Item 1. Financial Statements.
Condensed Consolidated Financial Statements
Destiny Media Technologies Inc.
(Unaudited)
November 30,
2017
(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,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
1,752,591
|
|
|
1,342,956
|
|
Accounts receivable, net of allowance for
|
|
|
|
|
|
|
doubtful accounts of $3,292
[August 31, 2017 $3,383]
[note 10]
|
|
389,451
|
|
|
529,666
|
|
Other receivables
|
|
28,538
|
|
|
21,216
|
|
Short term receivable
[note 3]
|
|
31,333
|
|
|
64,811
|
|
Prepaid expenses
|
|
44,782
|
|
|
54,507
|
|
Deposit
|
|
576
|
|
|
592
|
|
Total current assets
|
|
2,247,271
|
|
|
2,013,748
|
|
Deposits
|
|
27,169
|
|
|
27,923
|
|
Property and equipment, net
[note 4]
|
|
171,491
|
|
|
116,208
|
|
Intangible assets, net
[note 4]
|
|
69,456
|
|
|
86,824
|
|
Total assets
|
|
2,515,387
|
|
|
2,244,703
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
|
|
236,225
|
|
|
127,444
|
|
Accrued liabilities
|
|
167,446
|
|
|
192,433
|
|
Deferred leasehold inducement
|
|
5,084
|
|
|
2,090
|
|
Deferred revenue
|
|
15,040
|
|
|
23,685
|
|
Obligation under
capital lease current portion [
note 6
]
|
|
4,023
|
|
|
6,246
|
|
Total liabilities
|
|
427,818
|
|
|
351,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
[notes 6 and 8]
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
Common stock, par value $0.001
[note
5]
Authorized: 100,000,000
shares
Issued and outstanding: 55,013,874
shares
[August 31, 2017
issued and outstanding 55,013,874 shares]
|
|
55,014
|
|
|
55,014
|
|
Additional paid-in capital
[note 5]
|
|
9,725,603
|
|
|
9,712,213
|
|
Accumulated deficit
|
|
(7,374,041
|
)
|
|
(7,607,531
|
)
|
Accumulated other comprehensive loss
|
|
(319,007
|
)
|
|
(266,891
|
)
|
Total
stockholders equity
|
|
2,087,569
|
|
|
1,892,805
|
|
Total liabilities and stockholders equity
|
|
2,515,387
|
|
|
2,244,703
|
|
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Expressed in United States
dollars)
Unaudited
Three months ended November 30,
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Service revenue
[note 10]
|
|
973,798
|
|
|
892,229
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
General and administrative
|
|
150,935
|
|
|
178,906
|
|
Sales and marketing
|
|
259,129
|
|
|
247,406
|
|
Research and development
|
|
303,070
|
|
|
324,674
|
|
Depreciation and amortization
|
|
25,697
|
|
|
41,878
|
|
|
|
738,831
|
|
|
792,864
|
|
Income from operations
|
|
234,967
|
|
|
99,365
|
|
Other income
|
|
|
|
|
|
|
Interest income
|
|
2,325
|
|
|
4,763
|
|
Other income
(expense)
|
|
(3,802
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
233,490
|
|
|
104,128
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
(52,116
|
)
|
|
(33,369
|
)
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
181,374
|
|
|
70,759
|
|
|
|
|
|
|
|
|
Net income per
common share, basic and diluted
|
|
0.00
|
|
|
0.00
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
55,013,874
|
|
|
55,013,874
|
|
Diluted
|
|
55,013,874
|
|
|
55,013,874
|
|
See accompanying notes
DestinyMedia Technologies Inc.
