What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-01-13 compared with 2020-07-15 · 82 added, 104 removed, 83 unchanged (69% of the section changed)

29 unchanged sentences

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® is a two-sided marketplace platform that enables music labels and artists to create and distribute promotional content and musical assets on the one side, and music broadcasting professionals, music curators and music reviewers to discover, listen to, download and consume, 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 large independent record labels ("Indies"), to promoters, and to the world's largest record labels (the "Major Record Labels") (Universal Music Group, Warner Music Group and Sony Music Entertainment).

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" and Sony Music 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 unique to the Play MPE® platform.

The release dates for music can be dependent on the territory and, where administrative settings permit, local promotions staff may generate a localized distribution of the song with modified marketing information in the local language.

Local staff may select pre-existing assets from the system and combine them together with a local recipient lists to form a "send".

Our customers also choose the level of access for the recipients assigned to the release by designating whether the release can be streamed, downloaded, exported into an unlocked digital format or burned to a CD.

While many clients are set up to manage and upload recipient lists, many rely on the proprietary lists provided within the service.

Our staff manages lists of recipients in various formats and geographies and those lists are made available to our customers using the Play MPE® system.

The Play MPE® system provides Play MPE® staff with the feedback and resources necessary to manage and maintain this network of recipients, which is not available with physical distribution or by smaller competitors.

Customers select lists of recipients within the proprietary network based on music format and geography.

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 by Play MPE®, songs appearing on the internet can be scanned by the International Federation of the Phonographic Industry's ("IFPI").

Headquartered in London, UK, the IFPI is the organization that represents the interests of the recording industry worldwide and one of its missions is to safeguard the rights of record producers.

IFPI web crawlers visit torrents, peer to peer networks and websites searching for unauthorized content.

When problem files are identified, the IFPI can run proprietary software to identify Play MPE®'s unique watermark to identify the originating source.

After the content is released, all activity by the recipient is logged in real time, providing record labels and promotions staff real time detail on which songs are accessed, streamed, downloaded and exported.

This 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, 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.

Throughout 2020, the Company has continued to invest in its technology stack.

These investments in the Play MPE® technology stack intended to increase the speed and efficiency of new feature implementation and expand the efficient use of software resources.

The Company concurrently is continuing to add functionality and improvements to the user experience.

Improvements in user experience will facilitate greater success in global expansion while added functionality is designed to both improve business development success and to provide added saleable services.

In December 2019, the Company announced the new "localization" capability of the sending side of the Play MPE® platform.

This feature supports easy translation of the platform.

Play MPE® then added Spanish, German, Japanese and French to the sending side software.

In January 2020, Play MPE® added several updates to the recipient side of the platform including advanced recipient authentication, improved song search capabilities, and various content management features.

These updates are designed to increase recipient side functionality, ease of use, increased song discovery and increased activity within the Play MPE® platform.

In late January 2020, Universal Music Canada commenced distribution of all releases within Canada through the Play MPE® platform.

In March, this incremental use of the Play MPE® platform in Canada extended to all new music from Sony Music Canada.

Play MPE® continues to grow new use within Canada with newly added distribution for several major independent record labels towards the end of the third quarter.

This new use is "seeding" the Canadian segment for the Play MPE® platform with associated revenue expected to commence near the end of calendar 2020.

Concurrently, Play MPE® list management completed a review of the Canadian recipient lists to update and include all relevant radio personnel including major conglomerates Bell Media, Corus, Pattison, Stingray and others.

Play MPE®'s list management department maintains the most accurate and complete recipient lists in the industry.

In February 2020 Play MPE® completed the reconstruction of the US Latin Radio lists, updating categories and segmentation, and updated represented stations and recipients.

Concurrently, the Play MPE® platform has commenced seeding the network with content from Universal Music Latin Entertainment and major independent record labels.

By the end of the third quarter, Play MPE® had also completed the construction of Mexican distribution lists, and has commenced seeding the platform with suitable content.

In March, the Company appointed Glenn Mattern as Director of Business Development for Play MPE®.

Mattern brings 25 years of business development experience into this newly created position.

In April, the Company commenced its collaborative thought leadership program with initiation of the Play MPE® panel, webinar and Instagram Live series.

These panels and live interviews showcase success stories, share opinions and impressions, and convey industry insights.

These programs are designed to grow collaborative customer interactions, align Play MPE® and record label activities and expand Play MPE® platform interactions.

In May 2020, the Company commenced its Beta testing program with trials on a new release creator.

This program immediately followed the Alpha release the distribution software, now branded as "Caster".

The Beta program actively seeks feedback into the user interface, feature improvements, and new features.

Participants in the Beta program will be recognized as champions and earn certificates of participation and involvement.

This program is expected to improve brand loyalty and customer engagement.

The Company expects that this process will greatly enhance the ability of the Company to ensure that global label customers, with diverse requirements, can easily develop, upload, and distribute customized content to recipients through the Play MPE® platform.

By the end of the third quarter, Play MPE® completed an update to the web player interface to include the left navigation bar.

This alteration will allow additional feature sets and functionality to be added and accessed easily by customers.

Immediately following the quarter, the Play MPE® announced the translation of our Play MPE® website into Spanish.

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, 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 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 Google Chromecast and Apple Airplay streaming capabilities for greater recipient collaboration, additional playlists, sorting, flagging and archiving features, and easier to access release metadata.

All of these features greatly enhance the recipient side of the platform.

Recipient side satisfaction directly increases activity and lead generation for record label customers.

Customers are generally either enterprise customers with full access to Caster (the distribution side of the Play MPE® 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 and allowed the addition of Spanish, German, Japanese and French, in addition to English, languages to Caster during the 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 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 in November 2020 and additional product development support staff.

