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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 quarterly period ended May 31, 2022

[ ] 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    0-28259  

DESTINY MEDIA TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

NEVADA 84-1516745
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
428 - 1575 West Georgia Street  
Vancouver, British Columbia, Canada   V6G 2V3
(Address of principal executive offices) (Zip Code)

604-609-7736

(Registrant's telephone number, including area code)

1110 - 885 West Georgia Street, Vancouver, British Columbia, V6C 3E8, Canada

(Former name, former address and former fiscal year, if changes since last report)

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. [X]Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically 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). [X]Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]   Accelerated filer                   [  ]
Non-accelerated filer [  ]   Smaller reporting company  [X]
Emerging growth company [  ]    
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[  ]Yes  [  ] No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  [  ] Yes  [X] No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date:

The number of shares outstanding of the registrant's common stock, par value $0.001, as of July 12, 2022 was 10,122,261.

DESTINY MEDIA TECHNOLOGIES, INC.

FORM 10-Q
TABLE OF CONTENTS

 

    Page
PART I - FINANCIAL INFORMATION  
     
ITEM 1. Condensed Consolidated Financial Statements 1
  Condensed Consolidated Balance Sheets 1
  Condensed Consolidated Statements of Comprehensive Income (Loss) 2
  Condensed Consolidated Statements of Stockholders' Equity 3
  Condensed Consolidated Statements of Cash Flows 4
  Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 17
ITEM 4. Controls and Procedures 17
     
PART II - OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 18
ITEM 1A. Risk Factors 18
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Mine Safety Disclosures 18
ITEM 5. Other Information 18
ITEM 6. Exhibits 18
  Signatures 19
PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DESTINY MEDIA TECHNOLOGIES, INC.

Condensed Consolidated Balance Sheets

    Notes     May 31,
2022 		    August 31,
2021		  
                   
ASSETS                  
Cash and cash equivalents   3   $ 1,953,454   $ 2,752,662  
Accounts receivable, net of allowance for doubtful accounts of $24,844 (August 31, 2021 - $19,743)         800,847     400,233  
Other receivables         23,278     53,172  
Prepaid expenses         54,937     103,463  
Deposits         45,269     -  
Total current assets         2,877,785     3,309,530  
                   
Deposits         -     35,556  
Property and equipment, net   4     359,490     143,487  
Intangible assets, net   4     254,489     187,622  
Right-of-use assets   5     -     190,253  
Total assets       $ 3,491,764   $ 3,866,448  
                   
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Current                  
Accounts payable       $ 116,158   $ 202,722  
Accrued liabilities         301,394     309,839  
Deferred revenue         25,523     8,511  
Current portion of operating lease liability   5     -     226,978  
Total current liabilities         443,075     748,050  
Total liabilities         443,075     748,050  
                   
Contingencies (Note 7)         -     -  
                   
Stockholders' equity                  
Common stock, par value $0.001, authorized 20,000,000 shares.
Issued and outstanding - 10,122,261 shares
(August 31, 2021 - 10,265,361 shares)		   6     10,122     10,266  
Additional paid-in capital   6     9,137,129     9,157,804  
Accumulated deficit         (5,828,790 )   (5,788,539 )
Accumulated other comprehensive loss         (269,772 )   (261,133 )
Total stockholders' equity         3,048,689     3,118,398  
Total liabilities and stockholders' equity       $ 3,491,764   $ 3,866,448  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DESTINY MEDIA TECHNOLOGIES, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

          Three Months Ended
May 31,		     Nine Months Ended
May 31,		  
    Notes     2022     2021     2022     2021  
                               
Service revenue   8   $ 999,282   $ 1,083,987   $ 3,029,853   $ 3,138,663  
                               
Cost of revenue                              
Hosting costs         50,604     32,582     138,399     92,291  
Internal engineering support         21,497     7,375     43,709     20,998  
Customer support         121,816     41,794     247,685     118,989  
Third-party and transactions costs         15,688     16,053     48,686     47,738  
          209,605     97,804     478,479     280,016  
                               
Gross margin         789,677     986,183     2,551,374     2,858,647  
                               
Operating expenses                              
General and administrative         318,995     202,878     800,173     526,822  
Sales and marketing         113,172     361,411     772,163     1,004,839  
Product development         326,125     326,450     944,941     961,930  
Depreciation and amortization         36,313     26,673     90,059     77,388  
          794,605     917,412     2,607,336     2,570,979  
                               