CONDENSEDCONSOLIDATEDSTATEMENTSOF CHANGES IN STOCKHOLDERSEQUITY
(Expressed in United States
dollars)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
stockholders
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Deficit
|
|
|
loss
|
|
|
|
|
|
|
#
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, August 31, 2016
|
|
55,013,874
|
|
|
55,014
|
|
|
9,666,080
|
|
|
(7,896,312
|
)
|
|
(336,377
|
)
|
|
1,488,405
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
288,781
|
|
|
69,486
|
|
|
358,267
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
46,133
|
|
|
|
|
|
|
|
|
46,133
|
|
Balance, August 31, 2017
|
|
55,013,874
|
|
|
55,014
|
|
|
9,712,213
|
|
|
(7,607,531
|
)
|
|
(266,891
|
)
|
|
1,892,805
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
233,490
|
|
|
(52,116
|
)
|
|
181,374
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
13,390
|
|
|
|
|
|
|
|
|
13,390
|
|
Balance, November 30, 2017
|
|
55,013,874
|
|
|
55,014
|
|
|
9,725,603
|
|
|
(7,374,041
|
)
|
|
(319,007
|
)
|
|
2,087,569
|
|
See
accompanying
notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
Three months ended November 30,
|
|
(Expressed in United States dollars)
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
233,490
|
|
|
104,128
|
|
Items not involving cash:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
25,697
|
|
|
41,878
|
|
Stock-based compensation
|
|
13,390
|
|
|
12,402
|
|
Deferred leasehold inducement
|
|
3,133
|
|
|
(8,582
|
)
|
Unrealized foreign exchange
|
|
379
|
|
|
372
|
|
Loss on disposal of property, plant and
equipment
|
|
3,801
|
|
|
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Accounts receivable
|
|
112,078
|
|
|
131,270
|
|
Other receivables
|
|
9,191
|
|
|
(11,516
|
)
|
Prepaid expenses and deposits
|
|
8,498
|
|
|
16,588
|
|
Accounts payable
|
|
114,107
|
|
|
73,276
|
|
Accrued liabilities
|
|
(21,366
|
)
|
|
(28,333
|
)
|
Deferred revenue
|
|
(8,220
|
)
|
|
(8,085
|
)
|
Short
term receivable
|
|
32,200
|
|
|
15,216
|
|
Net cash provided by operating activities
|
|
526,378
|
|
|
338,614
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITY
|
|
|
|
|
|
|
Purchase of
property, equipment and intangibles
|
|
(74,063
|
)
|
|
(23,668
|
)
|
Net cash used in investing activity
|
|
(74,063
|
)
|
|
(23,668
|
)
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes
on cash
|
|
(42,680
|
)
|
|
(15,983
|
)
|
|
|
|
|
|
|
|
Net increase in cash and
|
|
|
|
|
|
|
cash equivalents during the period
|
|
409,635
|
|
|
298,963
|
|
Cash and cash equivalents, beginning of period
|
|
1,342,956
|
|
|
662,743
|
|
Cash and cash
equivalents, end of period
|
|
1,752,591
|
|
|
961,706
|
|
|
|
|
|
|
|
|
Supplementary disclosure
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
Income taxes paid
|
|
|
|
|
|
|
Equipment acquired through capital lease obligations
|
|
|
|
|
|
|
See accompanying notes
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
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
three months ended November 30, 2017 are not necessarily indicative of the
results that may be expected for the year ended August 31, 2018.
The balance sheet at August 31, 2017 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, 2017.
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
3. SHORT TERM RECEIVABLE
In a prior year, the Company agreed to settle litigation with
an unrelated party. Pursuant to a Settlement Deed dated March 5, 2012, the
Company became entitled to a settlement 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 AUD$14,050 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 November 30, 2017, installments of
US$904,962, including interest of US$232,865, have been received (AUD$1,041,350
and AUD$257,721, respectively).
The following table summarizes the changes regarding the
carrying value of the remaining receivable balance during the year ended August
31, 2017 and covering the period of September 1, 2017 to November 30, 2017:
|
|
November 30,
|
|
|
August 31,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Beginning balance
|
|
64,811
|
|
|
175,206
|
|
Gross installments received
|
|
(32,851
|
)
|
|
(127,845
|
)
|
Interest
|
|
1,366
|
|
|
12,840
|
|
Foreign exchange impact
|
|
(1,993
|
)
|
|
4,610
|
|
Ending balance
|
|
31,333
|
|
|
64,811
|
|
The foreign exchange impact in the above table is partially
allocated into other comprehensive income (loss) and partially allocated into
exchange gain (loss) on the income statement.
