UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29,November 30, 2020
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-28259
DESTINY MEDIA TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
NEVADA | 84-1516745 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
|
| |
1110 - 885 West Georgia Street, |
| |
Vancouver, British Columbia, Canada | V6C 3E8 | |
(Address of principal executive offices) | (Zip Code) | |
|
|
604-609-7736
(Registrant's telephone number, including area code)
________________________________________________________________
(Former name, former address and former fiscal year, if changes since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] |
| Accelerated filer | [ ] |
Non-accelerated filer | [ ] | Smaller reporting company | [X] | |
Emerging growth company | [ ] |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
[ ]Yes] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date:
The number of shares outstanding of the registrant's common stock, par value $0.001, as of April 12, 2020January 11, 2021 was 11,002,775.10,450,656.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Interim Financial Statements
Destiny Media Technologies Inc.
(Unaudited)February 29,
November 30, 2020
(Expressed in United States dollars)
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Expressed in United States Dollars)
Unaudited
As at, | February 29, | August 31, | ||||
2020 | 2019 | |||||
$ | $ | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | 1,050,177 | 2,512,138 | ||||
Short-term investments [note 3] | 1,129,382 | 380,056 | ||||
Accounts receivable, net of allowance for doubtful accounts of $9,853, [August 31, 2019 – $10,106] | 567,916 | 332,271 | ||||
Other receivables | 9,825 | 14,240 | ||||
Prepaid expenses | 69,965 | 77,067 | ||||
Total current assets | 2,827,265 | 3,315,772 | ||||
Deposits | 33,472 | 33,716 | ||||
Property and equipment, net [note 4] | 238,934 | 260,907 | ||||
Intangible assets, net [note 4] | 21,184 | 24,695 | ||||
Right of use asset [note 5] | 501,483 | — | ||||
Total assets | 3,622,338 | 3,635,090 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current | ||||||
Accounts payable | 246,156 | 132,451 | ||||
Accrued liabilities | 256,679 | 303,470 | ||||
Deferred leasehold inducement | — | 46,774 | ||||
Deferred revenue | 7,014 | 23,388 | ||||
Current portion of operating lease liability [note 7] | 219,894 | — | ||||
Total current liabilities | 729,743 | 506,083 | ||||
Operating lease liability, net of current portion [note 7] | 333,407 | — | ||||
Total liabilities | 1,063,150 | 506,083 | ||||
Commitments and contingencies [notes 7 and 8] | ||||||
Stockholders’ equity | ||||||
Common stock, par value $0.001 [note 6] | ||||||
Authorized: 20,000,000 shares | ||||||
Issued and outstanding: 10,450,656 shares [August 31, 2019 – issued and outstanding 11,000,796 shares] | 10,451 | 11,001 | ||||
Additional paid-in capital [note 6] | 9,338,308 | 9,850,348 | ||||
Accumulated deficit | (6,384,156 | ) | (6,340,483 | ) | ||
Accumulated other comprehensive loss | (405,415 | ) | (391,859 | ) | ||
Total stockholders’ equity | 2,559,188 | 3,129,007 | ||||
Total liabilities and stockholders’ equity | 3,622,338 | 3,635,090 |
As at,
November 30, | August 31, | |||||
2020 | 2020 | |||||
$ | $ | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | 3,076,862 | 1,841,340 | ||||
Short-term investments [note 3] | — | 781,490 | ||||
Accounts receivable, net of allowance for doubtful accounts of $23,562, [August 31, 2020 – $23,412] | 329,573 | 426,832 | ||||
Other receivables | 31,066 | 26,083 | ||||
Prepaid expenses | 62,290 | 78,562 | ||||
Total current assets | 3,499,791 | 3,154,307 | ||||
Deposits | 34,538 | 34,316 | ||||
Property and equipment, net [note 4] | 179,850 | 194,277 | ||||
Intangible assets, net [note 4] | 19,369 | 22,952 | ||||
Right of use asset [note 5] | 351,130 | 403,961 | ||||
Total assets | 4,084,678 | 3,809,813 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current | ||||||
Accounts payable | 186,426 | 119,399 | ||||
Accrued liabilities | 325,182 | 353,235 | ||||
Deferred revenue | 18,841 | 19,638 | ||||
Current portion of operating lease liability [note 5] | 239,800 | 238,261 | ||||
Total current liabilities | 770,249 | 730,533 | ||||
Operating lease liability, net of current portion [note 5] | 162,619 | 219,063 | ||||
Total liabilities | 932,868 | 949,596 | ||||
Commitments and contingencies [note 7] | ||||||
Stockholders’ equity | ||||||
Common stock, par value $0.001 [note 6] | ||||||
Authorized: 20,000,000 shares Issued and outstanding: 10,450,656 shares [August 31, 2020 – issued and outstanding 10,450,656 shares] | 10,451 | 10,451 | ||||
Additional paid-in capital [note 6] | 9,379,139 | 9,366,290 | ||||
Accumulated deficit | (5,920,366 | ) | (6,171,068 | ) | ||
Accumulated other comprehensive loss | (317,414 | ) | (345,456 | ) | ||
Total stockholders’ equity | 3,151,810 | 2,860,217 | ||||
Total liabilities and stockholders’ equity | 4,084,678 | 3,809,813 |
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Expressed in United States dollars)
Unaudited
Three months ended November 30, | ||||||||||||||||||
Three Months | Three Months | Six Months | Six Months | 2020 | 2019 | |||||||||||||
Ended | Ended | Ended | Ended | $ | $ | |||||||||||||
February 29, | February 28, | February 29, | February 28, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||
Service revenue [note 10] | 806,729 | 879,364 | 1,852,585 | 1,863,383 | ||||||||||||||
Service revenue [note 9] | 1,123,977 | 1,045,856 | ||||||||||||||||
Cost of revenue | ||||||||||||||||||
Hosting costs | 15,839 | 29,251 | 42,456 | 59,208 | 30,042 | 26,617 | ||||||||||||
Internal engineering support | 6,516 | 6,916 | 13,363 | 14,287 | 6,327 | 6,847 | ||||||||||||
Customer support | 36,351 | 28,030 | 75,722 | 56,277 | 35,852 | 39,371 | ||||||||||||
Third Party and transactions costs | 10,414 | 9,415 | 22,861 | 20,010 | ||||||||||||||
Third party and transaction costs | 18,092 | 12,447 | ||||||||||||||||
69,120 | 73,612 | 154,402 | 149,782 | 90,313 | 85,282 | |||||||||||||
Gross Margin | 737,609 | 805,752 | 1,698,183 | 1,713,601 | 1,033,664 | 960,574 | ||||||||||||
Operating expenses | ||||||||||||||||||
General and administrative | 216,094 | 206,203 | 435,597 | 396,864 | 159,549 | 219,503 | ||||||||||||
Sales and marketing | 362,400 | 222,746 | 646,156 | 433,392 | 302,474 | 283,756 | ||||||||||||
Product development | 287,752 | 282,895 | 607,726 | 555,056 | 298,088 | 319,974 | ||||||||||||
Depreciation and amortization | 35,478 | 19,711 | 67,550 | 40,335 | 24,315 | 32,072 | ||||||||||||
901,724 | 731,555 | 1,757,029 | 1,425,647 | 784,426 | 855,305 | |||||||||||||
Income (loss) from operations | (164,115 | ) | 74,197 | (58,846 | ) | 287,954 | ||||||||||||
Income from operations | 249,238 | 105,269 | ||||||||||||||||
Other income | ||||||||||||||||||
Interest income | 8,110 | 6,522 | 14,477 | 12,921 | 1,464 | 6,389 | ||||||||||||
Other income | 674 | — | 696 | 34 | ||||||||||||||
