Attached files
| file | filename |
|---|---|
| EX-32.1 - CERTIFICATION - DESTINY MEDIA TECHNOLOGIES INC | exhibit32-1.htm |
| EX-31.2 - CERTIFICATION - DESTINY MEDIA TECHNOLOGIES INC | exhibit31-2.htm |
| EX-32.2 - CERTIFICATION - DESTINY MEDIA TECHNOLOGIES INC | exhibit32-2.htm |
| EX-31.1 - CERTIFICATION - DESTINY MEDIA TECHNOLOGIES INC | exhibit31-1.htm |
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended November 30, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _______
Commission file number: 0-028259
DESTINY MEDIA TECHNOLOGIES
INC.
(Exact name of registrant as specified in its
charter)
| COLORADO | 84-1516745 |
| (State or other jurisdiction of | (IRS Employer Identification No.) |
| incorporation or organization) |
Suite 750, PO Box 11527, 650 West Georgia Street, Vancouver,
British Columbia Canada V6B 4N7
(Address of Principal
Executive Offices)
Registrant’s telephone number, including area code: (604) 609-7736
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
(Does not currently apply to the Registrant)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | (Do not check if a smaller | Smaller reporting company [ X ] |
| reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 50,434,097 Shares of $0.001 par value common stock outstanding as of January 14, 2011.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
Consolidated Financial Statements
Destiny Media Technologies Inc.
(Unaudited)
Three months ended November 30, 2010
| Destiny Media Technologies Inc. | ||||||
| CONSOLIDATED
BALANCE SHEETS (Expressed in United States dollars, except for share data) Unaudited | ||||||
| As at | ||||||
| November 30, | August 31, | |||||
| 2010 | 2010 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current | ||||||
| Cash | 242,362 | 491,012 | ||||
| Accounts receivables, net of allowance for doubtful accounts of $19,108, [August 31, 2010 – $17,093] [note 9] | 636,107 | 542,932 | ||||
| Other receivables | 84,162 | 45,616 | ||||
| Prepaid expenses | 10,558 | 32,282 | ||||
| Deferred tax assets | 380,000 | 380,000 | ||||
| Total current assets | 1,353,189 | 1,491,842 | ||||
| Deposits | 46,558 | 9,496 | ||||
| Property and equipment, net | 161,405 | 129,479 | ||||
| Deferred tax assets – long term portion | 919,000 | 948,000 | ||||
| Total assets | 2,480,152 | 2,578,817 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current | ||||||
| Accounts payable | 292,770 | 220,538 | ||||
| Accrued liabilities | 247,806 | 259,388 | ||||
| Deferred leasehold inducement | 473 | — | ||||
| Deferred revenue | 16,018 | 25,018 | ||||
| Obligation under capital leases – current portion [note 4] | 11,393 | 10,759 | ||||
| Total current liabilities | 568,460 | 515,703 | ||||
| Obligation under capital leases – long term portion [note 4] | 905 | 3,745 | ||||
| Total liabilities | 569,365 | 519,448 | ||||
| Commitments and contingencies [note 4 and 7] | ||||||
| Stockholders’ equity [note 3] | ||||||
| Common stock, par value $0.001 | ||||||
| Authorized: 100,000,000 shares | ||||||
| Issued and outstanding: 50,556,597shares | ||||||
| [August 31, 2010 – 51,143,847 shares] | 50,557 | 51,145 | ||||
| Additional paid-in capital | 8,800,923 | 9,049,308 | ||||
| Accumulated deficit | (7,141,678 | ) | (7,214,541 | ) | ||
| Accumulated other comprehensive income | 200,985 | 173,457 | ||||
| Total stockholders’ equity | 1,910,787 | 2,059,369 | ||||
| Total liabilities and stockholders’ equity | 2,480,152 | 2,578,817 | ||||
See accompanying notes
Destiny Media Technologies Inc.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Expressed in United States dollars, except share or
per share data)
Unaudited
| Three Months | Three Months | |||||
| Ended | Ended | |||||
| November 30, | November 30, | |||||
| 2010 | 2009 | |||||
| $ | $ | |||||
| Service revenue [note 9] | 1,056,638 | 1,047,528 | ||||
| Operating expenses | ||||||
| General and administrative | 364,169 | 245,730 | ||||
| Sales and marketing | 215,499 | 204,546 | ||||
| Research and development | 363,903 | 291,657 | ||||
| Amortization | 16,693 | 11,490 | ||||
| 960,264 | 753,423 | |||||
| Income from operations | 96,374 | 294,105 | ||||
| Other income (expenses) | ||||||
| Other income | 2,992 | 28,960 | ||||
| Interest income | 2,774 | 948 | ||||
| Interest and other expense | (277 | ) | (1,333 | ) | ||
| Income before income taxes | 101,863 | 322,680 | ||||
| Income tax expense- deferred | (29,000 | ) | — | |||
| Net income | 72,863 | 322,680 | ||||
| Net income per common share, basic and diluted | 0.00 | 0.01 | ||||
| Weighted average common shares outstanding: | ||||||
| Basic | 50,873,693 | 51,841,801 | ||||
| Diluted | 51,357,595 | 52,434,453 |
See accompanying notes
Destiny Media Technologies
Inc.
