DESTINY MEDIA TECHNOLOGIES INC. 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 theSecurities 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 inAugust 1998 under the laws of theState of Colorado and the corporate jurisdiction was changed toNevada effectiveOctober 8, 2014 . We carry out our business operations through our wholly owned subsidiary,Destiny Software Productions Inc. , aBritish Columbia company that was incorporated in 1992,MPE Distribution, Inc. aNevada company that was incorporated in 2007 andSonox 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,
Our common stock trades on theTSX Venture Exchange inCanada under the symbol "DSY", on the OTCQBU.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-sided B2B marketplace 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, download, broadcast and review the music, on the other. Our customers range from small independent artists, 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"), promoters or pluggers, and the world's largest record labels (the "Major Record Labels") (who, along with Universal, include Warner Music Group "Warner" andSony Music Entertainment "Sony"). OurMajor Record Label clients have offices around the world and typically represent the world's largest recording artists.
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When uploading to the Play MPE® platform, the goal of our customers is to increase demand for their music and artists by distributing that content to 'music influencers' who can, in turn, expose the music or artist to a 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.
Recipients on the Play MPE® platform 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® platform 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 , andAfrica ). 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 are 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 capacity to develop and maintain available lists and thereby increase saleable lists. This will be especially advantageous as Play MPE® 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 year, the Company added features to the player side of the platform that include advanced recipient authentication, advanced search and content sorting features. These features improve the ease-of-use and utility of the platform 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
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, andUSA 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 sees tremendous potential to grow market share with investments in product development and business development staff. During the quarter, the Company continued to recruit for new engineering, product development, marketing and business development staff adding the front-end engineering lead in October, a senior account executive to lead the LATAM market initiative inNovember 2020 and 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, has patents claiming initial priority to 2011. This product has incidental revenues and is not supported or marketed.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED
Revenue
Total revenue for the three-month period ended
Play MPE® continued to experience high growth in the independent labels inthe United States ,Europe , andAustralia with an overage revenue growth of 38.5% in 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 inCanada 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 three-month period endedNovember 30, 2020 decreased by 8.33% to$784,426 (2019 -$855,305 ). The majority of the decrease in costs was the result of a reduction in travel and related expenditures associated with client meetings and business development efforts. These reductions were the result of COVID-19 pandemic travel restrictions. --------------------------------------------------------------------------------
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 decrease in non-recurring professional fees is the
result of professional fees associated with staff restructuring, share
consolidation and share repurchase activities incurred in the three month period
ended November 30, 2019 .
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 relates to additional staff designed to
grow and enhance business development activities. The decrease in advertising
and marketing expenses is related to reduced travel expenditures for our staff
to attend label visits and industry events due to the COVID-19 pandemic.
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 decrease in wages and benefits is related to the 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 decreased to$24,315 for the three-month period endedNovember 30, 2020 from$32,073 for the period endedNovember 30, 2019 , a decrease of 24.2% due to a decrease in computer software costs associated with externally developed Play MPE® recipient player applications.
Other earnings and expenses
Interest income was
Net income
During the three-month period endedNovember 30, 2020 we had net income of$250,702 (2019:$111,658 ). Overall, an increase in revenue was accompanied by budgeted spending on staffing and marketing and advertising costs, as discussed above. For the three-month period endedNovember 30, 2020 , adjusted EBITDA was$286,402 (2019: EBITDA$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: 2021 Q1 2020 Q4 2020 Q3 2020 Q2 2020 Q1
2019 Q4 2019 Q3 2019 Q2
$ $ $ $ $ $ $ $
Net Income
(loss) 250,702 158,187 54,899 (155,331 ) 111,658 114,157 195,712 80,719
Amortization,
stock-based
compensation
and deferred
leasehold
inducements 37,164 49,085 48,470 37,307 49,140 34,983 36,404 31,042
Interest
income (1,464 ) (4,672 ) (5,266 ) (8,110 ) (6,367 ) (5,999 ) (8,233 ) (6,522 )
Adjusted
EBITDA 286,402 202,600 98,103 (126,134 ) 154,431 143,141 223,883 105,239
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LIQUIDITY AND FINANCIAL CONDITION
As atNovember 30, 2020 , we held$3,076,862 (August 31, 2020 -$2,622,830 ) in cash and cash equivalents and short-term investments. Our short-term investments consisting of one-year Guaranteed Investment Certificates (GICs) held through a major Canadian financial institution, had reached maturity prior toNovember 30, 2020 (August 31, 2020 :$781,490 ).
At
CASH FLOWS
Net cash provided by operating activities for the three-month period endedNovember 30, 2020 was$441,654 , compared to$86,245 for the three-month period endedNovember 30, 2019 . The primary reason for the increase in cash flows from operating activities is due to an increase in operating revenues, as described above, as well as a decrease in accounts receivable during the quarter. Net cash provided by investing activities for the three-month period endedNovember 30, 2020 was$758,561 , compared to cash used in investing activities of$766,603 for the three-month period endedNovember 30, 2019 . During the three-month period endedNovember 30, 2020 ,$763,749 was received on the maturity of our GICs. Investing activities during the three-month period endedNovember 30, 2019 were attributable largely to investment into GICs. Net cash used in financing activities during the three-month period endedNovember 30, 2020 was $Nil. In the three-month period endedNovember 30, 2019 net cash used in financing activities, related to cash used to repurchase and retire 298,755 shares of common stock of the Company under the 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 inthe 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 endedAugust 31, 2020 as filed with theSEC onNovember 18, 2020 except for those described in Note 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 8 "New Accounting Pronouncements" in the notes to our Interim Condensed Consolidated Financial Statements included in this Form 10-Q.
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