Income (loss) from operations         (4,928 )   68,771     (55,962 )   287,668  
                               
Other income                              
Interest and other income         1,686     823     4,693     3,162  
Gain on disposal of assets   4,5     -     -     11,018     -  
Net income (loss)         (3,242 )   69,594     (40,251 )   290,830  
                               
Foreign currency translation adjustments         28,168     149,774     (8,639 )   211,897  
                               
Total comprehensive income (loss)       $ 24,926   $ 219,368   $ (48,890 ) $ 502,727  
                               
Net income (loss) per common share                              
Basic   6   $ (0.00 ) $ 0.01   $ (0.00 ) $ 0.03  
Diluted   6   $ (0.00 ) $ 0.01   $ (0.00 ) $ 0.03  
                               
Weighted average common shares outstanding:                    
Basic   6     10,122,261     10,426,961     10,185,320     10,428,809  
Diluted   6     10,122,261     10,531,708     10,185,320     10,543,442  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

DESTINY MEDIA TECHNOLOGIES, INC.

Condensed Consolidated Statements of Stockholders' Equity

For the Three and Nine Months Ended May 31, 2022 and 2021

(Unaudited)

          Common stock                          
    Note     Shares     Amount     Additional
Paid-in
Capital		     Deficit     Accumulated
Other
Comprehensive
Income (Loss)		     Total
Stockholders'
Equity
(Deficiency)		  
Balance, February 28, 2021         10,409,361   $ 10,409   $ 9,347,311   $ (5,949,832 ) $ (283,333 ) $ 3,124,555  
Total comprehensive income         -     -     -     69,594     149,774     219,368  
Stock-based compensation         -     -     13,134     -     -     13,134  
Common shares retired         (114,400 )   (114 )   (173,564 )   -     -     (173,678 )
Balance, May 31, 2021         10,294,961   $ 10,295   $ 9,186,881   $ (5,880,238 ) $ (133,559 ) $ 3,183,379  
                                           
                                           
Balance, February 28, 2022         10,122,261   $ 10,122   $ 9,064,465   $ (5,825,548 ) $ (297,940 ) $ 2,951,099  
Total comprehensive income (loss)         -     -     -     (3,242 )   28,168     24,926  
Stock-based compensation   6(b)     -     -     75,163     -     -     75,163  
Stock options repurchased and retired         -     -     (2,499 )   -     -     (2,499 )
Balance, May 31, 2022         10,122,261   $ 10,122   $ 9,137,129   $ (5,828,790 ) $ (269,772 ) $ 3,048,689  
 
          Common stock                          
    Notes     Shares     Amount     Additional
Paid-in
Capital		     Deficit     Accumulated
Other
Comprehensive
Income (Loss)		     Total
Stockholders'
Equity
(Deficiency)		  
Balance, August 31, 2020         10,450,646   $ 10,451   $ 9,366,290   $ (6,171,068 ) $ (345,456 ) $ 2,860,217  
Total comprehensive income         -     -     -     290,830     211,897     502,727  
Stock-based compensation         -     -     39,117     -     -     39,117  
Common shares retired         (155,685 )   (156 )   (218,526 )   -     -     (218,682 )
Balance, May 31, 2021         10,294,961   $ 10,295   $ 9,186,881   $ (5,880,238 ) $ (133,559 ) $ 3,183,379  
                                           
                                           
Balance, August 31, 2021         10,265,361   $ 10,266   $ 9,157,804   $ (5,788,539 ) $ (261,133 ) $ 3,118,398  
Total comprehensive loss         -     -     -     (40,251 )   (8,639 )   (48,890 )
Stock-based compensation   6(b)     -     -     169,857     -     -     169,857  
Stock options repurchased and retired         -     -     (11,275 )   -     -     (11,275 )
Common shares retired   6(a)     (143,100 )   (144 )   (179,257 )   -     -     (179,401 )
Balance, May 31, 2022         10,122,261   $ 10,122   $ 9,137,129   $ (5,828,790 ) $ (269,772 ) $ 3,048,689  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3       

