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Item 7. Management’s Discussion and Analysis

2022-11-14 compared with 2021-11-23 · 128 added, 109 removed, 64 unchanged (79% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our results of operations and financial condition should be read together with the consolidated financial statements and related notes that are included in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and financing needs, includes forward-looking statements that involve risks and uncertainties and should be read together with the "Risk Factors" section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report and in other reports we file with the SEC, particularly those under "Risk Factors."

Components of Results of Operations

Service revenue

The majority of the Company's revenue is generated from digital media distribution service.

The service is billed either based on usage or on a fixed fee which is based on the volume and size of distributions provided.

All revenues are recognized as the services are rendered to customers.

Cost of revenue

Cost of revenue primarily consists of personnel costs for our operations service and technical support employees and engineering support staff, cloud infrastructure costs, incremental transaction costs such as merchant and processing fees, and costs of external customer support software and services.

In each case, personnel costs include salaries, benefits and any other compensation paid to such staff.

Operating expenses

Our technologies and products are developed and maintained in-house, the majority of our expenditures are contributed towards salaries, wages and benefits.

Our operations are primarily conducted in Canada and therefore, our costs are primarily incurred in Canadian dollars while our revenues are primarily denominated in Euros and US dollars.

Thus, operating expenses and the results of operations are impacted, to the extent they are not hedged, by the rise and fall of the relative values of the Canadian dollar to these currencies.

The Company maintains a large portion of its financial reserves in Canadian dollars to mitigate the downside risk of adverse exchange rates on its operating expenditures.

General and administrative expenses consist of salaries and related personnel costs including overhead, office rent, professional fees, shareholder relations, and general office expenses.

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.

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

RESULTS OF OPERATIONS FOR THE YEARS ENDED AUGUST 31, 2022 AND 2021

Total revenue for the year ended August 31, 2021 increased by 9.1% over the same period in the prior year to $4,172,473 (2020 - $3,824,565) or by 5.4% adjusted for impacts of foreign currency fluctuations.

Representing virtually all of our 2021 revenue, Play MPE® revenue increased by 9.3% year over year to $4,152,881 (2020:

$3,798,317) or 5.6% adjusted for foreign currency fluctuations.

The increase in Play MPE® revenue was seen from all geographic regions in which the we operate, other than Australasia.

Total revenue for the year ended August 31, 2022 decreased by approximately 3.6% to $4,023,910 compared to the revenue of $4,172,473 for the year ended August 31, 2021;

however, adjusted for impacts of foreign currency translation Play MPE® revenue increased 1.1% year over year.

The negative impact of the foreign currency translation can be attributed to the decline in the value of the Euro and the Australian dollar relative to the US dollar.

Play MPE® revenue earned in North America and Africa during the year ended August 31, 2022, has grown by 3.4% and 208.6% year over year, respectively.

Notwithstanding the negative impact of foreign currency translation, Play MPE® revenue earned in the European segment has also grown by 3.6% year over year.

The Company's revenues are denominated predominantly in US Dollars, Euros and Australian Dollars.

Total Revenue

Fiscal 2021 revenue growth has been a result of significant restructuring of the company's management team and business development group in 2020, refocusing on its core Play MPE® business and the commencement of seeding network use to expand territories.

Independent record label revenue grew by 23.1% for the year.

The majority of growth in this segment came from an increase in leads, lead conversion and average revenue per sale within existing territories where Play MPE® has well established use.

Also contributing to this growth is independent record label revenue in new territories as the Company has established sufficient use to begin to attract paid use.

These new territories include the UK, Jazz globally, South Africa, newer genres of music in the US, and Canada.

Gross margin for the year ended August 31, 2021 was 91% of revenue, which is comparable to the year ended August 31, 2020.

% of Total Revenue

Australian Dollar

Gross margin for the year ended August 31, 2022 was 83.7% of revenue, which represents a decrease of 6.9% from the year ended August 31, 2021.

The Company's cost of revenue consists of data hosting and processing charges, third party transaction related costs, and engineering, technical and customer support costs.