CONSOLIDATED STATEMENTS CHANGES
IN STOCKHOLDERS’ EQUITY
(Expressed in United
States dollars)
Unaudited
| Accumulated | Total | |||||||||||||||||
| Additional | other | stockholders’ | ||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||
| Shares | Amount | capital | deficit | income | Equity | |||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||
| Balance, August 31, 2009 | 51,723,647 | 51,725 | 9,492,168 | (8,900,614 | ) | 147,655 | 790,934 | |||||||||||
| Net income for the year | — | — | — | 1,686,073 | — | 1,686,073 | ||||||||||||
| Foreign currency translation gain | — | — | — | — | 25,802 | 25,802 | ||||||||||||
| Comprehensive income | 1,711,875 | |||||||||||||||||
| Common stock issued on options exercised | 133,200 | 133 | 6,117 | — | — | 6,250 | ||||||||||||
| Common stock issued on warrants exercised | 336,000 | 336 | (336 | ) | — | — | — | |||||||||||
| Common stock repurchased and cancelled | (1,049,000 | ) | (1,049 | ) | (466,611 | ) | — | — | (467,660 | ) | ||||||||
| Stock options repurchased and cancelled | — | — | (30,000 | ) | — | — | (30,000 | ) | ||||||||||
| Stock based compensation | — | — | 47,970 | — | — | 47,970 | ||||||||||||
| Balance, August 31, 2010 | 51,143,847 | 51,145 | 9,049,308 | (7,214,541 | ) | 173,457 | 2,059,369 | |||||||||||
| Net income | — | — | — | 72,863 | — | 72,863 | ||||||||||||
| Foreign currency translation gain | — | — | — | — | 27,528 | 27,528 | ||||||||||||
| Comprehensive income | 100,391 | |||||||||||||||||
| Common stock repurchased and cancelled | (587,250 | ) | (588 | ) | (249,949 | ) | — | — | (250,537 | ) | ||||||||
| Stock based compensation | — | — | 1,564 | — | — | 1,564 | ||||||||||||
| Balance, November 30, 2010 | 50,556,597 | 50,557 | 8,800,923 | (7,141,678 | ) | 200,985 | 1,910,787 | |||||||||||
| See accompanying notes | ||||||||||||||||||
Destiny Media Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Expressed in United States dollars)
Unaudited
| Three Months | Three Months | |||||
| Ended | Ended | |||||
| November 30, | November 30, | |||||
| 2010 | 2009 | |||||
| $ | $ | |||||
| OPERATING ACTIVITIES | ||||||
| Net income for the period | 72,863 | 322,680 | ||||
| Items not involving cash: | ||||||
| Amortization | 16,693 | 11,490 | ||||
| Deferred commission costs | — | 3,409 | ||||
| Deferred leasehold inducement | 473 | — | ||||
| Stock-based compensation | 1,564 | 156 | ||||
| Income taxes - deferred | 29,000 | — | ||||
| Changes in non-cash working capital: | ||||||
| Accounts receivable | (75,711 | ) | 88,009 | |||
| Other receivables | (37,032 | ) | (37,219 | ) | ||
| Prepaid expenses | (13,981 | ) | 706 | |||
| Accounts payable | 65,179 | (218,618 | ) | |||
| Accrued liabilities | (19,744 | ) | 85,923 | |||
| Deferred revenue | (9,784 | ) | (11,032 | ) | ||
| Net cash provided by operating activities | 29,520 | 245,504 | ||||
| INVESTING ACTIVITIES | ||||||
| Purchase of property and equipment | (44,439 | ) | (5,438 | ) | ||
| Net cash used in investing activities | (44,439 | ) | (5,438 | ) | ||
| FINANCING ACTIVITIES | ||||||
| Repayments on capital lease obligations | (2,664 | ) | (2,302 | ) | ||
| Repurchase of shares and options | (250,537 | ) | — | |||
| Repayments of shareholder loans | (70,310 | ) | ||||
| Net cash used in financing activities | (253,201 | ) | (72,612 | ) | ||
| Effect of foreign exchange rate changes on cash | 19,470 | 4,980 | ||||
| Net increase (decrease) in cash | (248,650 | ) | 172,434 | |||
| Cash, beginning of period | 491,012 | 253,100 | ||||
| Cash, end of period | 242,362 | 425,534 | ||||
| Supplementary disclosure | ||||||
| Cash paid for interest | 277 | 1,333 | ||||
| Income taxes paid | — | — |
See accompanying notes
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
1. ORGANIZATION
Destiny Media Technologies Inc. (the “Company”) was incorporated in August 1998 under the laws of the State of Colorado. The Company develops technologies that allow for the distribution over the Internet of digital media files in either a streaming or digital download format. The technologies are proprietary. The Company operates out of Vancouver, BC, Canada and serves customers predominantly located in the United States, Europe and Australia.
