What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-14 compared with 2021-04-14 · 44 added, 31 removed, 149 unchanged (33% of the section changed)

79 unchanged sentences

This streamlines release creation for our enterprise customers.

During the quarter the Company's software engineering group continued to focus on enhancements to global release management features which are designed to expand global use by international labels.

During the third quarter the Company's software engineering group continued to focus on, and develop, enhancements to global release management features which are designed to expand global use by international labels.

The engineering group is also investigating various technologies to expand the Company's addressable market.

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Further, the number of tracks within each release grew by 20.3%.

Our Latin initiative continued to make progress with the commencement of distributions by Warner Music Latina immediately following the quarter.

The Latin initiative continued to make progress with the commencement of distributions by Warner Music Latina and Sony in Central America at the beginning of the third quarter, along with additional trial usage by several independent Latin labels.

The Company continued to make improvements to its business development team during the quarter in an effort to strengthen customer relationships.

These improvements have provided immediate benefits with growing usage with major label use in the United States.

This growing use has been seen with major labels with new use in new departments.

In May, the Company entered added a two year agreement with a large subdivision of a major record label in the United States.

The Company sees tremendous potential to grow market share with investments in product development and business development staff.

The Company is targeting growth in its core Play MPE® business by expanding the use of Play MPE® into new market segments and by expanding our addressable market through the addition of new saleable products and services by adding technologies within the Play MPE® platform.

During the quarter the Company added to our marketing, software engineering, operations and product design teams.

Recruitment efforts in business development resulted in additions to staff following the end of our second quarter.

In the third quarter, the Company's marketing team focused on increasing brand awareness both globally and specifically in the Latin, Canadian and US markets.

Advertising campaigns were completed in each market, and included display, newsletter, and editorial content.

Play MPE® sponsored the global International Songwriting Competition.

In Canada, the Company partnered with the Toyota Searchlight music competition and partnered with the Country Music Association of Ontario.

In the Latin market, the Company sponsored the Latin Alternative Music Conference.

During the quarter the Company added to our software engineering, and product design teams.

The Company continues to recruit primarily for software engineering capacity.

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This product has incidental revenues and is not supported or marketed.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020

Total revenue for the six months ending February 28, 2021 increased by approximately 11% ($2,054,676 in 2021 - $1,852,585 in 2020).

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED MAY 31, 2021 AND 2020

Total revenue for the nine months ending May 31, 2021 increased by approximately 12% ($3,138,663 in 2021 - $2,792,458 in 2020).

Play MPE® represents virtually all the Company's revenue.

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Play MPE® continued to experience high growth in the independent labels in the United States, Europe, and Australia with an average revenue growth of 32% in this segment.

Total revenue for the three-month period ended February 28, 2021 increased by 15.4% over the comparable quarter in fiscal 2020, to $930,699 (2020 - $806,729) (11.0% after adjustment for favorable foreign exchange).

Total revenue for the three-month period ended May 31, 2021 increased by 15% over the comparable quarter in fiscal 2020, to $1,083,987 (2020 - $939,873) (10% after adjustment for favorable foreign exchange).

Play MPE® had high growth in the independent labels in the United States, Europe, and Australia with an average revenue growth of 30% in the quarter.

4 unchanged sentences

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-month period ended February 28, 2021 decreased by 5.9% to $1,653,566 (2020 - $1,757,029).

The decrease in costs was the result of a reduction non-recurring (one-time) costs associated with staff restructuring incurred in the six-month period ended February 29, 2020 and a reduction in travel and related expenditures associated with client meetings associated with business development efforts.

These reductions were the result of COVID-19 pandemic travel restrictions.

Operating costs during the nine-month period ended May 31, 2021 increased by 0.4% to $2,570,979 (2020 - $2,559,608).

Operating costs, in both the current nine-month period and the comparative period, include one-time, non-recuring costs associated with corporate restructuring.

For ease of comparison, the following table has removed these costs.

Total overall costs, adjusted for the one-time costs associated with staff restructuring, increased by 8.5%.

This increase in costs is caused by increased investments in business development, marketing, and product design and development staffing designed to accelerate product development and revenue growth.

This increase has been partially offset by the abovementioned reduction in business development related travel costs caused by COVID-19 pandemic travel restrictions.

Also increasing overall costs are impacts from foreign exchange losses caused by the weakening of the US dollar.

Foreign exchange gains and losses are generally temporary in nature and normally substantially reverse over time.

