Item 1. Financial Statements.
Condensed Consolidated Interim Financial Statements
Destiny Media Technologies Inc.
(Unaudited)
February 28, 2019
(Expressed in United States
dollars)
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Expressed in United States Dollars)
Unaudited
As at,
|
|
February 28,
|
|
|
August 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
1,458,931
|
|
|
1,097,434
|
|
Short-term investments
[note 3]
|
|
1,154,643
|
|
|
1,151,952
|
|
Accounts receivable, net of allowance for
doubtful accounts of $9,566 [August 31, 2018
$6,031]
[note 9]
|
|
369,001
|
|
|
403,801
|
|
Other receivables
|
|
12,161
|
|
|
15,902
|
|
Prepaid expenses
|
|
57,250
|
|
|
57,252
|
|
Total current assets
|
|
3,051,986
|
|
|
2,726,341
|
|
Deposits
|
|
34,040
|
|
|
34,336
|
|
Property and equipment, net
[note 4]
|
|
192,874
|
|
|
160,273
|
|
Intangible assets,
net
[note 4]
|
|
31,131
|
|
|
41,472
|
|
Total assets
|
|
3,310,031
|
|
|
2,962,422
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
|
|
189,983
|
|
|
141,273
|
|
Accrued liabilities
|
|
238,142
|
|
|
226,876
|
|
Deferred leasehold inducement
|
|
49,941
|
|
|
51,848
|
|
Deferred revenue
|
|
10,026
|
|
|
23,286
|
|
Obligation under capital lease
|
|
|
|
|
2,363
|
|
Total
liabilities
|
|
488,092
|
|
|
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]
|
|
9,790,772
|
|
|
9,766,665
|
|
Accumulated deficit
|
|
(6,650,352
|
)
|
|
(6,951,261
|
)
|
Accumulated other comprehensive loss
|
|
(373, 495
|
)
|
|
(353,642
|
)
|
Total
stockholders equity
|
|
2,821,939
|
|
|
2,516,776
|
|
Total liabilities and stockholders equity
|
|
3,310,031
|
|
|
2,962,422
|
|
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
COMPREHENSIVE INCOME
(Expressed in
United States dollars)
Unaudited
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
February 28,
|
|
|
February 28,
|
|
|
February 28,
|
|
|
February 28,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
[note 9]
|
|
879,364
|
|
|
815,055
|
|
|
1,863,383
|
|
|
1,788,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
215,666
|
|
|
233,279
|
|
|
397,936
|
|
|
411,860
|
|
Sales and marketing
|
|
280,026
|
|
|
211,982
|
|
|
549,383
|
|
|
442,096
|
|
Research and development
|
|
289,764
|
|
|
278,639
|
|
|
587,776
|
|
|
583,078
|
|
Depreciation and Amortization
|
|
19,711
|
|
|
25,490
|
|
|
40,335
|
|
|
51,187
|
|
|
|
805,167
|
|
|
749,390
|
|
|
1,575,430
|
|
|
1,488,221
|
|
Income from operations
|
|
74,197
|
|
|
65,665
|
|
|
287,953
|
|
|
300,632
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
6,522
|
|
|
1,704
|
|
|
12,921
|
|
|
4,029
|
|
Other income
(expense)
|
|
|
|
|
7
|
|
|
35
|
|
|
(3,795
|
)
|
Net income
|
|
80,719
|
|
|
67,376
|
|
|
300,909
|
|
|
300,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
29,232
|
|
|
11,107
|
|
|
(19,853
|
)
|
|
(41,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
109,951
|
|
|
78,483
|
|
|
281,056
|
|
|
259,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share,
basic and diluted
|
|
0.00
|
|
|
0.00
|
|
|
0.01
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
55,013,874
|
|
|
55,013,874
|
|
|
55,013,874
|
|
|
55,013,874
|
|
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in United States dollars)
Unaudited
Three months ended February 28, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
stockholders
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Deficit
|
|
|
loss
|
|
|
|
|
|
|
#
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, November 30, 2018
|
|
55,013,874
|
|
|
55,014
|
|
|
9,778,718
|
|
|
(6,731,071
|
)
|
|
(402,727
|
)
|
|
2,699,934
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
80,719
|
|
|
29,232
|
|
|
109,951
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
12,054
|
|
|
|
|
|
|
|
|
12,054
|
|
Balance,
February 28, 2019
|
|
55,013,874
|
|
|
55,014
|
|
|
9,790,772
|
|
|
(6,650,352
|
)
|
|
(373,495
|
)
|
|
2,821,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2017
|
|
55,013,874
|
|
|
55,014
|
|
|
9,725,603
|
|
|
(7,374,041
|
)
|
|
(319,007
|
)
|
|
2,087,569
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
67,376
|
|
|
11,107
|
|
|
78,483
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
14,879
|
|
|
|
|
|
|
|
|
14,879
|
|
Balance, February 28, 2018
|
|
55,013,874
|
|
|
55,014
|
|
|
9,740,482
|
|
|
(7,306,665
|
)
|
|
(307,900
|
)
|
|
2,180,931
|
|
See
accompanying
notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in United States dollars)
Unaudited