Net income (loss) | (155,331 | ) | 80,719 | (43,673 | ) | 300,909 | ||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||
Net income | 250,702 | 111,658 | ||||||||||||||||
Foreign currency translation adjustments | (15,108 | ) | 29,232 | (13,556 | ) | (19,853 | ) | 28,042 | 1,552 | |||||||||
Total comprehensive income (loss) | (170,439 | ) | 109,951 | (57,229 | ) | 281,056 | ||||||||||||
Total comprehensive income | 278,744 | 113,210 | ||||||||||||||||
Net income (loss) per common share, | ||||||||||||||||||
basic and diluted | (0.01 | ) | 0.01 | (0.00 | ) | 0.03 | ||||||||||||
Net income per common share, basic and diluted | 0.02 | 0.01 | ||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||
Basic and diluted | 10,629,438 | 11,002,775 | 10,665,834 | 11,002,775 | ||||||||||||||
Basic | 10,450,656 | 11,954,603 | ||||||||||||||||
Diluted | 10,450,656 | 11,954,603 |
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’STOCKHOLDERS' EQUITY
(Expressed in United States dollars)
Unaudited
Three months ended February 29,November 30, 2020 and February 28, 2019
Accumulated | ||||||||||||||||||
Additional | other | Total | ||||||||||||||||
Common stock | paid-in | Accumulated | comprehensive | stockholders’ | ||||||||||||||
Shares # | Amount | Capital | Deficit | Loss | equity | |||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||
Balance, November 30, 2019 | 10,702,041 | 10,702 | 9,576,694 | (6,228,825 | ) | (390,307 | ) | 2,968,264 | ||||||||||
Total comprehensive loss | — | — | — | (155,331 | ) | (15,108 | ) | (170,439 | ) | |||||||||
Stock based compensation [note 6] | — | 2,697 | — | — | 2,697 | |||||||||||||
Common shares retired | (251,385 | ) | (251 | ) | (241,083 | ) | — | — | (241,334 | ) | ||||||||
Balance, February 29, 2020 | 10,450,656 | 10,451 | 9,338,308 | (6,384,156 | ) | (405,415 | ) | 2,559,188 | ||||||||||
Balance, November 30, 2018 | 11,002,775 | 11,003 | 9,822,729 | (6,731,071 | ) | (402,727 | ) | 2,699,934 | ||||||||||
Total comprehensive income | — | — | — | 80,719 | 29,232 | 109,951 | ||||||||||||
Stock based compensation [note 6] | — | — | 12,054 | — | — | 12,054 | ||||||||||||
Balance, February 28, 2019 | 11,002,775 | 11,003 | 9,834,783 | (6,650,352 | ) | (373,495 | ) | 2,821,939 |
Accumulated | Total | |||||||||||||||||
Additional | other | stockholders' | ||||||||||||||||
Common stock | paid-in | Accumulated | comprehensive | equity | ||||||||||||||
Shares | Amount | capital | Deficit | loss | ||||||||||||||
# | $ | $ | $ | $ | $ | |||||||||||||
Balance, August 31, 2020 | 10,450,646 | 10,451 | 9,366,290 | (6,171,068 | ) | (345,456 | ) | 2,860,217 | ||||||||||
Total comprehensive income | - | - | - | 250,702 | 28,042 | 278,744 | ||||||||||||
Stock based compensation [note 6] | - | - | 12,849 | - | - | 12,849 | ||||||||||||
Balance, November 30, 2020 | 10,450,646 | 10,451 | 9,379,139 | (5,920,366 | ) | (317,414 | ) | 3,151,810 | ||||||||||
Balance, August 31, 2019 | 11,000,786 | 11,001 | 9,850,348 | (6,340,483 | ) | (391,859 | ) | 3,129,007 | ||||||||||
Shares issued for rounding purposes in connection with reverse split | 10 | - | - | - | - | - | ||||||||||||
Repurchase of common stock | (298,755 | ) | (299 | ) | (291,590 | ) | - | - | (291,889 | ) | ||||||||
Total comprehensive income | - | - | - | 111,658 | 1,552 | 113,210 | ||||||||||||
Stock based compensation [note 6] | - | - | 17,936 | - | - | 17,936 | ||||||||||||
Balance, November 30, 2019 | 10,702,041 | 10,702 | 9,576,694 | (6,228,825 | ) | (390,307 | ) | 2,968,264 |
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCASH FLOWS
(Expressed in United States dollars)
Unaudited
Six months ended February 29, 2020 and February 28, 2019
Accumulated | ||||||||||||||||||
Additional | other | Total | ||||||||||||||||
Common stock | paid-in | Accumulated | comprehensive | stockholders’ | ||||||||||||||
Shares | Amount | capital | Deficit | loss | equity | |||||||||||||
# | $ | $ | $ | $ | $ | |||||||||||||
Balance, August 31, 2019 | 11,000,796 | 11,001 | 9,850,348 | (6,340,483 | ) | (391,859 | ) | 3,129,007 | ||||||||||
Total comprehensive income | — | — | — | (43,673 | ) | (13,556 | ) | (57,229 | ) | |||||||||
Stock based compensation [note 6] | — | — | 20,633 | — | — | 20,633 | ||||||||||||
Common shares retired | (550,140 | ) | (550 | ) | (532,673 | ) | — | — | (533,223 | ) | ||||||||
Balance, February 29, 2020 | 10,450,656 | 10,451 | 9,338,308 | (6,384,156 | ) | (405,415 | ) | 2,559,188 | ||||||||||
Balance, August 31, 2018 | 11,002,775 | 11,003 | 9,810,676 | (6,951,261 | ) | (353,642 | ) | 2,516,776 | ||||||||||
Total comprehensive income | — | — | — | 300,909 | (19,853 | ) | 281,056 | |||||||||||
Stock based compensation [note 6] | — | — | 24,107 | — | — | 24,107 | ||||||||||||
Balance, February 28, 2019 | 11,002,775 | 11,003 | 9,834,783 | (6,650,352 | ) | (373,495 | ) | 2,821,939 |
Three months ended November 30, | (Expressed in United States dollars) |
2020 | 2019 | |||||
$ | $ | |||||
OPERATING ACTIVITIES | ||||||
Net income | 250,702 | 111,658 | ||||
Items not involving cash: | ||||||
Depreciation and amortization [note 4] | 24,315 | 32,072 | ||||
Stock-based compensation | 12,849 | 17,936 | ||||
Deferred leasehold inducement | — | 3,325 | ||||
Unrealized foreign exchange (gain) loss | 11,372 | (5,417 | ) | |||
Changes in non-cash working capital: | ||||||
Accounts receivable | 98,548 | (84,789 | ) | |||
Other receivables | (4,763 | ) | 2,840 | |||
Prepaid expenses and deposits | 16,497 | 7,203 | ||||
Accounts payable | 102,318 | 5,126 | ||||
Accrued liabilities | (66,893 | ) | 4,461 | |||
Deferred revenue | (909 | ) | (8,170 | ) | ||
Operating lease liability | (2,382 | ) | — | |||
Net cash provided by operating activities | 441,654 | 86,245 | ||||
INVESTING ACTIVITIES | ||||||
Redemption (purchase) of short-term investments, net | 763,749 | (756,372 | ) | |||
Purchase of property, equipment and intangibles | (5,188 | ) | (10,231 | ) | ||
Net cash provided by (used in) investing activities | 758,561 | (766,603 | ) | |||
FINANCING ACTIVITY | ||||||
Repurchase of common stock for retirement | — | (291,889 | ) | |||
Net cash used in financing activity | — | (291,889 | ) | |||
Effect of foreign exchange rate changes on cash | 35,307 | 5,189 | ||||
Net increase (decrease) in cash and cash equivalents | 1,235,522 | (967,058 | ) | |||
Cash and cash equivalents, beginning of period | 1,841,340 | 2,512,138 | ||||
Cash and cash equivalents, end of period | 3,076,862 | 1,545,080 | ||||
Supplementary disclosure | ||||||
Interest paid | — | — | ||||
Income taxes paid | — | — | ||||
Non-cash investing and financing activities | ||||||
Right of use asset | — | (671,911 | ) | |||
Operating lease liability | — | 671,911 |
See accompanying notes
Destiny Media Technologies Inc.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
CASH FLOWS(Expressed in United States dollars)
Six months ended February 29, 2020 and February 28, 2019
2020 | 2019 | ||||||
$ | $ | ||||||
OPERATING ACTIVITIES | |||||||