The total increase for the nine-month period has been partially offset by the abovementioned reduction in business development related travel costs caused by COVID-19 pandemic travel restrictions.

Total operating expenditures

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

The decrease in professional fees is the result of reduced non-recurring costs.

The decrease in professional fees and wages and benefits is the result of staff restructuring and related professional fees, and professional fees share consolidation activities in 2020.

Sales and marketing

4 unchanged sentences

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 decrease in advertising and marketing expenses is related to decreased travel expenditures for our staff to attend label visits and industry events due to COVID-19.

The increase in staffing costs primarily relates to the employment of additional staff designed to grow and enhance business development activities.

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

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 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.

The increase in wages and benefits is related to an increase in staffing in product development, offset by $63,554 capitalized as internal use software in the quarter.

Depreciation and Amortization

Depreciation and amortization expense decreased to $50,715 for the six-month period ended February 28, 2021 from $67,550 for the period ended February 29, 2020, a decrease of 24.9% due to a decrease in computer software costs associated with externally developed Play MPE® recipient player applications.

Depreciation and amortization expense decreased to $77,388 for the nine-month period ended May 31, 2021 from $100,744 for the period ended May 31, 2020, a decrease of 23.2% due to a decrease in computer software costs associated with externally developed Play MPE® recipient player applications.

Other earnings and expenses

Interest income was $2,338 for the six-month period ended February 28, 2021 (2020:

Interest income was $3,162 for the nine-month period ended May 31, 2021 (2020:

$19,743) and is derived from one-year Guaranteed Investment Certificates.

During the six-month period ended February 28, 2021 we had net income of $221,236 (2020 - $43,673 net loss).

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 February 28, 2021, adjusted EBITDA was $9,192 (2020 - EBITDA ($126,134)).

During the nine-month period ended May 31, 2021 we had net income of $290,830 (2020 - $11,226).

Overall, an increase in revenue was accompanied by budgeted spending on staffing and marketing, advertising costs, and internal use software development, as discussed above.

For the three-month period ended May 31, 2021, adjusted EBITDA was $108,577 (2020 - EBITDA $98,103).

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.

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LIQUIDITY AND FINANCIAL CONDITION

As at February 28, 2021, we held $3,011,715 (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 February 28, 2021 (August 31, 2020:

At February 28, 2021, we had working capital of $2,716,767 compared to $2,423,774 as at August 31, 2020.

During the three-month period ended February 28, 2021, the Company completed NCIB purchases totaling $45,004 (2020:

Net cash provided by operating activities for the six-month period ended February 28, 2021 was $391,840, compared to net cash used in operating activities of $133,573 for the six months ended February 29, 2020.

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 six-month period ended February 28, 2021 was $787,067, compared to cash used in investing activities of $796,851 for the six-month period ended February 29, 2021.

During the six-month period ended February 28, 2021, $800,624 was received on the maturity of our GICs.

Net cash used in financing activities during the six-month period ended February 28, 2021 was $45,004 (February 29, 2020 was $533,223), related to cash used to repurchase and retire 41,285 shares of common stock (550,140 shares of common stock) of the Company under the NCIB.

As at May 31, 2021, we held $2,934,575 (August 31, 2020 - $2,622,830) in cash and cash equivalents and short-term investments.

Our short-term investments consisted of one-year Guaranteed Investment Certificates (GICs) held through a major Canadian financial institution, and had reached maturity prior to May 31, 2021 (August 31, 2020:

At May 31, 2021, we had working capital of $2,659,091 compared to $2,423,774 as at August 31, 2020.

During the three-month period ended May 31, 2021, the Company completed NCIB purchases totaling $173,678.

Total NCIB purchases for the nine-month period ended May 31, 2021 totaled $218,682.

Net cash provided by operating activities for the nine-month period ended May 31, 2021 was $437,538 (2020:

net cash used in operating activities of $234,343).

The primary reason for the increase in cash flows from operating activities is due to an increase in operating revenues, and software under development, as described above.

Net cash provided by investing activities for the nine-month period ended May 31, 2021 was $702,412 (2020:

cash used in investing activities of $797,612).

During the nine-month period ended May 31, 2021, $800,624 was received on the maturity of our GICs, and $63,554 used in software under development.

Net cash used in financing activities during the nine-month period ended May 31, 2021 was $218,682 (2020:

$533,223), related to cash used to repurchase and retire 155,685 shares of common stock (2020:

550,140 shares of common stock) of the Company under the NCIB.

CRITICAL ACCOUNTING POLICIES

6 unchanged sentences

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