. The
decrease in advertising and marketing expenses is related to savings realized in
connection with seasonal promotional costs.
Research and development
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|
30-Nov
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|
|
30-Nov
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(3 months)
|
|
|
(3 months)
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Rent
|
|
29,296
|
|
|
32,509
|
|
|
(3,213
|
)
|
|
-9.9%
|
|
Research and development
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|
17,498
|
|
|
18,398
|
|
|
(900
|
)
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|
-4.9%
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|
Telecommunications
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|
21,099
|
|
|
25,603
|
|
|
(4,504
|
)
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|
-17.6%
|
|
Wages and benefits
|
|
230,119
|
|
|
227,928
|
|
|
2,191
|
|
|
1.0%
|
|
|
|
298,012
|
|
|
304,438
|
|
|
(6,426
|
)
|
|
-2.1%
|
|
Research and development costs consist primarily of salaries
and related personnel costs including overhead and consulting fees with respect
to product development and deployment. An increase in development staff and
related recruitment charges in the current quarter of fiscal 2019 was largely
offset by a reduction to Clipstream related staffing costs over the comparable
quarter in fiscal 2018.
Depreciation and Amortization
Depreciation and amortization expense arises from property and
equipment, and from patents and trademarks. Amortization decreased to $20,624
for the three months ended November 30, 2018 from $25,697 for the three months
ended November 30, 2017, a decrease of $5,073 or 19.7% from an overall reduction
in spending on patent and trademark costs.
Other earnings and expenses
Interest income increased to $6,434 for the three months ended
November 30, 2018 from $2,325 for the three months ended November 30, 2017, an
increase of $4,109. The interest income is derived from the investment of excess
cash in one-year Guaranteed Investment Certificates.
Net income
During the three months ended November 30, 2018 we had net
income of $220,190 (2017 $233,490). The decrease in net income is attributable
to unfavorable foreign exchange fluctuations affecting our revenues, as well as
an increase in operating expenditures, as discussed in detail above.
For the three months period ended November 30, 2018, adjusted
EBITDA decreased to $245,698 (2017 $273,385). 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:
|
|
2019 Q1
|
|
|
2018 Q4
|
|
|
2018 Q3
|
|
|
2018 Q2
|
|
|
2018 Q1
|
|
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2017 Q4
|
|
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2017 Q3
|
|
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2017 Q2
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net
Income (Loss)
|
|
220,190
|
|
|
171,775
|
|
|
183,629
|
|
|
67,376
|
|
|
233,490
|
|
|
86,635
|
|
|
166,223
|
|
|
(68,205
|
)
|
Amortization, stock-
based compensation
and deferred
leasehold
|
|
31,942
|
|
|
38,108
|
|
|
42,103
|
|
|
43,496
|
|
|
42,220
|
|
|
40,664
|
|
|
40,998
|
|
|
45,404
|
|
inducements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(6,434
|
)
|
|
(4,940
|
)
|
|
(1,628
|
)
|
|
(1,704
|
)
|
|
(2,325
|
)
|
|
(2,243
|
)
|
|
(3,437
|
)
|
|
(3,871
|
)
|
Adjusted
EBITDA
|
|
245,698
|
|
|
204,943
|
|
|
224,104
|
|
|
109,168
|
|
|
273,385
|
|
|
125,056
|
|
|
203,784
|
|
|
(26,672
|
)
|
LIQUIDITY AND FINANCIAL CONDITION
Our cash and cash equivalents and short-term investments
balance increased by $218,859 during the three months ended November 30, 2018 to
$2,468,245 (August 31, 2018 $2,249,386). At November 30, 2018, we held
$1,331,065 (August 31, 2018 - $1,097,434) in cash and cash equivalents and
$1,137,180 (2018 - $1,151,952) in short term investments consisting of one-year
Guaranteed Investment Certificates held through a major Canadian financial
institution.
At November 30, 2018, we had working capital of $2,481,344,
compared to $2,280,695 as at August 31, 2018. The increase in our working
capital was primarily due to net income during the period.
CASH FLOWS
Net cash provided by operating activities for the three months
ended November 30, 2018 was $264,266, compared to $526,378 for the three months
ended November 30, 2017. The decrease in net cash flows provided in the
operating activities was most notably due to changes in non-cash working capital
items, most notably a larger decrease in accrued liabilities during the current
quarter combined with a larger decrease in accounts receivable balance in the
comparable quarter of 2017.
Net cash used in investing activities for the three months
ended November 30, 2018 was $7,215, compared to $74,063 for the three months
ended November 30, 2017. The decrease in net cash used in investing activities
is largely attributable to expenditures on leasehold improvements during the
comparative period in 2017, related to office renovations associated with a
renewal in our office premises.
There were no cash flows from financing activities during the
three months ended November 30, 2018 and 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.
There have been no significant changes in the critical
accounting policies and estimates described in our Annual Report on Form 10-K
for the year ended August 31, 2018 as filed with the SEC on November 27, 2018
except for those described in Note 8, Recently Accounting Pronouncements in
the notes to our Interim Condensed Consolidated Financial Statements included in
this Form 10-Q.
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 8 Recent Accounting Pronouncements in
notes to our Interim Condensed Consolidated Financial Statements included in
this Form 10-Q.