Payments to be received over the next fiscal year are as
follows:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
31,333
|
|
|
537
|
|
|
31,870
|
|
|
|
31,333
|
|
|
537
|
|
|
31,870
|
|
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
4. PROPERTY AND EQUIPMENT AND INTANGIBLES
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
|
Cost
|
|
|
amortization
|
|
|
value
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
November 30, 2017
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
148,574
|
|
|
110,017
|
|
|
38,557
|
|
Computer hardware
|
|
237,135
|
|
|
191,124
|
|
|
46,011
|
|
Computer software
|
|
216,542
|
|
|
198,341
|
|
|
18,201
|
|
Leasehold
improvement
|
|
138,208
|
|
|
69,486
|
|
|
68,722
|
|
|
|
740,459
|
|
|
568,968
|
|
|
171,491
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
Patents,
trademarks and lists
|
|
405,968
|
|
|
336,512
|
|
|
69,456
|
|
|
|
405,968
|
|
|
336,512
|
|
|
69,456
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2017
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
171,724
|
|
|
126,005
|
|
|
45,719
|
|
Computer hardware
|
|
241,705
|
|
|
192,596
|
|
|
49,109
|
|
Computer software
|
|
222,554
|
|
|
201,174
|
|
|
21,380
|
|
Leasehold
improvement
|
|
71,415
|
|
|
71,415
|
|
|
|
|
|
|
707,398
|
|
|
591,190
|
|
|
116,208
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
Patents,
trademarks and lists
|
|
415,752
|
|
|
328,928
|
|
|
86,824
|
|
|
|
415,752
|
|
|
328,928
|
|
|
86,824
|
|
Depreciation and amortization for the three months ended
November 30, 2017 was $25,697 (2016: $41,878)
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
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, 2017, 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 1,240,681 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 November 30,
2017, 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, 2017
|
|
1,806,250
|
|
|
0.39
|
|
|
4.07
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
(43,750
|
)
|
|
0.40
|
|
|
|
|
|
|
|
Outstanding at November 30, 2017
|
|
1,762,500
|
|
|
0.39
|
|
|
3.92
|
|
|
|
|
Exercisable at
November 30, 2017
|
|
595,831
|
|
|
0.39
|
|
|
2.78
|
|
|
|
|
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,
2017.
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
5. STOCKHOLDERS EQUITY (contd.)
The following table summarizes information regarding the
non-vested stock purchase options outstanding as of November 30, 2017 and
changes during the period then ended:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of Options
|
|
|
Fair Value
|
|
|
|
|
|
|
$
|
|
Non-vested options at August 31, 2017
|
|
1,366,667
|
|
|
0.07
|
|
Granted
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
Vested
|
|
(199,998
|
)
|
|
0.07
|
|
Non-vested options at November 30, 2017
|
|
1,166,669
|
|
|
0.07
|
|
As of November 30, 2017, there was $78,577 of total
unrecognized compensation cost related to non-vested share-based compensation
awards. The unrecognized compensation cost is expected to be recognized over a
weighted average period of 1.5 years.
During the three months ended November 30, 2017, the total
stock-based compensation expense of $13,390 is reported in the statement of
comprehensive income as follows:
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Stock-based compensation
|
|
|
|
|
|
|
General and administrative
|
|
8,023
|
|
|
8,764
|
|
Sales and marketing
|
|
1,540
|
|
|
1,323
|
|
Research and development
|
|
3,827
|
|
|
2,315
|
|
Total stock-based compensation
|
|
13,390
|
|
|
12,402
|
|
Subsequent to November 30, 2017, the Company granted 150,000
options at an exercise price of $0.40 for a period of five years from the date
of issuance.