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Our full-service revenue is derived from customers who are fully serviced by our internal staff, who prepare and publish releases on their behalf.

During the year ended August 31, 2021, our gross margin remained consistent over the prior year, as we saw service revenue grow from both customer types.

During the year ended August 31, 2022, our gross margin decreased over the comparative year predominately due to increase in costs associated with the hosting services and increased staffing in technical and customer support departments in order to increase optimization of the service and reduce lag time in remote locations.

Operating Expenses

As our technologies and products are developed and maintained in-house, the majority of our expenditures are on salaries and wages and other associated expenses such as office space, office supplies and employee benefits.

Our operations are primarily conducted in Canada and 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.

Overall operating costs remained flat at $3,400,050 during the year ended August 31, 2021 (2020 - $3,360,953).

Cost reductions in rent, marketing and various administrative costs were offset by an increase in costs generally as the Canadian rose relative to the US dollar.

The Company also increased spending on business development, marketing and product development staff but this increased cost was offset by software product development costs were capitalized as the Company began significant investments into a new product designed to expand the Company's addressable market.

Advertising and marketing expenses decreased by 42% as a result of decreased public relations efforts as a result of the covid-19 pandemic, as more fully described below.

Included in overall operating expenditures is approximately $155,000 in one-time restructuring costs.

The Company made significant efforts to improve its business development team and add to its product design and development team.

Improvements made to the business development team may have shorter term benefits to revenue but are designed to have significant improvements over the longer term as we expand to new markets.

General and administrative

Office and miscellaneous

Foreign exchange

Operating costs during the year ended August 31, 2022 decreased by 4.9% to $3,233,860 (2021 - $3,400,050).

The decrease in costs was primarily the result of the following three factors:

An increase of $271,342 or 9.9% in wages and benefits due to additional staffing that was brought on board to support expanded development of the Play MPE® platform and additional operational staff to support expanded technical support and distribution list development.

The additional staff is focused on items designed to accelerate revenue growth of Play MPE® and expand the addressable market.

An increase of $96,842 or 187.2% in non-cash stock-based compensation recorded due to share-based awards granted during the year ended August 31, 2022.

These increases were offset by $626,778 in capitalized wages and benefits paid to engineering and product development employees who worked on development of the new products and enhancements to the Play MPE® platform.

The capitalization and inclusion of these investments in assets is done based on an assessment of their positive incremental value.

Additionally, a decrease in value of the Canadian dollar relative to the US dollar added to the overall decrease in operating expenses.

General and Administrative Expenses

Wages and benefits

Professional fees

Office and miscellaneous

Shareholder relations

Foreign exchange loss

Telecommunications

Total general and administrative expenses

The increase in salaries and wages can be explained by increased non-cash stock-based compensation due to additional share-based awards granted during the year ended August 31, 2022 and one-time staff recruitment fees.

Increase in bad debt year over year was due to the Company using a more stringent policy to establish an allowance for overdue receivables.

The decrease in professional fees was due to the timing of litigation proceedings in the comparative year ended August 31, 2021.

Sales and Marketing Expenses

Wages and benefits

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 and administrative travel expenditures.

The decrease in wages and benefits relates to restructuring charges incurred in the year ended August 31, 2020.

Sales and marketing

Advertising and marketing

Telecommunications

Total sales and marketing expenses

The decrease in wages and benefits is the result of restructuring costs in the prior year and adjustments in staff allocation.

The increase in advertising and marketing expenses is related to increased sponsorship, advertising, and attendance at industry events in the fiscal year 2022 compared to the fiscal 2021, where COVID-19 restrictions severely impacted public activities and travel.

Product Development Expenses

Wages and benefits

Sales and marketing expenses consist of salaries and related personnel costs including overhead, office rent, and telecommunications costs.

Sales and marketing also includes advertising and marketing expenses, which consists of promotional materials, online or print advertising, business development tools, and marketing or business development related travel costs including attendance at conferences and trade shows, and label visits.

The decrease in advertising and marketing expenses relates to reduced expenses incurred in respect of public relations initiatives, and reduced marketing and business development related travel due to the impacts of COVID-19.

The increase in wages and benefits is associated with an increase in staffing in this department.

We hired additional account executives and product development associates and consultants.

Product Development

Software services

Telecommunications

Wages and benefits

Product Development costs consist of product and software development related salaries and personnel costs including overhead, office rent and telecommunications.

Product development also includes consulting fees with respect to product development and deployment.

The decrease in wages and benefits is related to an increase in staffing in product development, offset by $167,069 capitalized as software under development in fiscal 2021, resulting in an overall increase in expenditure for the year ended August 31, 2021.

Product development expenses

During the year ended August 31, 2022, the Company increased development staffing to accelerate new additions to the product roadmap designed to increase the addressable market and facilitate faster market acquisition.

The decrease in wages and benefits reflects the capitalization of a portion of these costs.

During the year ended August 31, 2022, $626,778 in wages and benefits paid to engineering and product development staff were capitalized to software under development intangible assets and $269,777 of the capitalized wages and benefits was subsequently reclassified to computer software fixed assets as the products were completed.

Depreciation and Amortization

Depreciation and amortization arise from property and equipment and from patents and trademarks.

Depreciation and amortization decreased to $105,357 for the year ended August 31, 2021 from $135,385 for the year ended August 31, 2020, a decrease of $30,028 or 22.2%.

Other earnings and expenses

Interest income decreased to $4,031 for the year ended August 31, 2021 from $24,415 for the year ended August 31, 2020, a decrease of $20,384.

The decrease is related to the maturity of our one-year guaranteed investment certificates during the year.

During the year ended August 31, 2021 we reported net income of $382,529 (2020 - $169,415).

The increase in net income is attributable to a combination of (1) increased reported revenues and (2) an increase in certain operating expenses such as salaries and wages and marketing, as more fully described above.

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.

Depreciation and amortization expense increased to $142,662 for the year ended August 31, 2022 from $105,357 for the year ended August 31, 2021, an increase of 35.4% was due to depreciation of additionally capitalized software development costs associated with Play MPE® recipient player applications during the year.

Interest income earned on the Company's Guaranteed Investment Certificates was $9,153 for the year ended August 31, 2022 (2021 - $4,031).

The interest income more than doubled year over year due to increased interest rates in Canada.

Additionally, the Company terminated its lease agreement for the office space on January 31, 2022.

Upon termination the Company disposed of leasehold fixtures and fittings and recorded a gain on lease termination of $11,018.

For the year ended August 31, 2022, we reported a net income of $149,074 (2021 - $382,529).

For the year ended August 31, 2022, adjusted EBITDA was $435,507 (2021 - $535,589).

Adjusted EBITDA is not defined under U.S.

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 our 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 noncash 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, these stock-based compensation expenses do not result in cash payments by the Company.

Adjusted EBITDA has limitations as a profitability measure in that it does not include interest expense on our debt, our provisions for income taxes and amortization, the effect of deferred leasehold inducement, the effect of noncash stock-based compensation expense and the effect of asset impairment.

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 the Company.

Adjusted EBITDA has limitations as a profitability measure in that it does not include provisions for income taxes, the effect of our expenditures on 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 from operations to Adjusted EBITDA:

Net income (loss)

Interest income (net)

Depreciation and amortization

Current income tax

Stock-based compensation

Deferred leasehold inducement

Depreciation, amortization and deferred leasehold inducements

Interest income

Adjusted EBITDA

LIQUIDITY AND FINANCIAL CONDITION

Our cash and cash equivalents and short-term investments balance increased by $129,832 during the year ended August 31, 2021 to $2,752,662 (2020 - $2,622,830).

At August 31, 2021, we held $2,752,662 (August 31, 2020 - $1,841,340) in cash and cash equivalents and $nil (2020 - $781,490) in short term investments consisting of one-year Guaranteed Investment Certificates held through a major Canadian financial institution.

At August 31, 2021, we had working capital of $2,561,480 compared to $2,423,774 as at August 31, 2020.

The increase in our working capital was primarily due our increased cash and cash equivalents at August 31, 2021.

At August 31, 2021, $2,367,337 in cash and short-term investments were held outside of the United States.

At this time, we have no intention to repatriate this cash.

However should we decide to repatriate in the future, taxes may need to be accrued and paid.

Net cash provided in operating activities was $528,922 for the year ended August 31, 2021, compared to $272,213 for the year ended August 31, 2020.

The increase is mainly attributable to the timing of receipts from our customers.

The cash provided by investing activities was $590,885 for the year ended August 31, 2021, compared to cash used in investing activities of $433,859 for the year ended August 31, 2020.

The increase in cash provided by investing activities is a result of the maturity of short-term investments, consisting of one-year Guaranteed Investment Certificates, prior to August 31, 2021, offset by an investment in new capital assets and internally developed software.

Cash used in financing activities was $260,405 for the year ended August 31, 2021, consisting of the repurchase of common stock of the company for retirement under the normal course issuer bid announced in January 2021.

Cash used in financing activities during each of the fiscal year ended August 31, 2020, was $533,223.

LIQUIDITY, FINANCIAL CONDITION

As of August 31, 2022, we held $2,095,928 (2021 - $2,752,662) in cash and cash equivalents.

Our cash equivalents consisted of one-year Guaranteed Investment Certificates held through a major Canadian financial institution and had reached their maturity.

On August 31, 2022, we had working capital of $2,268,778 compared to $2,561,480 as at August 31, 2021.

The decrease in our working capital was primarily due to the decrease in cash and cash equivalents as a result of timing of customer receipts and trade payments.

The following table sets forth a summary of the net cash flow activity for each of the years indicated:

Net cash and cash equivalents provided by (used in)

Operating activities

Investing activities

Financing activities

Effect of foreign exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Operating Activities

Net cash provided by operating activities during the year ended August 31, 2022 was $307,198 (2021 - $528,922).

The primary reason for the decrease in cash flows from operating activities was the timing of receipts from our customers.

Investing Activities

Net cash used in investing activities for the year ended August 31, 2022 was $692,846, compared to cash provided by investing activities of $590,885 for the year ended August 31, 2021.

During the fiscal 2021, $805,017 was received on the maturity of our GICs.

During the fiscal year 2022, the contributions made towards investing activities was cash spent on new capital assets and internally developed computer software.

Financing Activities

Net cash used in financing activities during the year ended August 31, 2022 was $190,676 (2021 - $260,405) - this cash was used to repurchase and retire 143,100 shares of common stock (2021 - 185,285 shares of common stock) of the Company under the Normal Course Issuer Bid ("NCIB") and to repurchase stock options.

CAPITAL RESOURCES

The Company does not have any material commitments for capital expenditures and the Company is able to meet current and expected growth and increase in growth in revenue with current capital investments.

MATERIAL OFF-BALANCE SHEET ARRANGEMENTS

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities.

We base our estimates on historical experience and other assumptions that we believe are reasonable in the circumstances.

Actual results may differ from these estimates.

The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

The Company does not have any material commitments for capital expenditures and the Company is able to meet current and expected growth with current capital investments.

OFF-BALANCE SHEET ARRANGEMENTS

As of August 31, 2022, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes.

We evaluate these estimates and judgments on an ongoing basis.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations:

Revenue Recognition

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If we made different judgments or utilized different estimates for any period material differences in the amount and timing of revenue recognized could result.

Research and Development Expense for Software Products

Our software solutions are offered to our customers through software as a service delivery models.

Development costs associated with the certain solutions offered exclusively through a software as a service model are accounted for in accordance with ASC 350-40 "Internal-Use Software".

All other client solution development costs, which represent a significant majority of development costs, are accounted for in accordance with ASC 985-20 "Costs of Software to be Sold, Leased or Marketed" .

Under ASC 985-20, software development costs incurred in creating computer software solutions are expensed until technological feasibility has been established upon completion of a detailed program design.

Thereafter, all software development costs incurred through the software's general release date are capitalized and subsequently recorded at the lower of amortized cost or net realizable value.

