What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-11-21 compared with 2023-11-28 · 37 added, 38 removed, 173 unchanged (30% of the section changed)

23 unchanged sentences

Adjusted for impacts of foreign currency translation, Play MPE® revenue increased 8.9% year over year.

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

The Company experienced a 6.1% growth in revenue in the second half of the year recovering from a slow start to the year.

This growth came as the result expanded distribution list options, increased investments in digital marketing that commenced at the beginning of our third quarter, in-platform list selection improvements that took effect in our fourth quarter and improvements in foreign exchange rates which eliminated the negative impact to revenue experienced in the first half of the year.

Foreign currency fluctuations had an immaterial impact to revenue.

Revenue growth continued throughout the year and was positively influenced by recent investments in the Play MPE® platform.

Growth in revenue came from improved distribution processes and greater distribution options that arise from these platform investments.

The revenue growth rate of 9.6% is the Company's highest since 2010.

The largest contribution in revenue growth comes from stronger revenue growth in US independent label segment where revenue accounted for approximately 65% of the increase.

During the fourth quarter, the Company launched MTR™ in the United States.

This initial launch of the MTR™ services only small users until further platform enhancements can be added.

As expected, MTR™'s revenue both grew throughout the quarter and had an immaterial impact to total revenue for the year.

While small, the Company saw revenue growth from returning and new users.

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

5 unchanged sentences

Other 2.6% 4.0%

Gross margin for the year ended August 31, 2023 was 87.2% of revenue, which represents an increase of 3.5% from the year ended August 31, 2022.

Gross margin for the year ended August 31, 2024 was 86.2% of revenue, which represents an decrease of 1.0% from the year ended August 31, 2023.

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.

2 unchanged sentences

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, 2023, our gross margin increased over the comparative year predominately due to a decrease in costs associated with the hosting services and a decrease of staffing in technical and customer support departments.

Operating Expenses

Operating costs during the year ended August 31, 2023 decreased by 0.5% to $3,218,092 (2022 - $3,233,860).

The decrease in operating costs was primarily the result of the following:

Favorable foreign exchange rates reduced the overall operating costs by approximately 3.7%.

The majority of our operating costs are denominated in Canadian dollars.

As the US dollar strengthened on average relative to the Canadian dollar, our operating costs as expressed in US dollars declined.

While total salaries and wages remained relatively consistent with the prior year, we increased the amount capitalized to capital software assets and software under development intangible asset resulting in a decrease to total operating expenses of approximately 1.6%.

With the growing capitalization of salaries and wages, amortization expense grew overall expenditures by 3.0%.

One-time professional fees associated with resolving outstanding litigation grew overall expenditures by 1.6%.

Operating costs during the year ended August 31, 2024 increased by 16.5% to $3,749,684 (2023 - $3,218,092).

The increase in operating costs was primarily the result of the following:

An increase of 21.9% of salary and wages in sales in marketing which accounted for a 5.3% increase in total expenditures.

This increase largely temporary in nature as the Company moves expenditures into marketing as described below.

An increase of 97.1% in (non-cash) amortization expenditures, primarily related to the commencement of software costs related to the MTR™ platform which launched commercially in the United States in the fourth quarter of fiscal 2024.

This increase contributed a 7.2% increase to overall expenditures.

For ease of reference the following table has been prepared to present operating results had the Company not capitalized software for fiscal years 2024 and 2023.

8 unchanged sentences

Office and miscellaneous 84,287 92,157 (7,870 ) (8.5%)

Shareholder relations 75,670 77,416 (1,746 ) (2.3%)

Public company expenditures 67,341 75,670 (8,329 ) (11.0%)

Rent 44,158 49,231 (5,073 ) (10.3%)

Foreign exchange loss (118,228 ) 58,299 (176,527 ) (302.8%)

Foreign exchange loss (gain) 8,401 (118,228 ) 126,629 (107.1%)

Telecommunications 8,520 10,882 (2,362 ) (21.7%)

2 unchanged sentences

Total general and administrative expenses $ 697,996 $ 769,613 (71,617 ) (9.3%)

The decrease in salaries and wages can be explained by a temporary decrease in full time equivalent staffing for August 31, 2023 and one-time staff recruitment fees.

Professional fees were temporarily increased due to one-time litigation expenses, which were subsequently resolved through a favorable judgment in the Company's favour.

The Company was awarded costs and has only partially recognized the collection of those costs.

The decrease in wages and benefits is primarily related to a one time increase in the prior year related to staff recruitment fees.

The decrease in professional fees is due to litigation expenses in the prior year.

This litigation was resolved through a judgment in the Company's favour.

The Company was awarded costs of approximately $43,000 but has not recorded any amount in respect of these fees as they remain outstanding.

Sales and Marketing Expenses

5 unchanged sentences

Total sales and marketing expenses $ 1,063,476 $ 872,679 190,797 21.9%

The decrease in wages and benefits is the result of a temporary decrease in full time equivalent staffing for August 31, 2023.