Net income (loss) | (43,673 | ) | 300,909 | ||||
Items not involving cash: | |||||||
Depreciation and amortization [note 4] | 67,550 | 40,335 | |||||
Stock-based compensation | 20,633 | 24,107 | |||||
Deferred leasehold inducement | — | (1,458 | ) | ||||
Unrealized foreign exchange gain | (7,927 | ) | (12,593 | ) | |||
Changes in non-cash working capital: | |||||||
Accounts receivable | (240,907 | ) | 30,016 | ||||
Other receivables | 4,386 | 4,851 | |||||
Prepaid expenses and deposits | 6,646 | (225 | ) | ||||
Accounts payable | 57,321 | 78,859 | |||||
Accrued liabilities | 13,350 | (18,106 | ) | ||||
Deferred revenue | (16,399 | ) | (13,035 | ) | |||
Operating lease liability | 5,447 | — | |||||
Net cash provided by (used in) operating activities | (133,573 | ) | 433,660 | ||||
INVESTING ACTIVITIES | |||||||
Purchase of short-term investments, net | (753,185 | ) | — | ||||
Purchase of property, equipment and intangibles | (43,666 | ) | (64,284 | ) | |||
Net cash used in investing activities | (796,851 | ) | (64,284 | ) | |||
FINANCING ACTIVITY | |||||||
Repurchase of common stock for retirement | (533,223 | ) | — | ||||
Net cash used in investing activity | (533,223 | ) | — | ||||
Effect of foreign exchange rate changes on cash | 1,686 | (7,879 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (1,461,961 | ) | 361,497 | ||||
Cash and cash equivalents, beginning of period | 2,512,138 | 1,097,434 | |||||
Cash and cash equivalents, end of period | 1,050,177 | 1,458,931 | |||||
Supplementary disclosure | |||||||
Interest paid | — | — | |||||
Income taxes paid | — | — |
See accompanying notes
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29,
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
1. ORGANIZATION
Destiny Media Technologies Inc. (the “Company”"Company") was incorporated in August 1998 under the laws of the State of Colorado and the corporate jurisdiction was changed to Nevada effective October 8, 2014. The Company develops technologies that allow for the distribution over the internet of digital media files in either a streaming or digital download format. The technologies are proprietary. The Company operates out of Vancouver, BC, Canada and serves customers predominantly located in the United States, Europe and Australia.
The Company’sCompany's stock is listed for trading under the symbol “DSNY”"DSNY" on the OTCQB U.S. in the United States, under the symbol “DSY”"DSY" on the TSX Venture Exchange and under the symbol “DME”"DME" on the Berlin, Frankfurt, Xetra and Stuttgart exchanges in Germany.
Effective September 13, 2019, the Company effected a reverse stock split on the basis of 5:1. As such, the Company’s authorized common stock was decreased from 100,000,000 shares of common stock, par value $0.001 to 20,000,000 shares of common stock, par value $0.001 and all shares of common stock issued and outstanding were decreased on the basis of one new share for each five old shares. These consolidated financial statements give retroactive effect to such reverse stock split and all share and per share amounts have been adjusted accordingly.
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 sixthree months ended February 29,November 30, 2020 are not necessarily indicative of the results that may be expected for the year ended August 31, 2020.2021.
The balance sheet at August 31, 20192020 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, 2019.2020.
COVID-19 Pandemic
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company's. This outbreak could decrease spending, adversely affect demand for the Company's product and harm the Company's business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company's business or results of operations at this time.
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29,
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
3. SHORT TERM INVESTMENTS
The Company’sCompany's short-term investments consistsconsisted of one-year Guaranteed Investment Certificates with a major Canadian financial institution that earn interest at variable interest rates ranging from 2.15% –0.10% - 2.36%. As at November 30, 2020, the Company's short-term investments had reached maturity, and are included in cash and cash equivalents.
4. PROPERTY AND EQUIPMENT AND INTANGIBLES
Accumulated | Net book | ||||||||
Cost | amortization | value | |||||||
$ | $ | $ | |||||||
February 29, 2020 | |||||||||
Property and equipment | |||||||||
Furniture and fixtures | 134,331 | 110,091 | 24,240 | ||||||
Computer hardware | 251,532 | 206,700 | 44,832 | ||||||
Computer software | 380,957 | 259,602 | 121,355 | ||||||
Leasehold improvement | 159,536 | 111,029 | 48,507 | ||||||
926,356 | 687,422 | 238,934 | |||||||
Intangibles | |||||||||
Patents, trademarks and lists | 428,303 | 407,119 | 21,184 |
Accumulated | Net book | Accumulated | Net book | |||||||||||||||
Cost | amortization | value | Cost | amortization | value | |||||||||||||
August 31, 2019 | $ | $ | $ | |||||||||||||||
November 30, 2020 | $ | $ | $ | |||||||||||||||
Property and equipment | ||||||||||||||||||
Furniture and fixtures | 134,432 | 107,304 | 27,128 | 134,769 | 113,649 | 21,120 | ||||||||||||
Computer hardware | 242,736 | 198,990 | 43,746 | 270,226 | 219,724 | 50,502 | ||||||||||||
Computer software | 354,090 | 223,387 | 130,703 | 383,198 | 308,933 | 74,265 | ||||||||||||
Leasehold improvements | 159,815 | 100,485 | 59,330 | |||||||||||||||
Leasehold improvement | 160,440 | 126,477 | 33,963 | |||||||||||||||
948,633 | 768,783 | 179,850 | ||||||||||||||||
891,073 | 630,166 | 260,907 | ||||||||||||||||
Intangibles | ||||||||||||||||||
Patents, trademarks and lists | 421,520 | 396,825 | 24,695 | 436,929 | 417,560 | 19,369 |
Accumulated | Net book | ||||||||
Cost | amortization | value | |||||||
August 31, 2020 | $ | $ | $ | ||||||
Property and equipment | |||||||||
Furniture and fixtures | 134,629 | 112,540 | 22,089 | ||||||
Computer hardware | 264,701 | 215,916 | 48,785 | ||||||
Computer software | 382,852 | 298,523 | 84,329 | ||||||
Leasehold improvements | 160,295 | 121,221 | 39,074 | ||||||
942,477 | 748,200 | 194,277 | |||||||
Intangibles | |||||||||
Patents, trademarks and lists | 436,780 | 413,828 | 22,952 |
Depreciation and amortization for the six monthsthree month period ended February 29,November 30, 2020 was $67,550$24,315 (2019: $40,335)$32,072)
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29,
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
5. RIGHT OF USE ASSET
The Company entered into a lease agreement commencing July 1, 2017 and expiring June 30, 2022 consisting of approximately 6,600 square feet.
On adoption of ASC 842, Lease Accounting, the Company recognized right-of-use assets and a corresponding increase in lease liabilities, (note 7), in the amount of $660,185$671,911 which represented the present value of future lease payments using a discount rate of 8% per annum. year. Property tax and insurance payments paid to the lessor are included in the calculation of future lease payments.