The Company also has a legacy business, Clipstream®, in the online video industry for which it is pursuing strategic alternatives.

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Playback is currently through the Company's proprietary JavaScript codec engine, which is only available on the internet through the Company.

The Company's unique software-based approach to rendering video, has patents claiming initial priority to 2011.

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 AND NINE MONTH PERIODS ENDED MAY 31.

RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30.

2020 AND 2019

Total revenue for the nine-month period ended May 31, 2020 declined by 1.5% ($2,792,458 in 2020 - $2,833,818 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%) decreased by less than 1%.

Total revenue for the three-month period ended May 31, 2020 declined by $30,562 over the comparable quarter in fiscal 2019, to $939,873 (2019 - $970,435).

Foreign exchange did not significantly impact revenue in the three and nine month periods ended May 31, 2020.

Total revenue for the three-month period ended November 30, 2020 increased by 7.5% ($1,123,977 in 2020 - $1,045,856 in 2019) due to increased Play MPE® revenues, offset by reduced Clipstream revenue.

Play MPE® revenue in the quarter grew 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, Europe, and Australia with an overage revenue growth of 38.5% in this segment.

Operating Expenses

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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 nine-month period ended May 31.

2020 increased by 19.7% to $2,559,608 (2019 - $2,137,604).

The increase in costs was primarily the result of non-recurring (one-time) costs 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 speed and quality of product enhancements and added to business development staffing to increase the speed of revenue growth.

Operating costs during the three-month period ended November 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

Office and miscellaneous

Foreign exchange (gain)/loss

Professional fees

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General and administrative costs also include professional fees and general travel expenditures.

The increase in professional fees is the result of professional fees associated with staff restructuring, share consolidation and share repurchase activities.

This increase is non-recurring.

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

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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 increase in advertising and marketing expenses is related to increase travel expenditures for our staff to attend label visits and industry events.

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

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Product development costs consist primarily of salaries and related personnel costs including overhead and consulting fees with respect to product development and deployment.

The increase in wages and benefits is related to an increase in staffing in product development during the quarter.

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 increased to $100,744 for the nine-month period ended May 31, 2020 from $67,099 for the period ended May 31, 2019, an increase of 50.1% due to an increase in computer software costs associated with externally developed Play MPE® recipient player applications.

Depreciation and amortization expense decreased to $24,315 for the three-month period ended November 30, 2020 from $32,073 for the period ended November 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 $19,743 for the nine-month period ended May 31, 2020 (2019:

Interest income was $1,464 for the three-month period ended November 30, 2020 (2019:

$6,637) and is derived from one-year Guaranteed Investment Certificates.

During the nine-month period ended May 31, 2020 we had net income of $11,226 (2019:

Overall, a modest decline in revenue was accompanied by increased spending on staffing and marketing and advertising costs, as discussed above.

For the three-month period ended May 31, 2020, adjusted EBITDA was $98,103 (2019:

During the three-month period ended November 30, 2020 we had net income of $250,702 (2019:

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 ended November 30, 2020, adjusted EBITDA was $286,402 (2019:

EBITDA $154,431).

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LIQUIDITY AND FINANCIAL CONDITION

As at May 31, 2020, we held $913,349 (August 31, 2019 - $2,512,138) in cash and cash equivalents.

Our short-term investments consist of one-year Guaranteed Investment Certificates (GICs) held through a major Canadian financial institution increased by $717,750 to $1,097,806 (August 31, 2019 - $380,056).

At May 31, 2020, we had working capital of $2,131,144 compared to $2,809,689 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.

During the three-month period ended May 31, 2020, the Company did not complete any NCIB purchases.

During the nine-month period ended May 31, 2020, the Company completed open market purchases of 550,140 common shares for a total cost of $533,223.

Working capital also declined following the recognition of an operating lease liability following adoption of ASU 2016-02, at May 31, 2020 the current portion of the operating lease liability was $219,864 (August 31, 2019 - $nil).

Net cash used in operating activities for the nine-month period ended May 31, 2020 was $234,343, compared to net cash provided by of $635,568 for the nine-month period ended May 31, 2020.

The primary reason for the decrease in cash flows from operating activities is due to an increase in operating expenses, as described above, as well as an increase in accounts receivable during the quarter.

Net cash used in investing activities for the nine-month period ended May 31, 2020 was $797,612, compared to $458,300 for the nine-month period ended May 31, 2019.

During the nine-month period ended May 31 2020, approximately $743,002 was spent on the investment of cash in GICs during the period.

Investing activities during the nine-month period ended May 31, 2019 were attributable largely to expenditures on property, equipment and intangibles.

Net cash used in financing activities during the nine-month period ended May 31, 2020 was $533,223, related to cash used to repurchase and retire 550,140 shares of common stock of the Company under the NCIB.

There were no cash flows from financing activities during the nine-month period ended May 31, 2019.

As at November 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 to November 30, 2020 (August 31, 2020:

At November 30, 2020, we had working capital of $2,729,542 compared to $2,423,774 as at August 31, 2020.

During the three-month period ended November 30, 2020, the Company did not complete any NCIB purchases (2019:

Net cash provided by operating activities for the three-month period ended November 30, 2020 was $441,654, compared to $86,245 for the three-month period ended November 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 ended November 30, 2020 was $758,561, compared to cash used in investing activities of $766,603 for the three-month period ended November 30, 2019.

During the three-month period ended November 30, 2020, $763,749 was received on the maturity of our GICs.

Investing activities during the three-month period ended November 30, 2019 were attributable largely to investment into GICs.

Net cash used in financing activities during the three-month period ended November 30, 2020 was $Nil.

In the three-month period ended November 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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis