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Item 8. Financial Statements and Supplementary Data

2024-11-21 compared with 2023-11-28 · 29 added, 61 removed, 474 unchanged (16% of the section changed)

11 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying balance sheets of Destiny Media Technologies Inc.

(the "Company") as of August 31, 2023 and 2022, and the related consolidated statements of comprehensive income, cash flows, and stockholders’ equity for each of the years in the two years in the period ended August 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended August 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Destiny Media Technologies Inc.

and its subsidiaries (the "Company") as of August 31, 2024 and 2023, and the related consolidated statements of comprehensive income, cash flows, and stockholders' equity for each of the years in the two year period ended August 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2024 and 2023, and the results of its operations and its cash flows for each of years in the two year period ended August 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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The communication of this critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of labour costs capitalized to computer software and software under development

Evaluation of labor costs capitalized to computer software and software under development

As discussed in note 2 of the consolidated financial statements, the Company capitalizes costs related to application development activities that results in additional functionality.

As discussed in note 3 and 4 of the consolidated financial statements, labour costs of $682,617 were capitalized to software under development in intangible assets, of which $559,044 was subsequently reclassified to computer software in property and equipment.

We identified the evaluation of labour costs capitalized to computer software and software under development as a critical audit matter.

As discussed in note 3 and 4 of the consolidated financial statements, labor costs of $476,258 were capitalized to software under development in intangible assets.

We identified the evaluation of labor costs capitalized to computer software and software under development as a critical audit matter.

The complexity in determining whether the costs were incurred for software enhancement activities resulting in additional functionality required significant audit effort.

Our audit procedures related to the evaluation of labour costs capitalized to computer software and software under development included the following, among others:

We reviewed the underlying software enhancement project plans and assessed the nature of the activities performed to determine whether recognition criteria for internal-use software are met.

We evaluated management’s calculation of the labour costs to be capitalized by performing the following:

We tested the completeness of the data used in management’s calculation by agreeing the total time shown in the data set to the task tracking software for the entire fiscal year, including non-capitalizable time and capitalizable tasks.

Our audit procedures related to the evaluation of labor costs capitalized to computer software and software under development included the following, among others:

We reviewed the underlying software enhancement project plans and assessed the nature of the activities performed for each project to determine whether the assessment of whether costs associated with these projects meet the relevant criteria in order to be capitalized.

We evaluated management's calculation of the labor costs to be capitalized by performing the following:

We tested the completeness of the data used in management's calculation by agreeing the total time shown in the data set used by management to the task tracking software report for the entire fiscal year, which included non-capitalizable and capitalizable tasks.

We tested the accuracy of the data used in management's calculation by agreeing the entry details to the details exported from the task tracking software.

We recalculated a sample of labour costs capitalized to computer software and software under development using data from the task tracking software.

We recalculated the labor costs capitalized to computer software and software under development using the hours noted in the task tracking software, the engagement teams judgement in relation to the tasks that are capitalizable as well as employee contacts.

We compared the completion date of the software enhancement projects to the projects completion report to verify the appropriateness of transferring certain assets from intangible assets to property and equipment during the fiscal year.

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Consolidated Statements of Comprehensive Income

For the years ended December 31,

For the years ended August 31,

Service revenue

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Interest and other income

Gain on disposal of assets

Net income before income tax

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Stock-based compensation

Stock options repurchased and retired

Common shares retired

3 unchanged sentences

Stock-based compensation

Stock options repurchased and retired

Common shares retired

9 unchanged sentences

Allowance for doubtful accounts

Gain on disposal of assets

Impairment expense

Unrealized foreign exchange gain/(loss)

Unrealized foreign exchange loss

Changes in non-cash working capital:

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Deferred revenue

Operating lease liability

Net cash provided by operating activities

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Common stock repurchased for cancellation

Repurchase of stock options for retirement

Net cash used in financing activities

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Actual results could differ from those estimates.

Significant estimates are related to the labour capitalized to software under development and computer software, the recoverability of long-term assets including property and equipment, intangible assets, amortization expense, and valuation of stock-based compensation.

Significant estimates are related to the labor capitalized to software under development and computer software, the recoverability of long-term assets including property and equipment, intangible assets, amortization expense, recoverability of accounts receivable and valuation of stock-based compensation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Company had $ 30,624 and $ 41,334 in allowance at August 31, 2024 and 2023, respectively.

The Company recorded $ 3,129 and $ 44,304 in bad debt for the years ended August 31, 2023 and 2022, respectively.

The Company recorded a recovery of $ 2,700 and bad debt of $ 3,129 for the years ended August 31, 2024 and 2023, respectively.

Property and equipment, net

8 unchanged sentences

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 .

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 .

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

67 unchanged sentences

Variable consideration is estimated and included in the transaction price if, in the Company's judgment, it is probable that there will not be a significant future reversal of cumulative revenue under the contract.

When variable consideration is contingent and cannot be tied to a single performance obligation performed in a particular billing period, the Company estimates contingent variable consideration using the most likely method and recognizes consideration to the extent that the estimate for variable consideration is not constrained pursuant to the guidance provided in ASU 606.

A significant financing component generally does not exist under the Company's standard contracting and billing practices.