Right of Use Asset Continuity | November 30, 2020 | August 31, 2020 | ||||
$ | $ | |||||
Balance, September 1 | 403,961 | 671,911 | ||||
Lease Inducement | - | (47,607 | ) | |||
403,961 | 624,304 | |||||
Depreciation | (54,636 | ) | (213,935 | ) | ||
Foreign Currency Translation Adjustment | 1,805 | (6,408 | ) | |||
Balance, End of Period | 351,130 | 403,961 |
The Company adopted the modified retrospective approach on adopting ASC 842 and accordingly the adoption was made effective September 1, 2019, with no restatement of the prior year comparatives.has operating lease payments committed as follows:
$ | |||
2021 | 269,910 | ||
2022 | 160,050 | ||
Total lease payments payable | 429,960 | ||
Less amounts representing interest | (27,541 | ) | |
Total Operating Lease Liability | 402,419 | ||
Less current portion of operating lease liability | (239,800 | ) | |
Long term portion of operating lease liability | 162,619 |
Operating Lease Liability Continuity | November 30, 2020 | August 31, 2020 | ||||
$ | $ | |||||
Balance, September 1 | 457,324 | 671,911 | ||||
Less Lease Payments | (65,712 | ) | (253,040 | ) | ||
Interest | 8,693 | 44,692 | ||||
Foreign Currency Translation Adjustment | 1,844 | (6,239 | ) | |||
Balance, End of Period | 402,419 | 457,324 |
During the six monthsthree month period ended February 29,November 30, 2020 the Company recorded a leasedepreciation expense of $107,457 related to$54,636 (2019 : $54,158) which has been allocated between general and administrative expenses, research and development and sales and marketing on the depreciationconsolidated statement of right-of-use assets. Amortizationcomprehensive income. The total rent commitment, net of the deferred lease inducementleasehold improvement allowance, is being amortized to rent expense on a straight-line basis over the term of $5,447
Supplemental cash flow information related to the lease was as follows:lease.
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
6. STOCKHOLDERS’STOCKHOLDERS' EQUITY
[a]Common stock issued and authorized
The Company is authorized to issue up to 20,000,000 shares of common stock, par value $0.001 per share.
Effective September 16, 2019, the Company commenced a Normal Course Issuer Bid, pursuant to which the Company may purchase up to a maximum of 550,140 common shares, through the TSX Venture Exchange (the “TSX”"TSX") at the market price at the time of purchase, subject to daily limits and compliance with the applicable rules of the TSX and Canadian securities laws. During the six monthsyear ended February 29,August 31, 2020, the Company repurchased and cancelled 550,140 common shares for $533,223.
[b]Stock option plansplan
The Company has a stock option plan, namely the 2015 Stock Option Plan (the “Plan”"Plan"), under which up to 530,000 shares of common stock, has been reserved for issuance. A total of 180,000120,000 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.
3
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29, 2020
6.STOCKHOLDERS’ EQUITY (cont’d.)[b] Stock option plans (cont’d.)
Stock-Based Payment Award Activity
A summary of stock option activity under the PlansPlan as of February 29,November 30, 2020, 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, 2019 | 290,000 | 1.94 | 2.96 | — | ||||||||
Granted | 140,000 | 1.36 | 5.00 | — | ||||||||
Forfeited | (80,000 | ) | 1.86 | 1.22 | — | |||||||
Outstanding at February 29, 2020 | 350,000 | 1.41 | 3.36 | — | ||||||||
Exercisable at February 29, 2020 | 191,250 | 1.49 | 1.51 | — |
Weighted | ||||||||||||
Weighted | Average | Aggregate | ||||||||||
Average | Remaining | Intrinsic | ||||||||||
Exercise Price | Contractual | Value | ||||||||||
Options | Shares | $ | Term | $ | ||||||||
Outstanding at August 31, 2020 | 400,000 | 1.35 | 3.24 | — | ||||||||
Granted | 10,000 | 1.00 | 5.00 | — | ||||||||
Outstanding at November 30, 2020 | 410,000 | 1.34 | 3.02 | — | ||||||||
Exercisable at November 30, 2020 | 272,500 | 1.42 | 2.70 | — |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’sCompany's common stock for the options that were in-the-money at February 29,November 30, 2020.
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
6. STOCKHOLDERS' EQUITY (cont'd.)
[b]Stock option plan (cont'd.)
The following table summarizes information regarding the non-vested options outstanding as of February 29,November 30, 2020 and changes during the period then ended:
Weighted | Weighted | |||||||||||
Average | Average | |||||||||||
Grant Date | Grant Date | |||||||||||
Number of Options | Fair Value | Number of Options | Fair Value | |||||||||
$ | $ | |||||||||||
Non-vested options at August 31, 2019 | 30,000 | 0.38 | ||||||||||
Non-vested options at August 31, 2020 | 203,750 | 0.48 | ||||||||||
Granted | 140,000 | 0.49 | 10,000 | 0.34 | ||||||||
Vested | (11,250 | ) | 0.33 | (76,250 | ) | 0.49 | ||||||
Non-vested options at February 29, 2020 | 158,750 | 0.48 | ||||||||||
Non-vested options at November 30, 2020 | 137,500 | 0.47 |
As of February 29,November 30, 2020, there was $57,341$56,810 of total unrecognized compensation cost related to non- vestednon-vested stock-based compensation awards. The unrecognized compensation cost is expected to be
recognized over a weighted average period of 1.580.99 years.
4
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29, 2020
6.STOCKHOLDERS’ EQUITY (cont’d.)[b] Stock option plans (cont’d.)
On October 3, 2019, the Company adjusted the exercise price of 140,000 employee stock options previously issued to certain employees to $1.00. The incremental fair value recorded on modification was $10,331, and determined using the Black-Scholes option-pricing model with the following assumptions weighted average volatility 146%, discount rate 1.7%, and weighted average life of 3.27 years.
During the six months ended February 29, 2020, the totalTotal stock-based compensation expense of $20,633$12,849 was recognized during the three month period ended November 30, 2020, (2019: $24,107)$17,936) is reported in the statement of comprehensive income as follows:
2020 | 2019 | 2020 | 2019 | |||||||||
$ | $ | $ | $ | |||||||||
Stock-based compensation | ||||||||||||
General and administrative | 6,336 | 14,303 | 4,531 | 9,258 | ||||||||
Sales and marketing | 8,858 | 4,902 | 4,644 | 6,100 | ||||||||
Product development | 6,252 | 4,902 | 3,674 | 2,578 | ||||||||
Total stock-based compensation | 20,633 | 24,107 | 12,849 | 17,936 |
Valuation Assumptions
The fair value of each option award is estimated on the date of grant using the Black-Scholes option- pricingoption-pricing model based on the following assumptions:
2020 | 2019 | 2020 | 2019 | |||||||||
Expected term of stock options (years) | 3.25 | 2.94 | 3.25 | 3.25 | ||||||||
Expected volatility | 116.2% | 87.1% | 105.4% | 118.6% | ||||||||
Risk-free interest rate | 1.3% | 1.6% | 0.35% | 1.0% | ||||||||
Dividend yields | — | — | — | — | ||||||||
Weighted average grant date fair value | $ | 0.49 | $ | 0.35 | $0.34 | $0.49 |
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
6. STOCKHOLDERS' EQUITY (cont'd.)
[b]Stock option plan (cont'd.)
Expected volatilities are based on historical volatility of the Company’sCompany's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the options is based on US Treasury bill rates in effect at the time of grant.
5
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29, 2020
6.STOCKHOLDERS’ EQUITY (cont’d.)[b] Stock option plans (cont’d.)
[c] Employee Stock Purchase Plan
The Company’sCompany's 2011 Employee Stock Purchase Plan (the “Plan”"Plan") became effective on February 22, 2011. Under the Plan, employees of the Company are able to contribute up to 5% of their annual salary into a pool which is matched equally by the Company in order to purchase Company shares under certain terms. 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 the Company and the participants.
6.STOCKHOLDERS’ EQUITY (cont’d.)[c] Stock option plans (cont’d.)
During the six monthsthree month period ended February 29,November 30, 2020, the Company recognized compensation expense of $32,422$15,186 (2019 – $22,650): $13,132) in salaries and wages on the consolidated statement of comprehensive income in respect of the Plan, representing the Company’sCompany's employee matching of cash contributions to the Plan. TheDuring the three month period ended November 30, 2020, the shares were purchased on the open market at an average price of $1.00 (2019: $1.10)$0.67 (2019 : $0.98). The shares are held in trust by the Company for a period of one year from the date of purchase.