Six months ended February 28, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
stockholders
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Deficit
|
|
|
loss
|
|
|
|
|
|
|
#
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, August 31, 2018
|
|
55,013,874
|
|
|
55,014
|
|
|
9,766,665
|
|
|
(6,951,261
|
)
|
|
(353,642
|
)
|
|
2,516,776
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
300,909
|
|
|
(19,853
|
)
|
|
281,056
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
24,107
|
|
|
|
|
|
|
|
|
24,107
|
|
Balance,
February 28, 2019
|
|
55,013,874
|
|
|
55,014
|
|
|
9,790,772
|
|
|
(6,650,352
|
)
|
|
(373,495
|
)
|
|
2,821,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2017
|
|
55,013,874
|
|
|
55,014
|
|
|
9,712,213
|
|
|
(7,607,531
|
)
|
|
(266,891
|
)
|
|
1,892,805
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
300,866
|
|
|
(41,009
|
)
|
|
259,857
|
|
Stock based compensation
Note 5
|
|
|
|
|
|
|
|
28,269
|
|
|
|
|
|
|
|
|
28,269
|
|
Balance, February 28, 2018
|
|
55,013,874
|
|
|
55,014
|
|
|
9,740,482
|
|
|
(7,306,665
|
)
|
|
(307,900
|
)
|
|
2,180,931
|
|
See
accompanying
notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
CASH FLOWS
Six months ended February 28,
|
(Expressed in United States dollars)
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
300,909
|
|
|
300,866
|
|
Items not involving cash:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
40,335
|
|
|
51,187
|
|
Stock-based compensation
|
|
24,107
|
|
|
28,269
|
|
Deferred leasehold inducement
|
|
(1,458
|
)
|
|
51,002
|
|
Unrealized foreign exchange
|
|
(12,593
|
)
|
|
(423
|
)
|
Loss on disposal of property and equipment
|
|
|
|
|
3,795
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Accounts receivable
|
|
30,016
|
|
|
(2,520
|
)
|
Other receivables
|
|
4,851
|
|
|
(66,119
|
)
|
Prepaid expenses and deposits
|
|
(225
|
)
|
|
839
|
|
Accounts payable
|
|
78,859
|
|
|
13,631
|
|
Accrued liabilities
|
|
(18,106
|
)
|
|
(13,949
|
)
|
Deferred revenue
|
|
(13,035
|
)
|
|
(16,164
|
)
|
Short
term receivable
|
|
|
|
|
65,070
|
|
Net cash provided by operating activities
|
|
433,660
|
|
|
415,484
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITY
|
|
|
|
|
|
|
Purchase of
property, equipment and intangibles
|
|
(64,284
|
)
|
|
(105,620
|
)
|
Net cash used in investing activity
|
|
(64,284
|
)
|
|
(105,620
|
)
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes
on cash
|
|
(7,879
|
)
|
|
(29,689
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents during the period
|
|
361,497
|
|
|
280,175
|
|
Cash and cash
equivalents, beginning of period
|
|
1,097,434
|
|
|
1,342,956
|
|
Cash and cash equivalents, end of period
|
|
1,458,931
|
|
|
1,623,131
|
|
|
|
|
|
|
|
|
Supplementary disclosure
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
Income taxes paid
|
|
|
|
|
|
|
See accompanying notes
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
|
February 28, 2019
|
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
six months ended February 28, 2019 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
|
|
February 28, 2019
|
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
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
February 28, 2019
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
133,525
|
|
|
105,067
|
|
|
28,458
|
|
Computer hardware
|
|
227,763
|
|
|
194,053
|
|
|
33,710
|
|
Computer software
|
|
264,446
|
|
|
204,211
|
|
|
60,235
|
|
Leasehold
improvements
|
|
161,352
|
|
|
90,881
|
|
|
70,471
|
|
|
|
787,086
|
|
|
594,212
|
|
|
192,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
Patents, trademarks and lists
|
|
416,738
|
|
|
385,607
|
|
|
31,131
|
|
|
|
|
|
|
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 and six months
ended February 28, 2019 was $19,711 and $40,335, respectively (2018: $25,490 and
$51,187, respectively)
2
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
|
February 28, 2019
|
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 six months ended February 28, 2019, 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 1,459,431 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 February 28,
2019, 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
|
|
(87,500
|
)
|
|
0.40
|
|
|
|
|
|
|
|
Outstanding at February 28, 2019
|
|
1,543,750
|
|
|
0.39
|
|
|
3.18
|
|
|
|
|
Exercisable at
February 28, 2019
|
|
1,279,167
|
|
|
0.39
|
|
|
3.12
|
|
|
|
|
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 February 28,
2019.