The Company’s stock is listed for trading under the symbol “DSNY” on the OTC Bulletin Board in the United States, under the symbol “DSY” on the TSX Venture Exchange and under the symbol “DME” on the Berlin, Frankfurt, Xetra and Stuttgart exchanges in Germany.
2. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States for interim financial information pursuant to the rules and regulations of the United States Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2010 are not necessarily indicative of the results that may be expected for the year ended August 31, 2011.
The balance sheet at August 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for annual financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended August 31, 2010.
1
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
3. SHARE CAPITAL
[a] Common stock issued and authorized
The Company is authorized to issue up to 100,000,000 shares of common stock, par value $0.001 per share. During the three months ended November 30, 2010, no shares were issued.
[b] Common stock cancelled
During the three months ended November 30, 2010, the Company repurchased and cancelled 587,250 shares for a total cost of $250,537.
[c] Stock option plans
The Company has two existing stock option plans (the “Plans”), namely the Amended 1999 Stock Option Plan and the 2006 Stock Option Plan, under which up to 3,750,000 and 5,100,000 shares of the common stock, respectively, have been reserved for issuance. A total of 1,116,334 common shares remain eligible for issuance under the plans. The options generally vest over a range of periods from the date of grant, some are immediate, and others are 12 or 24 months. Any options that do not vest as the result of a grantee leaving the Company are forfeited and the common shares underlying them are returned to the reserve. The options generally have a contractual term of five years.
Stock-based Payment Award Activity
A summary of option activity under the Plans as of November 30, 2010, and changes during the three month period ended is presented below:
| Weighted | ||||||||||||
| Average | Aggregate | |||||||||||
| Weighted | Remaining | Intrinsic Value | ||||||||||
| Average | Contractual | $ | ||||||||||
| Options | Shares | Exercise Price | Term | |||||||||
| Outstanding at August 31, 2010 | 3,225,000 | 0.47 | 1.68 | 117,600 | ||||||||
| Granted | — | — | ||||||||||
| Exercised | — | — | ||||||||||
| Expired | (50,000 | ) | 1.80 | |||||||||
| Outstanding at November 30, 2010 | 3,175,000 | 0.45 | 1.45 | 139,650 | ||||||||
| Vested and exercisable at | ||||||||||||
| November 30, 2010 | 3,141,667 | 0.45 | 1.42 | 139,650 |
2
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
3. SHARE CAPITAL (cont’d.)
The following table summarizes information regarding the non-vested stock purchase options outstanding as of November 30, 2010:
| Number of Options | |||
| Non-vested options at August 31, 2010 | 42,708 | ||
| Vested | (9,375 | ) | |
| Non-vested options at November 30, 2010 | 33,333 |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the options that were in-the-money at November 30, 2010.
During the three months ended November 30, 2010, total stock-based compensation expense related to employees of $1,564 are reported in the statement of operations as follows:
| November 30, | November 30, | |||||
| 2010 | 2009 | |||||
| $ | $ | |||||
| Stock-based compensation: | ||||||
| General and administrative | 604 | 36 | ||||
| Sales and marketing | 357 | 34 | ||||
| Research and development | 603 | 86 | ||||
| Total stock-based compensation | 1,564 | 156 |
Valuation Assumptions
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. During the three months ended November 30, 2010 and three months ended November 30, 2009, there were no options granted.