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
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. 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 will also be responsible for the administration of the Plan on behalf of
Destiny and the participants.
During the three months ended November 30, 2017, the Company
recognized compensation expense of $7,126 (2016: $7,465) 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 $0.21 (2016:
$0.19) . The shares are held in trust by the Company for a period of one year
from the date of purchase.
[d] Warrants
A summary of common stock warrants outstanding as of November
30, 2017, and changes during the period then ended is presented below:
|
|
Number of
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Common
|
|
|
Exercise
|
|
|
Date
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
of
|
|
|
Value
|
|
|
|
Issuable
|
|
|
$
|
|
|
Expiry
|
|
|
$
|
|
Outstanding at August 31, 2017
|
|
1,010,000
|
|
|
0.30
|
|
|
October 20,
2017
|
|
|
|
|
Expired
|
|
(1,010,000
|
)
|
|
0.30
|
|
|
|
|
|
|
|
Outstanding at November 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
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:
|
|
$
|
|
|
|
|
|
2018
|
|
184,171
|
|
2019
|
|
250,787
|
|
2020
|
|
257,990
|
|
2021
|
|
263,498
|
|
2022
|
|
224,878
|
|
During the three months ended November 30, 2017 the Company
incurred rent expense of $65,774 (2016 - $57,830) 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, 2017 has included the
allocation of rental payments on a straight-line basis over the term of the
lease.
In February 2015, the Company entered into a capital lease. The
Company is committed to future payments under its capital leases until March
2018 as follows:
|
|
$
|
|
2018
|
|
4,075
|
|
Total lease payments
|
|
4,075
|
|
Less: Amounts representing interest
|
|
(52
|
)
|
Balance of
obligation
|
|
4,023
|
|
7. RELATED PARTY TRANSACTIONS
There were no related party transactions during the three
months ended November 30, 2017 and comparative period ended November 30,
2016.
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
8. CONTINGENCIES
i)
|
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.
|
|
|
ii)
|
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 will defend 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.
|
9. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Standards
In November 2015, the FASB issued ASU No. 2015-17, Income
Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU
2015-17). ASU 2015-17 requires deferred tax assets and liabilities to be
classified as non-current in the consolidated balance sheet. Previously,
accounting principles required an entity to separate deferred income tax assets
and liabilities between current and noncurrent amounts in a classified statement
of financial position. The Company adopted this standard on September 1, 2017.
The adoption of ASU 2015-17 did not have any impact on the Companys
consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
CompensationStock Compensation (Topic 718): Scope of Modification Accounting
(ASU 2017-09), which provides guidance on determining which changes to the
terms and conditions of share-based payment awards require an entity to apply
modification accounting under Topic 718. The amendments in this ASU should be
applied prospectively to an award modified on or after the adoption date. The
Company adopted this standard on September 1, 2017. The adoption of ASU 2015-17
did not have any impact on the Companys consolidated financial statements.
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
9. NEW ACCOUNTING PRONOUNCEMENTS (contd.)
Accounting Standards Not Yet Effective
In May 2014, the FASB issued ASU No. 2014-09, Revenue from
Contracts with Customers (Topic 606) (ASU 2014-09). This new accounting
guidance on revenue recognition provides for a single five-step model to be
applied to all revenue contracts with customers. The new standard also requires
additional financial statement disclosures that will enable users to understand
the nature, amount, timing and uncertainty of revenue and cash flows relating to
customer contracts. ASU 2014-09 will be effective for the Company beginning on
September 1, 2018. The Company is currently evaluating the impact of the new
guidance on its consolidated financial statements and has not yet selected a
transition approach to implement the standard.
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842) (ASU 2016-02). The amendments in this Update increase
transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about
leasing arrangements. ASU 2016-02 will be effective for the Company beginning on
September 1, 2019. The Company is currently evaluating the impact of the new
guidance on its consolidated financial statements.
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.