7. COMMITMENTS
The Company has entered into a lease agreement expiring June 30, 2022 for office premises consisting of approximately 6,550 square feet. The Company is committed to lease payments as follows:
Fiscal year ending August 31, | $ | ||
2020 | 127,594 | ||
2021 | 259,718 | ||
2022 | 221,578 | ||
Total lease payments payable | 608,890 | ||
Less amounts representing interest | (55,589 | ) | |
Total operating lease liability | 553,301 | ||
Less current portion of operating lease liability | (219,894 | ) | |
Long term portion of operating lease liability | 333,407 |
6
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29, 2020
7. COMMITMENTS (cont’d.)
During the six months ended February 29, 2020 the Company incurred depreciation expense of $117,269 (2019 –rent expense $123,133) in connection with its office premises lease, which has been allocated between general and administrative expenses, research and development and sales and marketing on the consolidated statement of comprehensive income (loss). Amounts representing interest of $28,216 were recognized during the six-month period ended February 29, 2020 (2019 – nil).
8. CONTINGENCIES
The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’sCompany's financial statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its consolidated financial statements.
On September 5, 2017, the Company’sCompany's former President and Chief Executive Officer filed a Notice of Civil Claim in the Supreme Court of British Columbia against the Company, its subsidiaries, independent directors and current Chief Executive Officer, claiming damages for conspiracy, breach of contract, wrongful dismissal, defamation and aggravated and punitive damages. The Company believes the claims are without merit and is defending itself against the claims. The quantum of loss, if any, is not determinable at this time and management believes it is unlikely that the outcome of this matter will have an adverse impact on its results of operations, cash flows and financial condition.
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
8. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Standards
In FebruaryJune 2016, the FASB issued ASU No. 2016-02, “Leases2016-13, "Financial Instruments-Credit Losses (Topic 842)” (“326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-02”2016-13"). Financial Instruments-Credit Losses (Topic 326) amends guidance on reporting credit losses for assets held
on an amortized cost basis and available-for-sale debt securities. For assets held on an 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 Update increase transparency and comparability among organizations by recognizing lease assets and lease liabilitiesASU will be effective for the Company on the balance sheet and disclosing key information about leasing arrangements. The FASB has also issued ASU No. 2018-11 “Leases (Topic 842): Targeted Improvements and ASU 2019-01 “Leases Codification Improvements Codification improvements to Topic 842 (leases)”, which provides narrow amendments to clarify how to apply certain aspects of the new lease standard.
7
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29, 2020
9. NEW ACCOUNTING PRONOUNCEMENTS (cont’d.)
Recently Adopted Accounting Standards (cont’d.)
The Company adopted ASU No. 2016-02 as of September 1, 2019 using the modified retrospective approach wherein entities are permitted to apply the new lease standard at adoption date with no effect to the opening balance of retained earnings in the period of adoption. Accordingly, all periods prior to September 1, 2019 were presented in accordance with the previous ASC Topic 840, Leases, with no retrospective adjustments to the comparative periods presented.
In accordance with ASC Topic 842, Leases, the Company determines, at the inception of a contract, if the arrangement is a lease and whether it meets the classification criteria for a finance or operating lease. Right of use (ROU) assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of fixed lease payments over the lease term. ROU assets also include any advance lease payments and are net of lease incentives. Where the operating leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. Finance lease agreements generally include an interest rate that is used to determine the present value of future lease payments. Operating fixed lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term.
Further, as permitted by the standard, the Company made an accounting policy election to not record right of use assets or lease liabilities with a term of 12 months or less. Instead, consistent with legacy accounting guidance, the Company will recognize payments for such leases in the consolidated statement of comprehensive income/(loss) on a straight-line basis over the lease term.
2020. The adoption of this standard on September 1, 2019, resulted in the recognition of additional assets of $660,185 and liabilities of $660,185 upon adoption on its accompanying condensed consolidated balance sheet. The new standard did not have a material impact on the Company’s resultsCompany's consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of operationsCertain 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 will be effective for the Company on September 1, 2019. The amendments in this ASU should be applied either in the period of adoption or cash flows.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 adoption of this guidance did not have a material impact on the Company's 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 amendments in this ASU was effective for the Company on September 1, 2020.. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29, 2020
10.9. 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 29 | February 28 | February 29 | February 28 | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
$ | $ | $ | $ | ||||||||||
Play MPE® | |||||||||||||
North America | 305,697 | 345,556 | 790,929 | 800,780 | |||||||||
Europe | 447,967 | 439,269 | 910,397 | 869,265 | |||||||||
Australasia | 48,259 | 73,963 | 130,837 | 158,170 | |||||||||
Total Play MPE® | 801,923 | 858,787 | 1,832,163 | 1,828,215 | |||||||||
Clipstream ® | |||||||||||||
North America | 4,806 | 20,577 | 20,422 | 35,169 | |||||||||
Total revenue | 806,729 | 879,364 | 1,852,585 | 1,863,383 |
2020 | 2019 | |||||
$ | $ | |||||
Play MPE® | ||||||
United States | 533,460 | 485,212 | ||||
Europe | 508,317 | 462,441 | ||||
Australia | 75,779 | 82,586 | ||||
Africa | 3,528 | — | ||||
Total Play MPE® Revenue | 1,121,084 | 1,030,239 | ||||
Clipstream ® | ||||||
United States | 2,893 | 15,617 | ||||
Total Clipstream ® Revenue | 2,893 | 15,617 | ||||
Total Revenue | 1,123,977 | 1,045,856 |
Revenue in the above table is based on location of the customer’scustomer's billing address. Some of these customers have distribution centerscentres located around the globe and distribute around the world. During the six monthsthree month period ended February 29,November 30, 2020, the Company generated 44%38% of total revenue from one customer [2019 - 42%]respectively (2019 : 38%).
It is in management’smanagement's opinion that the Company is not exposed to significant credit risk.
As at February 29,November 30, 2020, two customersone customer represented $371,577 (65%$144,407 (or 46%) of the trade receivables balance [August(August 31, 2019,2020, two customers represented $233,549 (70%$275,620 (or 65%)]).
The Company has substantially all its assets in Canada and its current and planned future operations are, and will be, located in Canada.
11.10. 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.
Destiny Media Technologies Inc. |
NOTES TO CONDENSED CONSOLIDATED INTERIM |
November 30, 2020 |
11. SUBSEQUENT EVENTS
On January 4, 2021, the Company commenced a Normal Course Issuer Bid ("NCIB"), pursuant to which the Company may purchase up to a maximum of 522,532 shares of common stock in the capital of the Company, representing approximately 5% of the then-outstanding common stock. Purchases pursuant to the NCIB will be made from time to time by RBC Dominion Securities Inc. on behalf of the Company through the facilities of the TSX Venture Exchange at the market price at the time of purchase, subject to daily limits and compliance with the applicable rules of the TSX Venture Exchange and Canadian securities laws. Shares purchased will be paid for with cash available from the Company's working capital.
Destiny Media Technologies Inc.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
February 29, 2020
12. SUBSEQUENT EVENTS
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.
10
Item 2. Management's 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 Company's 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 Company's 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 the 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 Play MPE®, a 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, VIP's, DJ's, film and TV personnel, sports stadiums and retailers.
Play MPE®
The Company's core business is the Play MPE® platform. Play MPE® is a two sidedtwo-sided B2B marketplace platform that enables music labels and artists to create and distribute promotional content and musical assets on the one side, and for music broadcasting professionals, music curators and music reviewers to be able to discover, listen to, download, broadcast and consume,review the music, on the other. Play MPE® is a cloud-based enterprise SaaS product.
Typically, record labels and artists promote new music through the presentation of broadcast quality audio, video, images, promotional information, industry required meta data, and other digital content. The presentation of this promotional material is catered to music curators who can expose that music to a larger consumer audience through broadcasts (examples include radio, internet radio, streaming services, DJs etc.) or publicity and media destinations. The system is also used to promote music and artists to label A&R teams, and music supervisors (who work with TV/movie producers to recommend musical content to accompany video productions).