As of November 30, 2010 there was $7,316 of unrecognized stock-based compensation cost related to employee stock options granted under the plans, which is expected to be fully recognized over the next 16 months.
3
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
3. SHARE CAPITAL (cont’d.)
[c] Warrants
As at November 30, 2010, the Company has the following common stock warrants outstanding:
| Number of Common | Exercise Price | ||||||||
| Shares Issuable | $ | Date of Expiry | |||||||
| $0.22 Warrants | 350,000 | 0.22 | August 25, 2012 | ||||||
| $0.40 Warrants | 361,000 | 0.40 | February 28, 2012 | ||||||
| $0.50 Warrants | 5,800,000* | 0.50 | February 28, 2012 | ||||||
| $0.60 Warrants | 235,250** | 0.60 | May 31, 2011 | ||||||
| $0.70 Warrants | 500,000 | 0.70 | April 9, 2012 | ||||||
| 7,246,250 |
*5,400,000 of the $0.50 warrants have a forced conversion feature by which the Company can demand exercise of the share purchase warrants if the common shares trades at a price equal to or greater than $1.25 if certain conditions are met.
**All of the $0.60 warrants have a forced conversion feature by which the Company can demand exercise of the share purchase warrants if the common shares trades at a price equal to or greater than $0.80 if certain conditions are met.
The intrinsic value for these warrants is $91,440 as at November 30, 2010.
4
| Destiny Media Technologies Inc. | |
| NOTES TO INTERIM CONSOLIDATED | |
| FINANCIAL STATEMENTS | |
| (Expressed in United States dollars) | |
| Three months ended November 30, 2010 | Unaudited |
4. COMMITMENTS
The Company entered into a sub-lease agreement for its premises on September 15, 2010. It commenced on October 22, 2010 and will expire on October 31, 2013. The Company is
| committed to payments as followed: | |||
| $ | |||
| 2011 | 165,417 | ||
| 2012 | 225,285 | ||
| 2013 | 230,961 | ||
| 2014 | 38,651 |
The Company is committed to make payments under its capital leases for the remaining terms of the leases as follows:
| $ | |||
| 2011 | 9,157 | ||
| 2012 | 3,970 | ||
| Total lease payments | 13,127 | ||
| Less: Amounts representing interest | (829 | ) | |
| Balance of obligation | 12,298 | ||
| Less: Current portion | (11,393 | ) | |
| Long term portion | 905 |
The Company arranged for credit facilities with the Royal Bank of Canada which allows the Company to draw up to $450,000. These credit facilities consist of a revolving demand facility of $400,000 bearing interest at prime plus 3.5% and a commercial credit card facility to $50,000. As of November 30, 2010, the Company has not drawn on either of these credit lines.
5
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
5. RELATED PARTY TRANSACTIONS
The Company entered into a sublease agreement with a Director effective January 1, 2009 on a month-to-month basis with a two month notice period. The term of the sublease calls for committed monthly payments of $1,406 (CDN$1,500). The sublease was terminated on Oct 31, 2010.
The Company entered into a consulting agreement with a Director effective October 1, 2010 for six months. The Company will pay $2,000 per month, plus authorized expenses. The Director will receive a 10% commission if related new businesses are successfully closed. During the three month ended November 30, 2010, the Company paid $4,000 consulting fees.
6. INCOME
TAX
The Company adopted the provisions of ASC 740, Income taxes. The standard clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company and its subsidiaries are subject to U.S. federal income tax, Canadian income tax, as well as income tax of multiple state and local jurisdictions. Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s evaluation was performed for the tax years ended August 31, 1999 through August 31, 2010, the tax years which remain subject to examination by major tax jurisdictions as of November 30, 2010. The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company’s financial results. In the event the Company has received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative expense.