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
9. NEW ACCOUNTING PRONOUNCEMENTS (contd.)
In November 2016, the FASB issued ASU No. 2016-18, Statement
of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). The purpose of
Update No. 2016-18 is to clarify guidance and presentation related to restricted
cash in the statements of cash flows as well as increased disclosure
requirements. It requires beginning-of-period and end-of-period total amounts
shown on the statements of cash flows to include cash and cash equivalents as
well as restricted cash and restricted cash equivalents. Update No. 2016-18 will
be effective for the Company beginning on September 1, 2018. Early adoption is
permitted. The Company is in the process of determining the effect the adoption
of this standard will have on its consolidated statements of cash flows.
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:
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Play MPE®
|
|
|
|
|
|
|
United States
|
|
438,139
|
|
|
363,259
|
|
Europe
|
|
436,143
|
|
|
440,162
|
|
Australia
|
|
73,333
|
|
|
77,710
|
|
Total Play MPE® Revenue
|
|
947,615
|
|
|
881,131
|
|
|
|
|
|
|
|
|
Clipstream ®
|
|
|
|
|
|
|
United States
|
|
26,183
|
|
|
11,098
|
|
Total Clipstream ® Revenue
|
|
26,183
|
|
|
11,098
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
973,798
|
|
|
892,229
|
|
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED
INTERIM
|
FINANCIAL STATEMENTS
|
|
November 30, 2017
|
10. CONCENTRATIONS AND ECONOMIC DEPENDENCE (contd.)
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, 2017, the Company generated 39% of total revenue from
one customer [2016 - one customer represented 39%].
It is in managements opinion that the Company is not exposed
to significant credit risk.
As at November 30, 2017, one customer represented $125,862
(32%) of the trade receivables balance [August 31, 2017 one customer
represented $377,672 (71%)].
The Company has substantially all its assets in Canada and its
current and planned future operations are, and will be, located in Canada.
11. SUBSEQUENT EVENTS
In accordance with ASC 855 Subsequent Events, which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued,
we have evaluated all events or transactions that occurred after November 30,
2017 up through the date we issued the condensed consolidated financial
statements and has determined that there was no other material event that
occurred after the date of the balance sheets included in this report that has
not already been disclosed.
Item 2. 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 distribution and promotion for
businesses in the music industry of digital media content over the Internet.
Destiny services are based around proprietary security, watermarking and instant
play streaming media technologies.
The core of the 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 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.
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.
Play MPE®
Play MPE® is a service used by the recording industry for
promoting and securely distributing broadcast quality audio, video, images,
promotional information and other digital content securely through the internet.
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 label 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, Mac and Windows based players, or through partner
sites. In addition, we have made it even easier for decision makers in radio,
press, TV, and film to use the Play MPE® service with a secure streaming audio
preview feature. The enhancement allows Play MPE® recipients to quickly hear a
short preview of a song directly from the notification email without having to
login.
Destiny's servers also generate a marketing website (
http://daily.plaympe.com
) which promotes new music. The
system automatically generates charts of the most popular music on the system.
These charts can be syndicated to third parties.
All exported songs are marked in real time with 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
contrasts with physical distribution, where record labels may be unsure whether
the courier package went to the correct individual or whether it was ever
opened. This activity information provides invaluable feedback in real time to
marketing and promotions staff who can cater their programs appropriately.
Recipients receive a custom library of available tracks and are able to repeat
the download if music is lost.
Real time usage statistics for Play MPE® are available at:
http://www.dsny.com/play-mpe-stats
Ongoing development work is progressing towards a completely
browser based encoder. When all stages are complete, this system will be
accessible on any computer without installation and will completely replace many
of the current Windows based desktop tools. It is expected that this new
solution will increase usage of Play MPE® by providing an easier to use, more
intuitive experience, providing access to both Mac and PC users, providing new
release creation workflows, and more configuration options. It also allows for
easy translation to accelerate international expansion.
We continue to invest in various development projects 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 Company’s 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 [
NTD: Does this need to be updated?
]. This product is marketed in a limited way and has incidental revenues.