The decrease in advertising and marketing expenses is related to timing of sponsorship, advertising, and attendance at industry events in the fiscal year 2023.

The increase in wages and benefits is primarily temporary in nature as the Company restructured its business development group during the year and increased spending on marketing related staffing.

The Company is investing in marketing related costs concurrent with investments in the Play MPE® platform designed to scale revenue growth with more efficient use of human capital.

The increase in advertising and marketing expenses is related to timing of sponsorship, advertising, and attendance at industry events in the fiscal year 2024.

Product Development Expenses

Product development expenses 2023 2022 $ Change % Change

2024 2023 $ Change % Change

Wages and benefits $ 1,189,710 $ 1,045,492 144,218 13.8%

2 unchanged sentences

Telecommunications 155,134 123,132 32,002 26.0%

Other - 2,683 (2,683 ) 100.0%

Product development expenses $ 1,518,411 $ 1,337,445 180,966 13.5%

The rise in wages and benefits can be attributed to the recruitment of additional development staff, aimed at accelerating the implementation of new additions to the product roadmap.

Additionally, for the year ended August 31, 2023, the Company increased the amount of capitalized product development wages, reflecting a continued significant investment in product development to expand its addressable market.

The increase in wages and benefits can be attributed to the reduction in the amount capitalized for software development.

The Company continues to invest in advancing MTR® to cater the service to larger customers as well as adding to the Play MPE® platform to scale growth through customer and user driven growth.

The increase in telecommunications costs is directly associated with the expansion of product development activities.

Depreciation and Amortization

Depreciation and amortization expense increased to $238,355 for the year ended August 31, 2023 from $142,662 for the year ended August 31, 2022, an increase of 67.1% was due to depreciation of additionally capitalized software development costs associated with Play MPE® recipient player applications during the year.

Depreciation and amortization expense increased to $469,801 for the year ended August 31, 2024 from $238,355 for the year ended August 31, 2023, an increase of 97.1% was due to depreciation of additionally capitalized software development costs associated with MTR.

The amortization expense associated with MTR for Quarter 4 alone amounted to $97,258.

Interest income earned on the Company's Guaranteed Investment Certificates was $51,201 for the year ended August 31, 2024 (2023 - $36,498).

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.

The interest income increased by 40% year over year due to increased interest rates.

For the year ended August 31, 2024, we reported a net income of $111,758 (2023 - $335,098).

25 unchanged sentences

Effect of foreign exchange rate changes on cash 4,315 (61,634 ) 65,949 (107.0%)

Net increase (decrease) in cash and cash equivalents $ (93,159 ) $ (656,734 ) 563,575 (85.8%)

Operating Activities

Net decrease in cash and cash equivalents $ (521,187 ) $ (93,159 ) (428,028 ) 459.5%

Net cash provided by operating activities during the year ended August 31, 2024 was $429,188 (2023 - $705,634).

The cash used in operating activities for the year ended August 31, 2023 was due to approximately $2.3 million spent on salaries and wages, $0.2 million in professional expenses, $0.15 million on telephone communications and cloud infrastructure, and approximately $0.1 million spent on research and development.

The net cash used in operating activities for the year ended August 31, 2022 was due to approximately $2.4 million spent on salaries and wages, $0.1 million in professional expenses, $0.1 million on office expenses, $0.1 million on telephone communications and cloud infrastructure, and approximately $0.08 million spent on research and development.

In 2023, the notable rise in net cash provided by operating activities compared to 2022 can be attributed primarily to the increased revenue of the Company and its proactive efforts to optimize and rightsize expenses.

Investing Activities

Net cash used in investing activities for the year ended August 31, 2023 was $716,024, compared to cash used by investing activities of $692,846 for the year ended August 31, 2022.

The year-over-year increase was mainly driven by the higher proportion of software development salaries and wages being capitalized this year.

Net cash used in investing activities for the year ended August 31, 2024 was $484,419, compared to cash used in investing activities of $716,024 for the year ended August 31, 2023.

The year-over-year decrease in use of cash is due to the higher proportion of software development salaries and wages being capitalized in the prior year.

Financing Activities

Net cash used in financing activities during the year ended August 31, 2023 was $21,135 (2022 - $190,676) - this cash was used to repurchase and retire 25,651 shares of common stock (2022 - 143,100 shares of common stock) of the Company under the Normal Course Issuer Bid ("NCIB") and to repurchase stock options.

The decrease in net cash used in financing activities was driven by the lower number of shares repurchased in the year.

Net cash used in financing activities during the year ended August 31, 2024 was $470,271 (2023 - $21,135) - this cash was used to repurchase and retire common stock of the Company under the Normal Course Issuer Bid ("NCIB").

The increase in net cash used in financing activities was driven by the higher number of shares repurchased in the year.

CAPITAL RESOURCES

47 unchanged sentences

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.

Deferred income tax assets also result from unused loss carryforwards and other deductions.

Deferred income tax assets also result from unused loss carry forwards and other deductions.

The valuation of deferred income tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.

26 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-K

Item 7. Management’s Discussion and Analysis