3
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
|
February 28, 2019
|
5. STOCKHOLDERS EQUITY
(contd.)
The following table summarizes information regarding the
non-vested stock purchase options outstanding as of February 28, 2019 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
|
|
(350,001
|
)
|
|
0.07
|
|
Non-vested options at February 28, 2019
|
|
264,583
|
|
|
0.07
|
|
As of February 28, 2019, there was $18,551 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 0.57 years.
During the three and six months ended February 28, 2019, the
total stock-based compensation expense of $12,054 and $24,107, respectively
(2018: $14,879 and $28,269 respectively) is reported in the statement of
comprehensive income as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
February 28
|
|
|
February 28
|
|
|
February 28
|
|
|
February 28
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative
|
|
7,150
|
|
|
9,512
|
|
|
14,303
|
|
|
17,534
|
|
Sales and
marketing
|
|
2,452
|
|
|
1,787
|
|
|
4,902
|
|
|
3,575
|
|
Research and development
|
|
2,452
|
|
|
3,580
|
|
|
4,902
|
|
|
7,160
|
|
Total stock-based compensation
|
|
12,054
|
|
|
14,879
|
|
|
24,107
|
|
|
28,269
|
|
4
Destiny Media Technologies Inc.
|
|
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
|
February 28, 2019
|
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 and six months ended February 28, 2019, the
Company recognized compensation expense of $22,650 and $33,333, respectively
(2018: $19,355 and $26,481, respectively) 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 $0.22 (2018:
$0.24) . 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
|
|
125,906
|
|
2020
|
|
257,676
|
|
2021
|
|
263,121
|
|
2022
|
|
224,502
|
|
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 and six months ended February 28, 2019 the
Company incurred rent expense of $61,550 and $123,133, respectively (2018 -
$74,154 and $139,928, respectively) 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 and six months ended February 28, 2019 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
|
|
February 28, 2019
|
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
|
|
February 28, 2019
|
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 contracts 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
|
|
February 28, 2019
|
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
Companys 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 Companys 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 Companys contracts because the Companys service
is considered a multi-tenant software environment, and these activities
represent a single combined performance obligation in connection with the
Companys 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.
From time to time, certain of the Companys 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
|
|
February 28, 2019
|
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
Companys 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
|
|
February 28, 2019
|
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
|
|
February 28, 2019
|
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
|
|
February 28, 2019
|
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.
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
|
|
February 28, 2019
|
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
|
|
February 28, 2019
|
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:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
February 28
|
|
|
February 28
|
|
|
February 28
|
|
|
February 28
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Play MPE®
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
345,556
|
|
|
306,222
|
|
|
800,780
|
|
|
744,361
|
|
Europe
|
|
439,269
|
|
|
421,689
|
|
|
869,265
|
|
|
857,832
|
|
Australasia
|
|
73,963
|
|
|
68,329
|
|
|
158,170
|
|
|
141,662
|
|
Total Play MPE®
|
|
858,787
|
|
|
796,240
|
|
|
1,828,215
|
|
|
1,743,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clipstream ®
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
20,577
|
|
|
18,815
|
|
|
35,168
|
|
|
44,998
|
|
Total revenue
|
|
879,364
|
|
|
815,055
|
|
|
1,863,383
|
|
|
1,788,853
|
|
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 six months
ended February 28, 2019, the Company generated 41 % of total revenue from one
customer [2018 - 43%].
It is in managements opinion that the Company is not exposed
to significant credit risk.