In November 2017, after completing a detailed review of the resources required to progress Clipstream® further, the Company transitioned the product to maintenance only and stopped development of new major features. Business development will
focus on identifying strategic alternatives for the product, business, and intellectual property outside the Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2017 AND NOVEMBER 30, 2016
Revenue
Total revenue for the three months ended November 30, 2017 increased by 9% to $973,798 (2016 - $892,229). Play MPE® revenue accounted for 97% of the Company’s revenue (2016 - 99%) and increased by 8% over the comparable period in
fiscal 2017. The increase in Play MPE® revenue in the three months ended November 30, 2017 is the result of an increase in North American revenues, mostly as a result of continued consistent growth in US independent customers, which increased by
25% over the comparable period in fiscal 2017. The growth in US independent customers was partially offset by a small decrease in revenue from Europe and Australia/New Zealand, due to a combination of factors.
During the three months ended November 30, 2017, 46% of our Play MPE® revenues were denominated in Euros and 7% were denominated in Australian Dollars (2016: 50% and 8%, respectively). During the three months ended November 30, 2017, the effect
of foreign exchange fluctuations in these currencies had a favorable impact on our reported revenues from these currencies.
Operating Expenses
Overview
As our technologies and products are developed and maintained in-house, the majority of our expenditures are on salaries and wages and associated personnel expenses; including office space, supplies and benefits. Our operations are primarily
conducted in Canada. Therefore, the majority of our costs are incurred in Canadian dollars while the majority of our revenues are denominated in US dollars and Euros. Thus, operating expenses and the results of operations are impacted, to the extent
they are not hedged, by the rise and fall of the relative values of the US dollar to these currencies. The Company maintains the majority of its financial reserves in Canadian or US dollars to mitigate the downside risk of adverse exchange rates on
its operating expenditures.
Overall operating costs fell by 7% to $738,831 (2016 – $792,864) during the three months ended November 30, 2017. The majority of this decline is the result of reductions in staffing costs and certain Clipstream® related
expenditures. These declines were partially offset by an increase in non-recurring professional fees.
Salaries and wages declined by 12% over the comparative fiscal quarter as a result of staffing reductions experienced near the end of the 2017 fiscal year. A portion of these staffing reductions were replaced during the current fiscal quarter,
however a significant portion of these staffing reductions during fiscal 2017 did not result in a reduction in our ability to fully service our current and prospective customers and, as a result, we expect to see a reduction in total staffing costs
for fiscal 2018 overall.
|
|
|
|
|
30-
|
|
|
|
|
|
|
|
General and administrative
|
|
30-November
|
|
|
November
|
|
|
$
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
|
|
(3 months)
|
|
|
(3 months)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Wages and benefits
|
|
64,454
|
|
|
89,781
|
|
|
(25,327
|
)
|
|
(28.2%
|
)
|
Rent
|
|
8,449
|
|
|
9,246
|
|
|
(797
|
)
|
|
(8.6%
|
)
|
Telecommunications
|
|
8,176
|
|
|
10,099
|
|
|
(1,923
|
)
|
|
(19.0%
|
)
|
Bad debt (recovery)
|
|
-
|
|
|
(1,323
|
)
|
|
1,323
|
|
|
(100.0%
|
)
|
Office and
miscellaneous
|
|
24,948
|
|
|
43,469
|
|
|
(18,521
|
)
|
|
(42.6%
|
)
|
Professional fees
|
|
44,908
|
|
|
27,634
|
|
|
17,274
|
|
|
62.5%
|
|
|
|
150,935
|
|
|
178,906
|
|
|
(27,971
|
)
|
|
(15.6%
|
)
|
Our general and administrative expenses consist primarily of
salaries and related personnel costs including overhead, professional fees, and
other general office expenditures. The decrease in wages and benefits is as a
result of staffing reductions experienced in the fourth quarter of fiscal 2017,
as discussed above. The decrease in office and miscellaneous is mostly due
favorable foreign exchange impacts, as well as a reduction in certain public
company related expenditures. The increase in professional fees is a due to a
temporary increase incurred in connection with legal advice related to
employment matters.
