What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-13 compared with 2021-07-14 · 78 added, 111 removed, 82 unchanged (70% of the section changed)

25 unchanged sentences

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.

Destiny develops and markets software as a service (SaaS) solutions that solve critical digital distribution and promotion problems for businesses in the music industry.

The core of our business is Play MPE®.

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.

Music is protected by Play MPE®'s patented proprietary watermarking system which provides watermarks unique to each recipient.

Destiny is currently developing additional functionality and services that are expected to increase the services to existing platform users and therefore expand Play MPE®'s addressable market, or act as catalysts to the Company's sales activities.

As well, the Company is investing into research and development on incremental product offerings expected to add addressable market opportunities.

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.

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.

Play MPE® is a two-sided B2B marketplace that enables music labels and artists to distribute promotional content and musical assets on the one side, and for music broadcasting professionals, music curators and music reviewers to discover, download, broadcast and review the music, on the other.

Play MPE® provides a software-based tool to assist record labels and artists in marketing their music.

Record labels and artists are Play MPE®'s customers and pay for submission into the system.

Recipients are provided no charge access to review music.

When adding music to the Play MPE® system, record labels are targeting specific industry recipients who review and broadcast their music.

With this marketing effort, record labels are targeting an increase in their revenue directly through on-air broadcast royalties, streaming royalties and synchronization revenue (revenue when the reproduction of a song is coordinated with video advertisements, television, or film), and indirect increases in revenue through growing song and artists' popularity (for example concert ticket sales etc.).

Customers range from small independent artists, to the world's largest record labels;

(the "Major Record Labels") (Universal Music Group ("Universal"), Warner Music Group "Warner" and Sony Music Entertainment "Sony").

Customers choose Play MPE® for its powerful set of tools, ease of use and its effectiveness in achieving the record label's promotional objectives.

Recipients enjoy easy access to desirable music in high quality audio files.

Play MPE® CASTER (Distribution software)

Play MPE®'s Caster is a full-service distribution management system that includes a complete set of operational functions that provide all necessary software tools to enable labels to manage global marketing campaigns.

Broadly, these components include administration functions and distribution functions.

Administration functions allow management of labels and sub-labels, management of the assets (audio files, video files, and associated cover art, artist information) that are distributed, and management of client-side users and user permissions (roles with selectable capabilities).

Distribution management functions offer powerful contacts management capabilities, release creation, distribution announcements and distribution scheduling, digital rights management by release and by recipient, and release replication and its associated scheduling and digital rights management components.

This full suite of tools within Play MPE® was developed for the music industry and in close collaboration with Universal to cater the functions to its global marketing workflow.

Many clients do not use the full suite of tools.

However, this full set of tools is critical to Universal's global promotional campaign workflow and the core reason Play MPE® distributes internationally for Universal.

Caster is available in English, Spanish, German, Japanese and French.

Play MPE® is a permissions-only access system such that only recipients designated or targeted to receive content obtain access to that content.

Record labels can use Play MPE®'s contacts management system to administer recipient lists.

Contacts management offers several features that facilitate efficient updates and maintenance actions that are critically important where users maintain a large recipient database, across multiple users, and multiple recipient lists.

Absent these features, list maintenance becomes overly cumbersome, inefficient and leads to inaccuracies.

The functionality within the contacts management system is critically important to both distribution hubs at Universal and the Play MPE® operations team to efficiently maintain accurate and active recipient lists.

Within Play MPE®'s contacts management platform, the Company's operations team offers for sale carefully curated and actively maintained recipient lists with more than 14,000 music curators around the world.

These lists include complete lists in 12 countries, and lists under construction in an additional 38.

These selectable lists eliminate the need for our clients to maintain current recipient contact information.

These lists offer significant value to all customers, but are necessary for smaller independent labels and artists who do not have the resources to maintain current contacts.

Without these curators lists, many sales would not be possible.

As active lists in new territories are completed, Play MPE® will grow revenue.

In addition to the contacts management functionality, 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 Play MPE® will expand saleable lists and thereby increase revenue.

Play MPE® Player

Music curators enjoy free access to review and download content through an easy-to-use web-based player or mobile player apps (iOS and Android).

Web-players are currently available in 15 different languages;

English, Spanish, Swedish, Finnish, Italian, Dutch, Portuguese, French, Japanese, German, Norwegian, Latvian, Lithuanian, Estonian, and Danish.