As at February 28, 2019, two customers represented $191,289
(52%) 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 recipient’s 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 Destiny’s watermark technology, which has received three US patents and a number of analogous patents globally. Songs that appear on the internet are scanned by the International Federation of
the Phonographic Industry’s (“IFPI”) for our watermark. Headquartered in London, UK, the IFPI is the organization that represents the interests of the recording industry worldwide and one of its missions is to safeguard the rights
of record producers. IFPI web crawlers visit torrents, peer to peer networks and websites searching for unauthorized content. When problem files are identified, the IFPI software looks for Destiny’s watermark in the content to identify the
originating source.
After the content is released, all activity by the recipient is logged in real time, providing record labels and promotions staff real time detail on which songs are accessed, streamed, downloaded and exported. This 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.
In July 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 replaced the Windows based desktop tools previously used by our
customers. This new solution provides for increased usage of Play MPE® through 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, including a new entirely browser based Play MPE® recipient player, which should lead to higher usage by our customers and recipients.
Subsequent to February 28, 2019, we announced a new integration of Play MPE® with Nielsen’s BDSradio, which provides Nielsen Music users with an instant gateway into Play MPE®’s extensive release catalog and high-quality content
directly from the BDSradio platform.
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. This product is marketed in a limited way and has incidental revenues.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2019 AND FEBRUARY 28, 2018
Revenue
Total revenue for the three months ended February 28, 2019 increased by 7.9% over the comparable quarter in fiscal 2018, to $879,364 (2018 - $815,055) and increased by 4.2% during the six months ended February 28, 2019 compared to the same
period in fiscal 2018, to $1,863,383 (2018 - $1,788,853).
Play MPE® revenue accounted for 98% of the Company’s revenue (2018 - 97%) and increased by 7.9% over the comparable quarter in fiscal 2018, and by 4.8% over the comparable six-month period in fiscal 2018. Removing the effect of foreign
exchange fluctuations, our Play MPE® revenue growth was 11.8% for the three months ended February 28, 2019 compared to the same quarter in fiscal 2018, and 7.6% for the six months ended February 28, 2019 compared to the same period in fiscal
2018.
The increase in revenue was derived from all territories in which the Company operates, including the United States, Europe, and Australia, and was largely driven by an increase in non-fixed fee income of 16.3% for the three-month period and 11.0%
for the six-month period. In addition, a 14.0% increase in fixed fee income from our largest customer commenced during the current quarter, in January 2019.
Operating Expenses
Overview
As our technologies and products are developed and maintained in-house, the majority of our expenditures are on salaries and wages and associated expenses such as office space, supplies and benefits. Our operations are primarily conducted in Canada
and therefore, our costs are primarily incurred in Canadian dollars while our revenues are primarily denominated in Euros and US dollars. Thus, operating expenses and the results of operations are impacted, to the extent they are not hedged, by the
rise and fall of the relative values of the Canadian dollar to these currencies. The Company maintains a large portion of its financial reserves in Canadian dollars to mitigate the downside risk of adverse exchange rates on its operation
expenditures.
Operating costs during the six months ended February 28, 2019 increased by 5.9% to $1,575,430 (2018 – $1,488,221). This increase is primarily the result of an increase in staffing costs. Salaries and wages increased by 10.4% over the
comparative half year period, 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
|
|
28-Feb
|
|
|
28-Feb
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
(6 months)
|
|
|
(6 months)
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Bad debt
|
|
3,576
|
|
|
2,084
|
|
|
1,492
|
|
|
71.6%
|
|
Office and miscellaneous
|
|
100,197
|
|
|
58,263
|
|
|
41,934
|
|
|
72.0%
|
|
Professional
fees
|
|
80,368
|
|
|
85,835
|
|
|
(5,467
|
)
|
|
-6.4%
|
|
Rent
|
|
16,816
|
|
|
18,681
|
|
|
(1,865
|
)
|
|
-10.0%
|
|
Telecommunications
|
|
1,628
|
|
|
1,924
|
|
|
(296
|
)
|
|
-15.4%
|
|
Travel
|
|
3,533
|
|
|
9,772
|
|
|
(6,239
|
)
|
|
-63.8%
|
|
Wages and
benefits
|
|
191,818
|
|
|
235,302
|
|
|
(43,484
|
)
|
|
-18.5%
|
|
|
|
397,936
|
|
|
411,861
|
|
|
(13,925
|
)
|
|
-3.4%
|
|
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 largely 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.