|
|
30-
|
|
|
30-
|
|
|
|
|
|
|
|
Sales and marketing
|
|
November
|
|
|
November
|
|
|
$
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
|
|
(3 months)
|
|
|
(3 months)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Wages and benefits
|
|
172,114
|
|
|
181,509
|
|
|
(9,395
|
)
|
|
(5.2%
|
)
|
Rent
|
|
25,502
|
|
|
20,563
|
|
|
4,939
|
|
|
24.0%
|
|
Telecommunications
|
|
24,679
|
|
|
22,460
|
|
|
2,219
|
|
|
9.9%
|
|
Travel
|
|
4,467
|
|
|
2,065
|
|
|
2,402
|
|
|
116.3%
|
|
Advertising and
marketing
|
|
32,367
|
|
|
20,809
|
|
|
11,558
|
|
|
55.5%
|
|
|
|
259,129
|
|
|
247,406
|
|
|
11,723
|
|
|
4.7%
|
|
Sales and marketing expenses consist primarily of salaries and
related personnel costs including overhead, advertising and promotional fees,
and marketing-related travel costs. The decrease in wages and benefits is
attributable to reduced staffing costs.
This decrease was offset by an
increase in advertising and marketing costs attributable to increased marketing
related travel and seasonal expenditures.
|
|
30-
|
|
|
30-
|
|
|
|
|
|
|
|
Research and development
|
|
November
|
|
|
November
|
|
|
$
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
|
|
(3 months)
|
|
|
(3 months)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Wages and benefits
|
|
220,704
|
|
|
247,846
|
|
|
(27,142
|
)
|
|
(11.0%
|
)
|
Rent
|
|
32,509
|
|
|
28,021
|
|
|
4,488
|
|
|
16.0%
|
|
Telecommunications
|
|
31,459
|
|
|
30,605
|
|
|
854
|
|
|
2.8%
|
|
Research and development
|
|
18,398
|
|
|
18,202
|
|
|
196
|
|
|
1.1%
|
|
|
|
303,070
|
|
|
324,674
|
|
|
(21,604
|
)
|
|
(6.7%
|
)
|
Research and development costs consist primarily of salaries
and related personnel costs including overhead and consulting fees with respect
to product development and deployment. The decrease in wages and benefits is
attributable to reduced staffing costs, including Clipstream® related staffing
costs.
Depreciation and Amortization
Depreciation and amortization expense arises from property and
equipment, and from patents and trademarks. Amortization decreased to $25,697
for the three months ended November 30, 2017 from $41,878 for the three months
ended November 30, 2016, a decrease of $16,181 or 39% from an overall reduction
in the capital asset balance subject to amortization.
Other earnings and expenses
Interest income decreased to $2,325 for the three months ended
November 30, 2017 from $4,763 for the three months ended November 30, 2016, a
decrease of $2,438. The interest income is derived from the amount receivable
pursuant to our previous litigation settlement. The decrease in interest income
is the result of a lower settlement receivable balance from the settlement
receivable being paid down during the year.
Net income
During the three months ended November 30, 2017 we had net
income of $233,490 (2016 $104,128). 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, depreciation and amortization,
telecommunications and favorable foreign exchange fluctuations.