107 unchanged sentences

During the year ended August 31, 2024, the Company capitalized a total of $ 982,602 in salaries and wages related to computer software development (2023 - $ 559,044 ).

During the year ended August 31, 2023, $ 399,935 in Computer Software cost was fully depreciated and subsequently eliminated from the continuity schedule presented above.

Depreciation on property and equipment for the year ended August 31, 2024 was $ 456,471 (2023 - $ 227,488 ).

On January 31, 2022, the Company terminated the lease for the office space (Note 5).

Accordingly, leasehold fixtures and fittings were disposed of and a loss of $ 9,035 was recognized in the consolidated statement of comprehensive income for the year ended August 31, 2022.

INTANGIBLE ASSETS, NET

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Total intangible assets

During the year ended August 31, 2023, the Company capitalized a total of $ 682,617 in salaries and wages related to software under development (2022 - $ 626,778 ), out of this amount, $ 559,044 (2022 - $ 269,777 ) was subsequently reclassified to Computer software assets as the projects were completed (Note 3).

Amortization on intangible assets f or the year ended August 31, 2023 was $ 10,867 (2022 - $ 13,694 ).

RIGHT-OF-USE ASSET AND LEASE LIABILITY

In 2017, the Company entered into a lease agreement commencing July 1, 2017 and expiring June 30, 2022 consisting of approximately 6,600 square feet of office space.

The Company terminated the lease agreement on January 31, 2022.

On adoption of ASC 842, Lease Accounting , the Company recognized right-of-use assets and a corresponding increase in lease liabilities, in the amount of $ 671,911 which represented the present value of future lease payments using a discount rate of 8 % per year.

Property tax and insurance payments paid to the lessor were included in the calculation of future lease payments.

Right-of-Use Assets

Balance, August 31, 2021

Foreign currency translation adjustment

Balance, August 31, 2023 and 2022

Operating Lease Liabilities

Balance, August 31, 2021

Lease interest expense

Foreign currency translation adjustment

Balance, August 31, 2023 and 2022

During the year ended August 31, 2023 the Company recorded depreciation expense of $ nil (2022 - $ 95,010 ) which has been allocated between general and administrative, sales and marketing, and product development expenses on the consolidated statements of comprehensive income.

The total rent commitment, net of the leasehold improvement allowance, was amortized to rent expense on a straight-line basis over the term of the lease.

On January 31, 2022, upon exit of the lease a gain of $ 20,053 was recognized in the consolidated statements of comprehensive income.

As of August 31, 2023 and 2022, the Company had no outstanding commitments related to the operating lease payments.

During the year ended August 31, 2024, the Company capitalized a total of $ 476,258 in salaries and wages related to software under development (2023 - $ 682,617 ), $ 982,602 (2023 - $ 559,044 ) was subsequently reclassified to computer software assets as the projects were completed (Note 3).

Amortization on intangible assets for the year ended August 31, 2024, was $ 13,330 (2023 - $ 10,867 ).

STOCKHOLDERS' EQUITY

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The options generally have a contractual term of five years.

STOCKHOLDERS' EQUITY CONT'D

Stock-Based Payment Award Activity

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In all cases, the aggregate intrinsic value was $nil.

There were no stock options repurchased during the year ended August 31, 2023.

During the year ended August 31, 2022, the Company repurchased 82,500 stock options for $ 11,275 .

There were no stock options repurchased during the years ended August 31, 2024 and 2023.

STOCKHOLDERS' EQUITY CONT'D

The following table summarizes information regarding the non-vested options outstanding as of August 31, 2024 and changes during the period:

Number of Options

Weighted Average Exercise

Weighted Average

Exercise Price

Non-vested options at August 31, 2022

3 unchanged sentences

The unrecognized compensation cost is expected to be recognized over a weighted average period of 0.8 years (2023 - 0.92 years).

STOCKHOLDERS' EQUITY CONT'D

During the years ended August 31, 2024 and 2023, the total stock-based compensation expense was reported in the consolidated statement of comprehensive income as follows:

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Deferred tax assets

Net operating loss carryforwards

Net operating loss carry forwards

Excess of book over tax depreciation

Tax credit carryforwards

Tax credit carry forwards

Total deferred tax assets

3 unchanged sentences

United States

If not utilized to reduce future taxable income, the Company's net operating loss carryforwards will expire as follows:

2023 and thereafter

If not utilized to reduce future taxable income, the Company's net operating loss carry forwards will expire as follows:

United States

If not utilized to reduce future taxes payable, the Company's investment tax credit carryforwards will expire as follows:

2031 and thereafter

If not utilized to reduce future taxes payable, the Company's investment tax credit carry forwards will expire as follows:

United States

11 unchanged sentences

Total Play MPE®

North America

Revenue presented above is based on location of the customer's billing address.

1 unchanged sentence

During the year ended August 31, 2024, the Company generated 42.7 % of total revenue from one customer (2023 - 41.9 %).

As at August 31, 2023, one customer represented $ 143,689 (or 36 %) of the trade receivables balance (2022, one customer represented $ 283,144 (or 59 %)).

Subsequent to the year ended August 31, 2023 this customer paid the outstanding balance in full.

The Company has substantially all its assets in Canada and its current and planned future operations are, and will be, located in Canada.

1 unchanged sentence

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 8. Financial Statements and Supplementary Data