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Item 7. Management’s Discussion and Analysis

2025-11-24 compared with 2024-11-21 · 58 added, 51 removed, 159 unchanged (41% of the section changed)

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.

The following management 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.

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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.

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

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Adjusted for impacts of foreign currency translation, Play MPE® revenue increased 2.6% year over 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.

Revenue growth was driven by a 6.8% increase in the Company's major label segment.

Play MPE®'s distribution services also extend to large independent labels, promotion professionals, smaller record labels, and artists-collectively referred to as independent labels.

The Company achieved a 7.4% increase in total independent customers, reflecting improved marketing and customer conversion.

Despite this growth, average spending from larger record labels and promoters declined, influenced by macroeconomic conditions.

As a result, independent label revenue decreased by 3.4%, partially offsetting gains from the major label segment.

The United States independent label segment, representing approximately 40% of total Play MPE® revenue, experienced a 5.3% increase in its customer base but a 4.4% decline in segment revenue, driven by smaller average purchase sizes.

Outside the U.S., independent label revenue increased by 3.3%, supported by international customer growth.

Management believes the spending contraction within the U.S.

segment is temporary and anticipates recovery as market conditions improve.

In response, pricing and product adjustments are being implemented to encourage higher purchase volumes and values.

MTR™ Launch and Strategic Insights

At the end of fiscal 2024, the Company launched MTR™, a radio and digital airplay tracking tool, in the United States and Canada.

MTR™ addresses a large and expanding radio tracking market focused on real-time analytics, copyright compliance, and data-driven decision-making within the music industry.

During the year, the Company observed an 89% correlation between Play MPE® downloads and subsequent tracked airplay for our independent label customers, as well as patterns indicating optimal distribution times and engagement-driving activities.

These insights are expected to inform future product and marketing strategies.

Currently, MTR™ represents less than 1% of total revenue, with the majority of customers also using Play MPE®.

The Company is focused on broadening MTR™ adoption beyond the Play MPE® ecosystem and increasing purchase volumes among both existing and new customers.

Notably, 1.4% of Play MPE® sales during the year originated through MTR™ sales, demonstrating early cross-platform synergies and growth potential.

Revenue by Currency

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

% of Total Revenue

Currency 2024 2023

US Dollar 48.1% 46.9%

Euro 45.0% 45.2%

Australian Dollar

Other 2.6% 4.0%

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.

These costs are driven by the size and volume of customer transactions processed, as well as the relative proportion of "full-service" versus "self-service" revenue.

Our self-service sales are derived from customers who have been provided with a customer account to access our encoder to independently upload and publish releases.

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

The shift in currency mix year-over-year is primarily attributable to one major customer transitioning its billing arrangement from Euros to U.S.

Dollars during the fiscal year.

Cost of Revenue

Cost of revenue for the year ended August 31, 2025 increased by 12.5% to $686,553 compared to the cost of revenue of $610,527 for the year ended August 31, 2024.

The Company's cost of revenue primarily includes data hosting and processing, third-party transaction costs, and engineering, technical, and customer support expenses.

These costs are influenced by transaction volume and the mix between full-service and self-service customers, with self-service users uploading and publishing releases independently and full-service customers supported by internal staff.

Gross margin for the year ended August 31, 2025 was 84.8% of revenue, which represents a 1.4 percentage point decrease compared to the year ended August 31, 2024.

This decline in gross margin is primarily caused by infrastructure required to build out the MTR™ business.

Operating Expenses

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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.

An increase of 77.4% in (non-cash) amortization expenditures, primarily related to the capitalization of salaries and wages in previous periods.

This increase contributed a 9.7% increase to overall expenditures.

A one-time, non-repeating cost associated with litigation increasing total costs by 6.6%.

On October 24, 2025, the Company received a favorable judgement.

All claims have been dismissed, and the Company was awarded costs;

however no related recoveries have been recognized in the financial statements as of the reporting date.

Telecommunication expenses contributed to a 3.3% increase in total costs, primarily driven by operating costs related to MTR™.

Wages and benefits contributed to 1.9% increase in total expenditures, mostly due to one-time recruitment fee and lower capitalized salaries and wages during the year.

The above increases were partially offset by a reduction in overall staffing, as the Company prioritized increased productivity and operational efficiency.

For ease of reference the following table has been prepared to present operating results had the Company not capitalized software for fiscal years 2025 and 2024.

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General and Administrative Expenses

2024 2023 $ Change % Change

Wages and benefits

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Public company expenditures

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

Foreign exchange loss (gain)

Telecommunications

Bad debt (2,700 ) 3,129 (5,829 ) (186.3%)

Other 35,151 32,305 2,846 8.8%

Total general and administrative expenses

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.

General and administrative expenses remained consistent with expectations, with a notable increase in professional fees related to the final stages of the litigation concluded on October 24, 2025.

All claims were dismissed and the Company was awarded costs;

however, no accruals related to the cost recovery has been recorded as of the reporting date.

The increase in wages and benefits is primarily due to a one-time recruitment fee.

Foreign exchange loss is mostly driven by the fluctuations of Canadian Dollar during the year.

Sales and Marketing Expenses

2024 2023 $ Change % Change

Wages and benefits

Advertising and marketing

Rent 34,563 41,755 (7,192 ) -17.2%

Telecommunications

Total sales and marketing expenses

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.

Sales and marketing expenses declined as the Company restructured its business development group, leading to a reduction in overall staffing.

Looking ahead, the Company expects to increase these expenditures, with a focus on marketing-related initiatives, as upcoming Play MPE® platform enhancements are anticipated to drive greater customer adoption.

Product Development Expenses

2024 2023 $ Change % Change

Wages and benefits

Software services

Rent 71,795 79,690 (7,895 ) (9.9%)

Telecommunications

Product development expenses

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.

Product development costs increased as a result of a lower capitalization rate associated with software development.

This increase is partially offset by a reduction in overall staffing, as the Company prioritized increased productivity and operational efficiency.

In addition, telecommunication expenses increased as a result of infrastructure investments related to the development of the MTR™ business.

Depreciation and Amortization

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 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).

Depreciation and amortization expense increased to $833,614 for the year ended August 31, 2025 from $469,801 for the year ended August 31, 2024, an increase of 77.4% was due to depreciation of additionally capitalized software development costs associated with MTR TM , and recently capitalized additions to Play MPE platform.

Interest income earned on the Company's mutual funds was $25,189 for the year ended August 31, 2025 (2024 - $51,201).

The interest income decreased by 50.8% year over year mostly due to decreased interest rates.

Net Income (Loss)

For the year ended August 31, 2025, we reported a net loss of $637,877 (2024 - net income of $111,758).

For the year ended August 31, 2025, adjusted EBITDA was $202,276 (2024 - $577,284).

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The following is a reconciliation of net income from operations to Adjusted EBITDA

Net income $ 111,758 $ 335,098

Net income (loss)

Current income tax

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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) 2024 2023 $ Change % Change

Net cash and cash equivalents provided by (used in)

Operating activities

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Financing Activities

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.

Net cash used in financing activities during the year ended August 31, 2025 was $nil (2024 - $470,271).

In 2024, this cash was used to repurchase and retire common stock of the Company under the Normal Course Issuer Bid ("NCIB").

None such repurchases occurred in 2025.

CAPITAL RESOURCES

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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" .

All other client solution 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.

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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-K

Item 7. Management’s Discussion and Analysis