In developing Play MPE®'s recipient interfaces, the Company's product and engineering teams focus on providing a very positive user experience.

Recipients enjoy many features that make it easy to access, collaborate, review, and search for content.

Play MPE®'s mobile apps offer off-line listening capabilities, the ability to utilize Google Chromecast and Apple Airplay streaming capabilities, creation of playlists, sorting, flagging and archiving features, and easier to access release metadata.

Recipient side satisfaction directly increases activity which directly improves the effectiveness of promotional efforts of record label customers.

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.

During Q2 2021, Caster's release creator tool was updated to provide additional template management functionality which provides flexibility in creating and sharing email templates.

This streamlines release creation for our enterprise customers.

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.

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 2.3%, and sends (the number of destinations selected) grew by 26.5%.

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

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.

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.

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

The Company also developed Clipstream® for 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.

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

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).

RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30, 2021 AND 2020

Total revenue for the three-month period ending November 30, 2021 increased by approximately 1% ($1,134,151 in 2021 - $1,123,977 in 2020).

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

Play MPE®'s year to date revenue grew by 1% (or 1.7% 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 average revenue growth of 32% in this segment.

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.

Play MPE® continued to experience growth in the independent labels in the United States, Europe, and Australia with an average revenue growth of 3% 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, 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.

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

Non-recurring (one-time) costs

Adjusted total expenditures

Total operating costs during the three-month period ended November 30, 2021 increased by 8.6% to $852,029 (2020 - $784,426).

Operating Costs in the comparative period, include one-time, non-recuring costs associated with staff restructuring.

Adjusting for these one-time costs associated with staff restructuring, overall costs increased by 11.8%.

The increase in costs is primarily the result of expanded business development staffing costs designed to expand Play MPE ®‘ s global market share.

The Company also increased staffing costs to more quickly expand the company's product offering.

A portion of these costs were capitalized.

Also increasing overall costs are impacts a weakening of the US Dollar.

Foreign exchange impacts are generally temporarily in nature and generally reverse over time.

General and administrative

Office and miscellaneous

Foreign exchange (gain)/loss

Professional fees

3 unchanged sentences

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

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.

The decrease in professional fees is due to a reduction of corporate administration costs and a reduction of litigation costs.

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 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.

The increase in staffing costs primarily relates to the employment of additional staff designed to grow Play MPE ®‘ s market share.

The increase in advertising and marketing expenses is related to increased advertising, sponsorship, and attendance at industry events in the first quarter.

Product Development

3 unchanged sentences

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, offset by $63,554 capitalized as internal use software in the quarter.

The increase in wages and benefits is related to an increase in staffing in product development, offset by $72,290 capitalized as internal use software in the quarter (November 30, 2020:

Depreciation and Amortization

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.

Depreciation and amortization expense increased to $27,172 for the three-month period ended November 30, 2021 from $24,315 for the period ended November 30, 2020, an increase of 11.7% due to a amortization of software development costs associated with Play MPE® recipient player applications.

Other earnings and expenses

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

Interest income was $1,043 for the three-month period ended November 30, 2021 (2020:

$1,464) and is derived from one-year Guaranteed Investment Certificates.

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).

During the three-month period ended November 30, 2021 we had net income of $165,601 (2020 - $250,702).

For the three-month period ended November 30, 2021, adjusted EBITDA was $217,635 (2020 - EBITDA $286,402).

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 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.

As at November 30, 2021, we held $2,536,426 (August 31, 2021 - $2,752,662) 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 November 30, 2021.

At November 30, 2021, we had working capital of $2,682,199 compared to $2,561,480 as at August 31, 2021.

During the three-month period ended November 30, 2021, the Company completed NCIB purchases totaling $44,166.

Net cash used in operating activities for the three-month period ended November 30, 2021 was $52,626 (2020:

net cash provided by operating activities of $441,654).

The primary reason for the decrease in cash flows from operating activities is related to changes in working capital which are expected to reverse over time.

Net cash used in investing activities for the three-month period ended November 30, 2021 was $80,287 (2020:

cash provided from investing activities of $758,561).

During the three-month period ended November 30, 2021, $72,290 was used in software under development.

Net cash used in financing activities during the three-month period ended November 30, 2021 was $44,166 (2020:

$nil), related to cash used to repurchase and retire 30,300 shares of common stock (2020:

Nil) of the Company under the NCIB.

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