Broadcast play of music provides revenue directly to record labels and artists through royalties and indirectly through sales, concerts / live performances, merchandise sales etc. as the profile and popularity of the musical work and artist increase. Effective marketing is critical in growing the popularity of a song or an artist and thereby revenue for a particular artist. Play MPE® is a critical step in this process. Easy-to-use and collaborative tools on the player side (music curator side) improves activity which improves the likelihood that a particular track obtains broadcast play. Feedback of recipient activity provides valuable information to record labels improving data centric marketing decision making.
Our customers range from small independent artists, small to the world's largest record label; Universal Music Group "Universal". We have thousands of clients spread over numerous countries that also include large independent record labels ("Indies" or "Independent Record Labels"), to promoters or pluggers, and to the world's largest record labels (the "Major Record Labels") (Universal Music Group,(who, along with Universal, include Warner Music Group "Warner" and Sony Music Entertainment)Entertainment "Sony"). Our Major Record Label clients have offices around the world and typically represent the world's largest recording artists. All three Major Record Labels, and thousands of Indies use Play MPE® for promotional distribution.
Play MPE® provides a wide array of features which provide efficient access to a promotional hub of activity. Client characteristics determine which features are of greater interest with the active promotional recipients being of common interest to all clients. Major Labels can take advantage of the platform's more powerful and efficiency producing features including tiered rights, permissions-based user profiles, integration with database archives, release sharing with foreign territories etc. 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. These more powerful features are uniqueWhen uploading to the Play MPE® platform.
The release datesplatform, the goal of our customers is to increase demand for their music and artists by distributing that content to 'music influencers' who can, be dependent onin turn, expose 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 formatmusic or burnedartist to a CD.wider consumer audience. This exposure can have a direct increase to record label revenue through performance royalties or indirect impacts to revenue as the music and artists gain popularity.
While many clients are set up to manage and upload recipient lists, many relyRecipients 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. Theplatform have a wide variety of personas and include programming directors for internet streaming, satellite or terrestrial radio, retail store broadcasters, sports stadium DJs, clubs, events, music reviews in newspapers or magazines, on-air personalities, music supervisors who program TV, movies, commercials or video games, or "A&R" representatives at larger record labels. A submission into the Play MPE® system providesplatform is targeted to appropriate recipients. Each recipient within the Play MPE® platform has a unique library of music catered and appropriate for that recipient.
Currently the Play MPE® platform has over 47,000 active recipients around the globe in excess of 100 countries. The majority of recipients are determined by our customers who maintain their own private contact lists and input recipient information into the Play MPE® platform. When our customers do not have sufficient resources to maintain contacts for music influencers, or wish to supplement their own distribution channels, the Play MPE® list management team maintains recipient distribution channels. These channels are presented for sale and are separated by numerous factors including the recipient type, genre of music, geographic location etc. Currently, Play MPE® maintains selectable distribution lists in 12 countries across 4 continents (North America, Europe, Australasia, and Africa). Play MPE® also provides 4 distribution lists that have a more global presence with several countries being represented. We are unaware of any other system with such a broad offering of lists. These lists offer significant value to all customers, but are particularly valuable in the sales process to smaller independent labels. Currently, the Play MPE® product and engineering staff withare developing new technical processes to facilitate list development and maintenance. With these technical solutions, it is expected that existing Play MPE® list management staff will increase the feedback and resources necessarycapacity to managedevelop 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.
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. From information provided bythereby increase saleable lists. This will be especially advantageous as Play MPE®, songs appearing on expands into new territories.
Recipients benefit from an easy-to-use player and player apps (iOS and Android) with many features that promote use, review, search and collaboration. Players are currently available in English, Spanish, Swedish, Finnish, Italian, Dutch, Portuguese, French, Japanese, German, Norwegian, Latvian, Lithuanian, Estonian, and Danish. During the internet can be scanned byyear, the International FederationCompany added features to the player side of the Phonographic Industry's ("IFPI"). Headquartered in London, UK,platform that include advanced recipient authentication, advanced search and content sorting features. These features improve the IFPI is the organization that represents the interestsease-of-use and utility of the recording industry worldwideplatform to its recipients. These features were added to the mobile player apps released just following fiscal 2020 year-end. Also added to the mobile apps were an off-line listening capability, the ability to utilize Google Chromecast and oneApple Airplay streaming capabilities for greater recipient collaboration, additional playlists, sorting, flagging and archiving features, and easier to access release metadata. All 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 can run proprietary software to identify Play MPE®'s unique watermark to identify the originating source.
After the content is released, all activity bythese features greatly enhance the recipient is logged in real time, providingside of the platform. Recipient side satisfaction directly increases activity and lead generation for record labels and promotions staff real time detail on which songslabel customers.
Customers are accessed, streamed, downloaded and exported. This information provides valuable 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.
Play MPE® browser-based tools are accessible on any computer without installation,generally either enterprise customers with full access to both Mac and PC users. The tool provides release sharing capabilities, to facilitate faster more user-friendly sharing of assets by our global label customers. Finally, it also allows for easy translation into multiple languages to accelerate international expansion.
We continue to invest in additional development of Play MPE® Version 8 and related tools and applications. In December 2019, the Company announced the new "localization" capability of the sendingCaster (the distribution side of the Play MPE® platform.platform), or full-service customers. Full-service customers use a simplified version of Caster (the "uploader") which gives these customers limited capabilities. Play MPE® staff then complete the release, quote the distribution and collect payment.
Caster is the world's largest and most sophisticated distribution platform and has a broad range of features essential to our customers. Caster can be grouped into several components that include administrative modules (label, staff, asset and list management), release creator/replication/management modules, a reporting module, and security features. Not all features are used by all customers. For example, the security, administration and release replication features are critical to our global agreement with Universal, while the provision of distribution lists are more important to smaller "indies". The richness of the offering within Play MPE® caters to a wide assortment of stakeholders, increases content flow, promotes activity and improves the success of the marketing investment made by our customers. Play MPE® has direct and indirect positive impacts to record label revenue.
The release creator module of Caster underwent a major restructure and upgrade in fiscal 2020 which launched in Q1 of 2021. This new release creator is easier to use, more intuitive, has more powerful notification creation features and notification template saving. The Company expects that this module will result in increased use by our enterprise customers. This is also the first step to allow non-enterprise customers to fully self-serve. The Company will build out a "checkout" feature that will not require Play MPE® staff to be involved in the release distribution and sale. The Company expects that this will allow greater scalability of the platform as it expands globally.
During fiscal 2020, the Company added the "localization" capabilities of Caster. This feature supports easy translation of the platform. The Company then addedplatform and allowed the addition of Spanish, German, Japanese and French, in addition to English, languages to Caster during the sending side software. year. The expansion of languages was undertaken to facilitate the expansion of Play MPE® in non-English speaking countries.
These features primarily improve the salability of the platform as the Company targets significant global expansion.
The Company's new market development initiatives include the Canadian, Latin, South African, and USA markets. Activity levels within the platform increased over the same quarter in the prior year. Releases (a unique piece of music content with accompanying metadata uploaded into the platform) increased by 2.1%, and sends (the number of destinations selected) grew by 25.5%. Further, the number of tracks within each release grew by 10.5%.
The Company believes these language translations will facilitate global expansion ofsees tremendous potential to grow market share with investments in product development and business development staff. During the Play MPE® platform.
In January 2020,quarter, the Company announced an improved recipient side platformcontinued to recruit for Play MPE® which has added advanced recipient authentication, improved song search capabilities,new engineering, product development, marketing and content management features all designedbusiness development staff adding the front-end engineering lead in October, a senior account executive to increase recipient side functionalitylead the LATAM market initiative in November 2020 and ease of use. These features are designed to increase song discovery and activity within the Play MPE® platform.additional product development support staff.