DESTINY MEDIA TECHNOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

            Nine Months Ended May 31,  
      Notes     2022     2021  
                     
Operating Activities                  
Net income (loss)       $ (40,251 ) $ 290,830  
  Adjustments to reconcile net loss to net cash used in operations:                  
  Depreciation and amortization   4     90,059     77,388  
  Stock-based compensation   6(b)     169,857     39,117  
  Allowance for doubtful accounts         18,772     (4,459 )
  Gain on disposal of assets   4,5     (11,018 )   -  
  Unrealized foreign exchange loss         29,607     18,465  
Changes in non-cash working capital:                  
  Accounts receivable         (457,136 )   44,048  
  Other receivables         29,680     (18,001 )
  Prepaid expenses and deposits         38,382     12,920  
  Accounts payable         (59,699 )   26,646  
  Accrued liabilities         (33,315 )   (35,591 )
  Deferred revenue         17,045     (2,873 )
  Operating lease liability         (9,498 )   (10,952 )
Net cash provided by (used in) operating activities         (217,515 )   437,538  
                     
Investing Activities                  
Sale of short-term investments, net         -     800,624  
Development of software         (88,099 )   (63,554 )
Purchase of property, equipment, and intangibles   4     (294,916 )   (34,658 )
Net cash provided by (used in) investing activities         (383,015 )   702,412  
                     
Financing Activities                  
Repurchase of common stock for retirement   6(a)     (179,401 )   (218,682 )
Repurchase of stock options for retirement         (11,275 )   -  
Net cash used in financing activities         (190,676 )   (218,682 )
                     
Effect of foreign exchange rate changes on cash         (8,002 )   171,967  
                     
Net increase (decrease) in cash and cash equivalents         (799,208 )   1,093,235  
Cash and cash equivalents, beginning of period         2,752,662     1,841,340  
Cash and cash equivalents, end of period       $ 1,953,454   $ 2,934,575  
                     
Supplementary disclosure:                  
Interest paid       $ -   $ -  
Income taxes paid       $ -   $ -  
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

DESTINY MEDIA TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

Destiny Media Technologies Inc. (the "Company") was incorporated in August 1998 under the laws of the State of Colorado and the corporate jurisdiction was changed to Nevada effective October 8, 2014. 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 OTCQB U.S. in the United States, under the symbol "DSY" on the TSX Venture Exchange (the "TSX") and under the symbol "DME" on the Berlin, Frankfurt, Xetra and Stuttgart exchanges in Germany.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of the Company and its wholly owned subsidiaries: Destiny Software Productions, Inc. ("DSNY"), MPE Distributions, Inc. ("MPE"), Tonality, Inc. ("Tonality"), and Sonox Digital Inc. ("Sonox"). All intercompany transactions have been eliminated on consolidation.

The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with generally accepted accounting principles in the U.S. ("U.S. GAAP"). The unaudited condensed consolidated financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K filed with the SEC on November 23, 2021 (the "2021 Form 10-K"). The balance sheet as of August 31, 2021 was derived from audited consolidated financial statements included in the 2021 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The Company's significant accounting policies are described in Note 2 to those consolidated financial statements.

Interim results may not be indicative of the results that may be expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, financial condition, cash flows and stockholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to the recoverability of long-term assets including intangible assets, amortization expense, and valuation of stock-based compensation.

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3. CASH AND CASH EQUIVALENTS

The Company's cash include cash in readily available checking accounts. The Company's cash equivalents consist of one-year Guaranteed Investment Certificates ("GIC") with a major Canadian financial institution that earn interest at variable interest rates ranging from 0.10% - 2.36% and had reached their maturity.

4. PROPERTY AND EQUIPMENT

    May 31, 2022  
Property and Equipment   Cost     Accumulated
Amortization		     Net Book
Value		  
Furniture and fixtures $ 141,159   $ (125,014 ) $ 16,145  
Computer hardware   328,621     (262,534 )   66,087  
Computer software   687,042     (409,784 )   277,258  
Leasehold improvements   -     -     -  
Total property and equipment $ 1,156,822   $ (797,332 ) $ 359,490  
                   
                   
    August 31, 2021  
Property and Equipment   Cost     Accumulated
Amortization		     Net Book
Value		  
Furniture and fixtures $ 133,049   $ (114,740 ) $ 18,309  
Computer hardware   293,930     (231,180 )   62,750  
Computer software   377,777     (333,751 )   44,026  
Leasehold improvements   157,934     (139,532 )   18,402  
Total property and equipment $ 962,690   $ (819,203 ) $ 143,487  
       