Sales and marketing
|
|
28-Feb
|
|
|
28-Feb
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
(6 months)
|
|
|
(6 months)
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Advertising and
marketing
|
|
47,227
|
|
|
48,337
|
|
|
(1,110
|
)
|
|
-2.3%
|
|
Rent
|
|
50,405
|
|
|
53,654
|
|
|
(3,249
|
)
|
|
-6.1%
|
|
Telecommunications
|
|
68,121
|
|
|
72,266
|
|
|
(4,145
|
)
|
|
-5.7%
|
|
Wages and benefits
|
|
383,630
|
|
|
267,839
|
|
|
115,791
|
|
|
43.2%
|
|
|
|
549,383
|
|
|
442,096
|
|
|
107,287
|
|
|
24.3%
|
|
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.
Research and development
|
|
28-Feb
|
|
|
28-Feb
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
(6 months)
|
|
|
(6 months)
|
|
|
Change
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
Rent
|
|
55,913
|
|
|
68,599
|
|
|
(12,686
|
)
|
|
-18.5%
|
|
Research and development
|
|
35,947
|
|
|
39,199
|
|
|
(3,252
|
)
|
|
-8.3%
|
|
Telecommunications
|
|
42,486
|
|
|
46,855
|
|
|
(4,369
|
)
|
|
-9.3%
|
|
Wages and benefits
|
|
453,430
|
|
|
428,425
|
|
|
25,005
|
|
|
5.8%
|
|
|
|
587,776
|
|
|
583,078
|
|
|
4,698
|
|
|
0.8%
|
|
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
period in fiscal 2018.
Depreciation and Amortization
Depreciation and amortization expense arises from property and
equipment, and from patents and trademarks. Amortization decreased to $40,335
for the six months ended February 28, 2019 from $51,187 for the six months ended
February 28, 2018, a decrease of 21.2% from an overall reduction in spending on
patent and trademark costs.
Other earnings and expenses
Interest income increased to $12,921 for the six months ended
February 28, 2019 from $4,029 for the six months ended February 28, 2018, an
increase of $8,892. The interest income is derived from the investment of excess
cash in one-year Guaranteed Investment Certificates.
Net income
During the six months ended February 28, 2019 we had net income
of $300,909 (2018 $300,866). Overall, an increase in revenue was offset by
increased spending on staffing costs, as discussed in detail above.
For the three months period ended February 28, 2019, adjusted
EBITDA was $105,239 (2018 $109,168). 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 Q2
|
|
|
2019 Q1
|
|
|
2018 Q4
|
|
|
2018 Q3
|
|
|
2018 Q2
|
|
|
2018 Q1
|
|
|
2017 Q4
|
|
|
2017 Q3
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net Income
|
|
80,719
|
|
|
220,190
|
|
|
171,775
|
|
|
183,629
|
|
|
67,376
|
|
|
233,490
|
|
|
86,635
|
|
|
166,223
|
|
Amortization, stock- based compensation and deferred
leasehold inducements
|
|
31,042
|
|
|
31,942
|
|
|
38,108
|
|
|
42,103
|
|
|
43,496
|
|
|
42,220
|
|
|
40,664
|
|
|
40,998
|
|
Interest income
|
|
(6,522
|
)
|
|
(6,434
|
)
|
|
(4,940
|
)
|
|
(1,628
|
)
|
|
(1,704
|
)
|
|
(2,325
|
)
|
|
(2,243
|
)
|
|
(3,437
|
)
|
Adjusted EBITDA
|
|
105,239
|
|
|
245,698
|
|
|
204,943
|
|
|
224,104
|
|
|
109,168
|
|
|
273,385
|
|
|
125,056
|
|
|
203,784
|
|
LIQUIDITY AND FINANCIAL CONDITION
Our cash and cash equivalents balance increased by $361,497
during the six months ended February 28, 2019. At February 28, 2019, we held
$1,458,931 (August 31, 2018 - $1,097,434) in cash and cash equivalents and
$1,154,643 (2018 - $1,151,952) in short term investments consisting of one-year
Guaranteed Investment Certificates held through a major Canadian financial
institution.
At February 28, 2019, we had working capital of $2,563,894,
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 six months
ended February 28, 2019 was $433,660, which is comparable to $415,484 for the
six months ended February 28, 2018.
Net cash used in investing activities for the six months ended
February 28, 2019 was $64,284, compared to $105,620 for the six months ended
February 28, 2018. During the six months ended February 28, 2019, we spent
approximately $52,000 on the development of new mobile applications for our Play
MPE® Version 8 recipient player. Investing activities during the six months
ended February 28, 2019 were largely attributable to expenditures on leasehold
improvements during that period, related to office renovations associated with a
renewal in our office premises.
There were no cash flows from financing activities during the
six months ended February 28, 2019 and 2018.
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.