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 dozenhas patents claiming initial priority to 2011. This product is has incidental revenues and is not supported or marketed.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED FEBRUARY 29.NOVEMBER 30. 2020 AND FEBRUARY 28, 2019
Revenue
Total revenue for the six months ending February 29, 2020 declined by less than 1% ($1,852,585 in 2020 - $1,863,383 in 2019) due to the decline in Clipstream related revenue which now represents approximately 1% of the Company's revenue. Play MPE® revenue, which represents all other revenue of the Company (approximately 99%) increased by less than 1%.
Total revenue for the three-month period ended February 29,November 30, 2020 declinedincreased by $72,635 over the comparable quarter7.5% ($1,123,977 in fiscal 2019,2020 - $1,045,856 in 2019) due to $806,729 (2019 - $879,364). Foreign exchange did not significantly impact revenue for either the three or six month periods. The decline inincreased Play MPE® revenues, offset by reduced Clipstream revenue. Play MPE® revenue realized during our secondin the quarter is primarily a temporary adjustment as we renew agreementsgrew by 8.8% (5.4% after adjusting for favorable foreign exchange).
Play MPE® continued to experience high growth in the independent labels in the United States.
In late January 2020, Play MPE® launchedStates, Europe, and Australia with an overage revenue growth of 38.5% in Canada with Universal Music Canada (UMC) distributing all releases through the Play MPE® platform. Concurrently, several major independent record labels and a second major record label started distributing releases through Play MPE® under trial arrangements. With the greater content available within the Play MPE® platform, recipient side activity within Play MPE® has grown substantially and user reception has been very positive. Play MPE® will continue to expand usage on both sides of the platform prior to negotiating commercial agreements and commencing revenue generation. The Company expects revenue to commence during the fiscal year.this segment.
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 operating expenditures.
Operating costs during the six-monththree-month period ended February 29,November 30, 2020 increaseddecreased by 23.2%8.33% to $1,757,029$784,426 (2019 - $1,425,647)$855,305). The increasemajority of the decrease in costs was primarily the result of non-recurring (one-time) costsa reduction in travel and related expenditures associated with staff restructuring, professional fees associated with the Company's Normal Course Issuer Bid (NCIB) repurchase of the 5% of the Company's shares, professional fees associated with the share consolidation. Additionally, the Company added staffing designed to increase the speedclient meetings and quality of product enhancements and added to business development staffing to increaseefforts. These reductions were the speedresult of revenue growth. COVID-19 pandemic travel restrictions.
General and administrative | 29-Feb | 28-Feb | |||||||||||
2020 | 2019 | ||||||||||||
(6 months) | (6 months) | Change | Change | ||||||||||
$ | $ | $ | % | ||||||||||
Bad debt | - | 3,576 | (3,576 | ) | -100.0% | ||||||||
Office and miscellaneous | 89,180 | 93,209 | (4,029 | ) | -4.3% | ||||||||
Foreign exchange (gain)/loss | 12,089 | 5,963 | 6,126 | 102.7% | |||||||||
Professional fees | 125,360 | 80,368 | 44,992 | 56.0% | |||||||||
Rent | 11,733 | 16,816 | (5,083 | ) | -30.2% | ||||||||
Telecommunications | 1,058 | 1,628 | (570 | ) | -35.0% | ||||||||
Travel | 4,137 | 3,533 | 604 | 17.1% | |||||||||
Wages and benefits | 192,040 | 191,771 | 269 | 0.1% | |||||||||
435,597 | 396,864 | 38,733 | 9.8% |
General and administrative | 30-November | 30-November | ||||||||||
2020 | 2019 | |||||||||||
(3 months) | (3 months) | Change | Change | |||||||||
$ | $ | $ | % | |||||||||
Bad debt | - | - | - | -% | ||||||||
Office and miscellaneous | 40,241 | 48,456 | (8,215 | ) | (17.0%) | |||||||
Professional fees | 46,825 | 59,599 | (12,774 | ) | (21.4%) | |||||||
Rent | 6,715 | 6,304 | 411 | 6.5% | ||||||||
Telecommunications | 776 | 560 | 216 | 38.6% | ||||||||
Travel | 1,112 | 3,056 | (1,944 | ) | (63.6%) | |||||||
Wages and benefits | 63,880 | 101,528 | (37,648 | ) | (37.0%) | |||||||
159,549 | 219,503 | (59,954 | ) | (27.3%) |
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 increasedecrease in non-recurring professional fees is the result of professional fees associated with staff restructuring, share consolidation and share repurchase activities. This increase is non-recurring.activities incurred in the three month period ended November 30, 2019.
Sales and marketing | 29-Feb | 28-Feb | |||||||||||
2020 | 2019 | ||||||||||||
(6 months) | (6 months) | Change | Change | ||||||||||
$ | $ | $ | % | ||||||||||
Advertising and marketing | 74,562 | 46,720 | 27,842 | 59.6% | |||||||||
Rent | 67,582 | 50,405 | 17,177 | 34.1% | |||||||||
Telecommunications | 6,906 | 8,913 | (2,007 | ) | -22.5% | ||||||||
Wages and benefits | 497,106 | 327,354 | 169,752 | 51.9% | |||||||||
646,156 | 433,392 | 212,764 | 49.1% |
Sales and marketing | 30-November | 30-November | ||||||||||
2020 | 2019 | |||||||||||
(3 months) | (3 months) | Change | Change | |||||||||
$ | $ | $ | % | |||||||||
Advertising and marketing | 9,020 | 48,256 | (39,236 | ) | (81.3%) | |||||||
Rent | 31,536 | 31,721 | (185 | ) | (0.6%) | |||||||
Telecommunications | 4,053 | 3,135 | 918 | 29.3% | ||||||||
Wages and benefits | 257,865 | 200,644 | 57,221 | 28.5% | ||||||||
302,474 | 283,756 | 18,718 | 6.6% |
Sales and marketing expenses consist of salaries and related personnel costs including overhead, office rent, and telecommunications costs. Sales and marketing expenses also include advertising and marketing expenditures, which consist of promotional materials, online or print advertising, business development tools, and marketing or business development related travel costs including attendance at conference or trade shows, and record label and client visits. The increase in staffing costs primarily relates to one time charges associated with staff restructuring. Wages also increased over the prior year through additional staff designed to grow and enhance business development activities. The increasedecrease in advertising and marketing expenses is related to increasereduced travel expenditures for our staff to attend label visits and industry events.events due to the COVID-19 pandemic.
Product Development | 29-Feb | 28-Feb | |||||||||||
2020 | 2019 | ||||||||||||
(6 months) | (6 months) | Change | Change | ||||||||||
$ | $ | $ | % | ||||||||||
Rent | 54,615 | 55,913 | (1,298 | ) | -2.3% | ||||||||
Software services | 32,334 | 17,467 | 14,867 | 85.1% | |||||||||
Telecommunications | 32,289 | 42,486 | (10,197 | ) | -24.0% | ||||||||
Wages and benefits | 488,488 | 439,190 | 49,298 | 11.2% | |||||||||
607,726 | 555,056 | 52,670 | 9.5% |
Product Development | 30-November | 30-November | ||||||||||
2020 | 2019 | |||||||||||
(3 months) | (3 months) | Change | Change | |||||||||
$ | $ | $ | % | |||||||||
Rent | 25,079 | 29,339 | (4,260 | ) | (14.5%) | |||||||
Software services | 17,576 | 17,420 | 156 | 0.9% | ||||||||
Telecommunications | 16,805 | 19,203 | (2,398 | ) | (12.5%) | |||||||
Wages and benefits | 238,628 | 254,012 | (15,384 | ) | (6.1%) | |||||||
298,088 | 319,974 | (21,886 | ) | (6.8%) |
Product development costs consist primarily of salaries and related personnel costs including overhead and consulting fees with respect to product development and deployment. The increasedecrease in wages and benefits is related to an increase in staffing inthe timing of employment of product development staff during the quarter. The Company has also restructured the use of external hosting services resulting in a permanent decline in costs with no reduction in system reliability or capabilities.