       
    May 31, 2022  
Intangible Assets   Cost     Accumulated
Amortization		     Net Book
Value		  
Software under development $ 239,302   $ -   $ 239,302  
Patents, trademarks, and lists   478,696     (463,509 )   15,187  
Total intangible assets $ 717,998   $ (463,509 ) $ 254,489  
                   
                   
    August 31, 2021  
Intangible Assets   Cost     Accumulated
Amortization		     Net Book
Value		  
Software under development $ 167,069   $ -   $ 167,069  
Patents, trademarks, and lists   441,178     (420,625 )   20,553  
Total intangible assets $ 608,247   $ (420,625 ) $ 187,622  

Depreciation and amortization for the three and nine months ended May 31, 2022 was $36,313 and $90,059, respectively (three and nine months ended May 31, 2021 - $26,673 and $77,388, respectively).

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 statement of comprehensive income (loss) for the nine months ended May 31, 2022.

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5. 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, 2020 $ 403,961  
Depreciation   (224,154 )
Foreign currency translation adjustment   10,446  
Balance, August 31, 2021 $ 190,253  
Depreciation   (95,010 )
Termination   (94,210 )
Foreign currency translation adjustment   (1,033 )
Balance, May 31, 2022 $ -  
       
       
Operating Lease Liabilities      
Balance, August 31, 2020 $ 457,324  
Lease interest expense   28,714  
Payments   (270,898 )
Foreign currency translation adjustment   11,838  
Balance, August 31, 2021 $ 226,978  
Lease interest expense   6,036  
Payments   (117,548 )
Termination   (114,263 )
Foreign currency translation adjustment   (1,203 )
Balance, May 31, 2022 $ -  

During the three and nine months ended May 31, 2022 the Company recorded depreciation expense of $37,726 and $95,010 respectively (May 31, 2021 - $56,376 and $167,468, respectively) which has been allocated between general and administrative, sales and marketing, and product development expenses on the consolidated statement of comprehensive income (loss). 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 statement of comprehensive income (loss).

As of May 31, 2022, the Company has no outstanding commitments related to the operating lease payments.

6. STOCKHOLDERS' EQUITY

[a] Common stock issued and authorized

The Company is authorized to issue up to 20,000,000 shares of common stock, par value $0.001 per share.

On January 15, 2021, the Company commenced a Normal Course Issuer Bid ("NCIB"), pursuant to which the Company may purchase up to a maximum of 522,532 common shares, through the TSX Venture Exchange at the market price at the time of purchase, subject to daily limits and compliance with the applicable rules of the TSX and Canadian securities laws.

During the nine months ended May 31, 2022 that Company did not issue any common stock (May 31, 2021 - Nil). During the nine months ended May 31, 2022, the Company repurchased and cancelled 143,100 common shares for $179,401 (August 31, 2021 - 185,285 common shares for $260,405).

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6. STOCKHOLDERS' EQUITY (cont'd)

[b] Stock option plans

Pursuant to the Company's 2015 Stock Option Plan (the "2015 Plan"), 530,000 shares of common stock have been reserved for issuance. A total of 41,250 common shares remain eligible for issuance under the 2015 Plan. On February 18, 2022 the Company received shareholder approval for the 2022 Stock Option Plan (the "2022 Plan") (together with the 2015 Plan, the "Plans"), whereby 1,000,000 common shares are reserved for issuance. As at May 31, 2022, 507,833 common shares remain eligible for issuance under the 2022 Plan.

The options generally vest over a range of periods from the date of grant, some are immediate, and others vest over 12 or 24 months. Any options that do not vest as the result of a grantee leaving the Company are forfeited and the underlying common shares are returned to the reserve. The options generally have a contractual term of five years.

Stock-Based Payment Award Activity

A summary of stock option activity under the Plans as of May 31, 2022, and changes during the period were the following:

    Number of
Options		     Weighted Average
Exercise Price		     Weighted Average
Contractual Term		     Aggregate Intrinsic
Value 		 
Outstanding at August 31, 2020   400,000   $ 1.35     3.24   $ -  
Granted   10,000   $ 1.00     4.16   $ -  
Outstanding at August 31, 2021   410,000   $ 1.34     2.26   $ -  
Granted   561,000   $ 1.50     5.00   $ -  
Forfeited   (90,083 ) $ 1.38     4.09   $ -  
Exercised   (30,000 ) $ 1.00     2.07   $ -  
Outstanding at May 31, 2022   850,917   $ 1.45     3.15   $ -  
Exercisable at May 31, 2022   471,667   $ 1.42     2.11   $ -  

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 as of May 31, 2022.