6
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
7. CONTINGENCIES
i. The Company is involved in three actions with Yangaroo Inc. “Yangaroo”, a competitor in Canada, as described below:
| a) |
On March 7, 2006, the Company filed a statement of claim in the Federal Court of Canada against Yangaroo to affirm the Company’s belief that the Play MPE® service does not infringe on Yangaroo’s Canadian patent and to have this patent declared invalid. On June 7, 2006, the Company’s counsel received a statement of defense and counterclaim from Yangaroo requesting specified damages or audited profits from the Play MPE® system sourced to Canada. Recently Yangaroo’s Chairman admitted under oath that he had no knowledge of Yangaroo ever having received either a legal or third party expert opinion that the Play MPE® system infringes the Yangaroo patent. | |
| b) |
On May 3, 2007, the Company filed a claim against Yangaroo and its executives for $25,000,000 in Ontario Superior Court for defamation and anti competitive behavior. On June 7, 2007, a statement of defense and counterclaim was filed against the Company. A motion to dismiss the counterclaim was heard on October 28, 2010. The Company believes the counterclaim is without foundation and a decision is pending. | |
| c) |
May 12, 2009, the Company was served with a complaint in United States District Court (Eastern District of Wisconsin) by Yangaroo alleging that the Company infringes on its single claim United States patent. On June 7, 2010, the District Court dismissed Yangaroo’s claim in its entirety. Yangaroo is appealing the dismissal of its claim. |
The amount of damages to the Company, if any, cannot be reasonably estimated and no amount has been recognized in the financial statements. Management believes it is unlikely that the outcome of these matters will have an adverse impact on its result of operations and financial condition.
ii. On August 12, 2009 the Company received a statement of claim in the Supreme Court of British Columbia from a former employee for wrongful dismissal and breach of contract after that employee relocated to Mexico and maintained he should keep his position. The claim is for approximately $170,000 ($180,000 CDN) plus an award of stock options and unspecified damages. The Company believes the claim is completely without merit and will defend its position. Management believes it is unlikely that the outcome of this matter will have an adverse impact on its result of operations and financial condition.
7
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
8. NEW ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting
pronouncements
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company’s adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update 2009-14, “Certain Revenue Arrangements That Include Software Elements — a consensus of the FASB Emerging Issues Task Force.” This Update removes tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality from the scope of the software revenue guidance in Subtopic 985-605 of the Codification. Additionally, ASU 2009-14 provides guidance on how a vendor should allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software that is not essential to the product’s functionality. ASU 2009-14 requires the same expanded disclosures that are included within ASU 2009-13. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. A company is required to adopt the amendments in both ASU 2009-13 and 2009-14 in the same period using the same transition method. The Company’s adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
Accounting Standards Not Yet Effective
In April 2010, the FASB issued Accounting Standards Update 2010-13, “Compensation – Stock Compensation (Topic 718)”. The objective of this Update is to address the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. The Update provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment award that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The Company is currently evaluating the impact of this update on the consolidated financial statements.
8
Destiny Media Technologies Inc.
NOTES TO INTERIM
CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States dollars)
| Three months ended November 30, 2010 | Unaudited |
9. CONCENTRATION AND ECONOMIC DEPENDENCE
The Company operates solely in the digital media software segment and all revenue from its products and services are made in this segment.
| Revenue from external customers, by location of customer, is as follows: | ||||||
| Three Months Ended | ||||||
| November 30 | ||||||
| 2010 | 2009 | |||||
| $ | $ | |||||
| MPE® | ||||||
| North America | 556,179 | 598,661 | ||||
| Europe | 390,173 | 317,015 | ||||
| Australasia | 55,327 | 55,533 | ||||
| Total MPE® Revenue | 1,001,679 | 971,209 | ||||
| Clipstream ® & Radio Destiny | ||||||
| North America | 54,959 | 76,319 | ||||
| Outside of North America | – | – | ||||
| Total Clipstream ® & Radio Destiny Revenue | 54,959 | 76,319 | ||||
| Total Revenue | 1,056,638 | 1,047,528 | ||||
During the three months ended November 30, 2010, three customers represented $420,099 (66%) of the total revenue (November 30, 2009 – three customers represented 60% of the total revenue).
As at November 30, 2010, three customers represented $380,378 (64%) of the accounts receivables balance (August 31, 2010 – three customers represented 61%).
The Company has substantially all its assets in Canada and its current and planned future operations are located in Canada.
9
Destiny Media Technologies Inc.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed in United States
dollars)
| Three months ended November 30, 2010 | Unaudited |
10. SUBSEQUENT EVENTS
On July 6, 2010, the board of directors authorized a second tranche to repurchase up to 1,500,000 shares of the Company's common stock at a maximum share purchase price of $0.80 per share. Subsequent to the period ended November 30, 2010, the Company has purchased 122,500 shares at an average price of $0.41. Future repurchases will be at times and in amounts as the company deems appropriate and will be made through open market transactions. All repurchases will be made in compliance with the Securities and Exchange Commission's Rule 10b-18, subject to market conditions, applicable legal requirements and other factors. The board approved stock repurchase program runs through June 30, 2011. In addition to the applicable securities laws, the company will not make any purchases during a time at which its insiders are subject to a blackout from trading in the company's common stock.
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