Depreciation and Amortization
Depreciation and amortization expense increaseddecreased to $67,550$24,315 for the six-monththree-month period ended February 29,November 30, 2020 from $40,335$32,073 for the period ended February 28,November 30, 2019, an increasea decrease of 67.5%24.2% due to an increasea decrease in computer software costs associated with externally developed Play MPE® recipient player applications.
Other earnings and expenses
Interest income was $14,477$1,464 for the six-monththree-month period ended February 29,November 30, 2020 (2019: $12,921)$6,637) and is derived from one-year Guaranteed Investment Certificates.
Net income
During the six-monththree-month period ended February 29,November 30, 2020 we had net lossincome of $43,673 (2019 - $300,909 net income)$250,702 (2019: $111,658). Overall, a modest declinean increase in revenue was accompanied by increasedbudgeted spending on staffing and marketing and advertising costs, as discussed above.
For the three-month period ended February 29,November 30, 2020, adjusted EBITDA was ($126,136) (2019 -$286,402 (2019: EBITDA $105,239)$154,431). 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 (loss) from operations to Adjusted EBITDA over the eight most recently completed fiscal quarters:
2020 Q2 | 2020 Q1 | 2019 Q4 | 2019 Q3 | 2019 Q2 | 2019 Q1 | 2018 Q4 | 2018 Q3 | 2021 Q1 | 2020 Q4 | 2020 Q3 | 2020 Q2 | 2020 Q1 | 2019 Q4 | 2019 Q3 | 2019 Q2 | |||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
Net Income (loss) | (155,331 | ) | 111,658 | 114,157 | 195,712 | 80,719 | 220,190 | 171,775 | 183,629 | 250,702 | 158,187 | 54,899 | (155,331 | ) | 111,658 | 114,157 | 195,712 | 80,719 | ||||||||||||||||||||||||||||||
Amortization, stock-based compensation and deferred leasehold inducements | 37,307 | 49,140 | 34,983 | 36,404 | 31,042 | 31,942 | 38,108 | 42,103 | 37,164 | 49,085 | 48,470 | 37,307 | 49,140 | 34,983 | 36,404 | 31,042 | ||||||||||||||||||||||||||||||||
Interest income | (8,110 | ) | (6,367 | ) | (5,999 | ) | (8,233 | ) | (6,522 | ) | (6,434 | ) | (4,940 | ) | (1,628 | ) | (1,464 | ) | (4,672 | ) | (5,266 | ) | (8,110 | ) | (6,367 | ) | (5,999 | ) | (8,233 | ) | (6,522 | ) | ||||||||||||||||
Adjusted EBITDA | (126,134 | ) | 154,431 | 143,141 | 223,883 | 105,239 | 245,698 | 204,943 | 224,104 | 286,402 | 202,600 | 98,103 | (126,134 | ) | 154,431 | 143,141 | 223,883 | 105,239 |
LIQUIDITY AND FINANCIAL CONDITION
OurAs at November 30, 2020, we held $3,076,862 (August 31, 2020 - $2,622,830) in cash and cash equivalents balance decreased by $1,461,961 during the six-month period ended February 29, 2020, due in part to the investment of surplus funds inand short-term deposits with a one-year maturity. As at February 29, 2020, we held $1,050,177 (August 31, 2019 - $2,512,138) in cash and cash equivalents.investments. Our short-term investments consistconsisting of one-year Guaranteed Investment Certificates (GICs) held through a major Canadian financial institution, increased by $749,326had reached maturity prior to $1,129,382November 30, 2020 (August 31, 2019 - $380,056)2020: $781,490).
At February 29,November 30, 2020, we had working capital of $2,097,522$2,729,542 compared to $2,809,689$2,423,774 as at August 31, 2019. The decrease in our working capital was primarily due to the repurchase of common stock under a common stock repurchase program, pursuant to a Normal Course Issuer Bid ("NCIB") facilitated through the TSX Venture Exchange, which commenced in September 2019.2020. During the three and six-month periodsthree-month period ended February 29,November 30, 2020, the Company completed open marketdid not complete any NCIB purchases of 251,385 and 298,755 common shares for a total cost of $241,334 and $291,889 respectively, for total repurchases of $533,223. Working capital also declined following the recognition of an operating lease liability following adoption of ASU 2016-02, at February 29, 2020 the current portion of the operating lease liability was $219,894 (August 31, 2019 - $nil)(2019: $291,889).
CASH FLOWS
Net cash used inprovided by operating activities for the six-monththree-month period ended February 29,November 30, 2020 was $133,752,$441,654, compared to net cash provided by of $433,660$86,245 for the six monthsthree-month period ended February 28,November 30, 2019. The primary reason for the decreaseincrease in cash flows from operating activities is due to an increase in operating expenses,revenues, as described above, as well as an increasea decrease in accounts receivable during the quarter.
Net cash provided by investing activities for the three-month period ended November 30, 2020 was $758,561, compared to cash used in investing activities of $766,603 for the six-monththree-month period ended February 29, 2020 was $796,851, compared to $64,284 forNovember 30, 2019. During the six-monththree-month period ended February 28, 2020. During the six-month period ended February 29,November 30, 2020, approximately $753,000$763,749 was spentreceived on the investmentmaturity of cash in GICs during the period.our GICs. Investing activities during the six-monththree-month period ended February 28,November 30, 2019 were attributable solelylargely to expenditures on property, equipment and intangibles.investment into GICs.
Net cash used in financing activities during the six-monththree-month period ended February 29,November 30, 2020 was $533,223,$Nil. In the three-month period ended November 30, 2019 net cash used in financing activities, related to cash used to repurchase and retire 550,140298,755 shares of common stock of the Company under the NCIB. There were no cash flows from financing activities during the six-month period ended February 28, 2019.NCIB for a total of $291,889.
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, 20192020 as filed with the SEC on November 18, 20192020 except for those described in Note 9,8, "New Accounting Pronouncements" in the notes to our Interim Condensed Consolidated Financial Statements included in this Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
Please refer to Note 98 "New Accounting Pronouncements" in the notes to our Interim Condensed Consolidated Financial Statements included in this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Exchange Risk
Our revenues are primarily in United States dollars and Euros while our operating expenses are primarily in Canadian dollars. Thus, operating expenses and the results of operations are impacted to the extent they are not hedged by the rise and fall of the relative values of Canadian dollar to these currencies. During the three and six month periodsperiod ended February 29,November 30, 2020, as a result of fluctuations in the Euro, and the Australian, Canadian, and US dollars, the Company recognized a negative impact on reported revenues and a positive impact on reported operating expenditures, for an overall marginal positive impact on reported net income.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with this quarterly report, as required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Company's management, including our company's Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our company's Chief Executive Officer and Chief Financial Officer concluded that as of February 29,November 30, 2020, our disclosure controls and procedures were effective as at the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
Our Chief Financial Officer resigned effective November 30, 2019. Where internal controls rely on a separation of duties between the CEO and the CFO,There were no changes that would impact our internal controls may be temporarily affected in that respect subsequentfor the period from September 1, 2020 to November 30, 2019.2020.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 5, 2017, the Company's former President and Chief Executive Officer, Mr. Steve Vestergaard, 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.
Item 1A. Risk Factors.
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in "Item 1 - Risk Factors" in our Form 10-K for the fiscal year ended August 31, 20192020 filed with the SEC. These risks could materially and adversely affect our business, financial condition and results of operations. The risks described in our Form 10-K have not changed materially, however, they are not the only risks we face. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.
COVID-19 Pandemic
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company's. This outbreak could decrease spending, adversely affect demand for the Company's product and harm the Company's business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company's business or results of operations at this time.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DESTINY MEDIA TECHNOLOGIES, INC.
By: /s/Frederick Vandenberg______________________
Frederick Vandenberg
Chief Executive Officer, President
(Principal Executive Officer)
Date: April 15, 2020January 13, 2021
By: /s/Frederick Vandenberg Samuel Ritchie______________________
Frederick VandenbergSamuel Ritchie
Chief Financial Officer, Treasurer
(Principal Financing and Accounting Officer)
Date: April 15, 2020January 13, 2021