Capitalized costs are amortized based on current and expected future revenue for each software solution with minimum annual amortization equal to the straight-line amortization over the estimated economic life of the solution.

We amortize capitalized costs over two years.

Under ASC 350-40, software development costs related to preliminary project activities and post-implementation and maintenance activities are expensed as incurred.

We capitalize direct costs related to application development activities that are probable to result in additional functionality.

We test for impairment whenever events or changes in circumstances that could impact recoverability occur.

Stock-Based Compensation

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Stock-based compensation cost is recognized only for awards ultimately expected to vest.

Our estimate of the forfeiture rate is based primarily on our historical experience.

To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the quarter of revision, as well as in the following quarters.

Our estimate of the forfeiture rates is based primarily on our historical experience.

The estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period.

In the future, as empirical evidence regarding these input estimates is available to provide more directionally predictive results, we may change or refine our approach of deriving these input estimates.

Research and Development Expense for Software Products

Our software solutions are offered to our customers through software as a service delivery models.

Development costs associated with the certain solutions offered exclusively through a software as a service model are accounted for in accordance with ASC 350-40.

Internal-Use Software.

All other client solution development costs, which represent a significant majority of development costs, are accounted for in accordance with ASC 985-20.

Costs of Software to be Sold, Leased or Marketed.

Thereafter, all software development costs incurred through the -software's general release date are capitalized and subsequently recorded at the lower of amortized cost or net realizable value.

We amortize capitalized costs over five years.

Under ASC 350-40, software development costs related to preliminary project activities and post-implementation and maintenance activities are expensed as incurred.

We capitalize direct costs related to application development activities that are probable to result in additional functionality.

Capitalized costs are amortized on a straight-line basis over five years.

We test for impairment whenever events or changes in circumstances that could impact recoverability occur.

Accounts Receivable and Allowance for Doubtful Accounts

We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required.

Accounts outstanding beyond the contractual payment terms are considered past due.

We determine our allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer's current ability to pay its obligation to us.

We write-off accounts receivable when they are identified as uncollectible.

All outstanding accounts receivable accounts are periodically reviewed for collectability on an individual basis.

Deferred income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates by tax jurisdiction at each balance sheet date.

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There is a risk that management estimates for operating results could vary significantly from actual results, which could materially affect the valuation of the future income tax asset.

Although the Company has tax loss carry-forwards and other deferred income tax assets, management has determined certain of these deferred tax assets do not meet the more likely than not criteria, and accordingly, these deferred income tax asset amounts have been completely offset by a valuation allowance as disclosed in Note 6 of our consolidated financial statements.

Although the Company has tax loss carryforwards and other deferred income tax assets, management has determined certain of these deferred tax assets do not meet the more likely than not criteria, and accordingly, these deferred income tax asset amounts have been completely offset by a valuation allowance as disclosed in Note 7 of our consolidated financial statements.

If management's estimates of the cash flows or operating results do not materialize due to errors in estimates or unforeseen changes to the economic conditions affecting the Company, it could result in an impairment adjustment in future periods.

Accounts Receivable and Allowance for Doubtful Accounts

We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required.

Accounts outstanding beyond the contractual payment terms are considered past due.

We write off accounts receivable when they are identified as uncollectible.

All outstanding accounts receivable accounts are periodically reviewed for collectability on an individual basis.

Contingencies

As discussed under "Item 3.

Legal Proceedings" and in Note 9 "Contingencies" in Notes to Consolidated Financial Statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business.

In accordance with US GAAP, the Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable.

Legal Proceedings" and in Note 8 - "Commitments and Contingencies" in notes to consolidated financial statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business.

In accordance with US GAAP, the Company records a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated.

There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.

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We have not recorded any impairment losses to date.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements and their possible effect on our financial statements, please see Note 2 to our Consolidated Financial Statements found elsewhere in this Annual Report.

New Accounting Pronouncements

See Note 2 to the Financial Statements included in Item 8 of this Annual Report.

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-K

Item 7. Management’s Discussion and Analysis