For the three months period ended November 30, 2017, adjusted
EBITDA increased to $273,385 (2016 $145,063). 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:
|
|
2018 Q1
|
|
|
2017 Q4
|
|
|
2017 Q3
|
|
|
2017 Q2
|
|
|
2017 Q1
|
|
|
2016 Q4
|
|
|
2016 Q3
|
|
|
2016 Q2
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net Income (Loss)
|
|
233,490
|
|
|
86,635
|
|
|
166,223
|
|
|
(68,205
|
)
|
|
104,128
|
|
|
(9,048
|
)
|
|
(2,813
|
)
|
|
(75,383
|
)
|
Amortization, stock based compensation and deferred
leasehold inducements
|
|
42,220
|
|
|
40,664
|
|
|
40,998
|
|
|
45,404
|
|
|
45,698
|
|
|
22,169
|
|
|
64,408
|
|
|
57,404
|
|
Interest income
|
|
(2,325
|
)
|
|
(2,243
|
)
|
|
(3,437
|
)
|
|
(3,871
|
)
|
|
(4,763
|
)
|
|
(4,075
|
)
|
|
(4,902
|
)
|
|
(6,033
|
)
|
Adjusted EBITDA
|
|
273,385
|
|
|
125,056
|
|
|
203,784
|
|
|
(26,672
|
)
|
|
145,063
|
|
|
9,046
|
|
|
56,693
|
|
|
(24,012
|
)
|
LIQUIDITY AND FINANCIAL CONDITION
At November 30, 2017, we had cash of $1,752,591 (August 31,
2017 $1,342,956). We had working capital of $1,819,453 as at November 30, 2017
compared to working capital of $1,661,850 as at August 31, 2017.
CASH FLOWS
Net cash provided by operating activities was $526,378 for the
three months ended November 30, 2017, compared to net cash provided of $338,614
for the three months ended November 30, 2016. The increase in net cash flows
provided in the operating activities was most notably due to an increase in net
income over the comparative period.
Net cash used in investing activities was $74,063 for the three
months ended November 30, 2017, compared to net cash used of $23,668 for the
three months ended November 30, 2016. The increase in net cash used in investing
activities is largely attributable to expenditures on leasehold improvements
related to office renovations associated with a renewal in our office premises
lease.
There were no cash flows from financing activities during the
three months ended November 30, 2017 and 2016.
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 9 Recent Accounting Pronouncements in
Notes to Interim Condensed Consolidated Financial Statements for the three
months ended November 30, 2017.
CRITICAL ACCOUNTING POLICIES
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 option’s expected term and the price volatility of the underlying stock. Our current estimate of volatility is based on historical and market-based implied volatilities of our stock
price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the
expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to
vest. Our estimate of the forfeiture rate is based primarily on our historical experience. To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the quarter of revision, as well as in
the following quarters. In the future, as empirical evidence regarding these input estimates is available to provide more directionally predictive results, we may change or refine our approach of deriving these input estimates.
Research and Development Expense for Software Products
Research and development expense includes costs incurred to develop intellectual property. The costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has
been established, at which time any additional costs would be capitalized. We have determined that technological feasibility is established at the time a working model of software is completed. Because we believe our current process for developing
software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.
Significant management judgments and estimates must be made in connection with determination of any amounts identified for capitalization as software development costs in any accounting period. If we made different judgments or utilized different
estimates for any period material differences in the amount and timing of capitalized development costs could occur.
Accounts Receivable and Allowance for Doubtful Accounts
We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required. Accounts outstanding beyond the contractual payment terms are considered past due. We determine our
allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer's current ability to pay its obligation to us.
We write-off accounts receivable when they are identified as uncollectible. All outstanding accounts receivable accounts are periodically reviewed for collectability on an individual basis.
Income Taxes
Deferred income tax assets and liabilities are computed based
on differences between the carrying amount of assets and liabilities on the
balance sheet and their corresponding tax values using the enacted income tax
rates by tax jurisdiction at each balance sheet date. Deferred income tax assets
also result from unused loss carry-forwards and other deductions. The valuation
of deferred income tax assets is reviewed annually and adjusted, if necessary,
by use of a valuation allowance to reflect the estimated realizable amount.
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We evaluate all
available evidence, such as recent and expected future operating results by tax
jurisdiction, and current and enacted tax legislation and other temporary
differences between book and tax accounting to determine whether it is more
likely than not that some portion or all of the deferred income tax assets will
not be realized. There is a risk that management estimates for operating results
could vary significantly from actual results, which could materially affect the
valuation of the future income tax asset. 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.