The following table summarizes information regarding the non-vested options outstanding as of May 31, 2022 and changes during the period:

    Number of
Options		     Weighted Average
Exercise Price		  
Non-vested options at August 31, 2020   203,750   $ 0.48  
Granted   10,000   $ 0.34  
Vested   (115,000 ) $ 0.47  
Non-vested options at August 31, 2021   98,750   $ 0.48  
Granted   561,000   $ 1.50  
Forfeited   (90,083 ) $ 1.38  
Vested   (190,417 ) $ 1.43  
Non-vested options at May 31, 2022   379,250   $ 1.50  

As of May 31, 2022, there was $359,312 of total unrecognized compensation cost related to non-vested stock-based compensation awards. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.5 years.

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6. STOCKHOLDERS' EQUITY (cont'd)

[b] Stock option plans (cont'd)

During the nine months ended May 31, 2022, the total stock-based compensation expense is reported in the statement of comprehensive income (loss) as follows:

  Nine Months Ended May 31,  
Stock-based compensation   2022     2021  
General and administrative $ 82,324   $ 13,594  
Sales and marketing   39,029     14,502  
Product development   48,504     11,021  
Total stock-based compensation $ 169,857   $ 39,117  

[c] Employee Stock Purchase Plan

The Company's 2011 Employee Stock Purchase Plan (the "ESPP") became effective on February 22, 2011. Under the ESPP, employees of the Company can contribute up to 5% of their annual salary into a pool which is matched equally by the Company in order to purchase the Company's common shares under certain terms. Directors can contribute a maximum of $12,500 each for a combined maximum annual purchase of $25,000. The maximum annual combined contributions will be $400,000. All purchases are made through the Toronto Stock Exchange by a third-party plan agent. The third-party plan agent is also responsible for the administration of the ESPP on behalf of the Company and the participants.

During the nine months period ended May 31, 2022, the Company recognized compensation expense of $95,956 (May 31, 2021 - $71,938) in salaries and wages on the consolidated statement of comprehensive income (loss) in respect of the ESPP, representing the Company's employee matching of cash contributions to the ESPP. The shares were purchased on the open market at an average price of $1.25 (May 31, 2021 - $0.99). The shares are held in trust by the Company for a period of one year from the date of purchase.

[d] Earnings Per Share

Net income (loss) per common share (basic) is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Net income (loss) per common share (diluted) is calculated by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding common share equivalents. This method requires that the dilutive effect of outstanding options and warrants issued be calculated using the treasury stock method. Under the treasury stock method, all common share equivalents have been exercised at the beginning of the period (or at the time of issuance, if later), and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common shares during the period, but only if dilutive. For the three and nine months ended May 31, 2022 the outstanding options, in the amount of 850,917, were anti-dilutive and have been excluded from the calculation of diluted income (loss) per share.

7. CONTINGENCIES

The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company's financial statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its consolidated financial statements.

On September 5, 2017, the Company's former President and Chief Executive Officer filed a Notice of Civil Claim in the Supreme Court of British Columbia against the Company, its subsidiaries, independent directors and current Chief Executive Officer, claiming damages for conspiracy, breach of contract, wrongful dismissal, defamation and aggravated and punitive damages. The Company believes the claims are without merit and is defending itself against the claims. The quantum of loss, if any, is not determinable at this time and management believes it is unlikely that the outcome of this matter will have an adverse impact on its results of operations, cash flows and financial condition.

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7. CONTINGENCIES (cont'd)

Risk and Uncertainties

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company's. This outbreak could decrease spending, adversely affect demand for the Company's product and harm the Company's business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company's business or results of operations at this time.

8. CONCENTRATIONS 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 earned during the three and nine months ended May 31, 2022 and 2021, by product and location of customer, was as follows:

  Three Months Ended May 31,   Nine Months Ended May 31,  
    2022     2021     2022     2021  
Play MPE®                        
North America $ 498,465   $ 504,319   $ 1,460,020   $ 1,416,953  
Europe   461,703     497,225     1,414,265     1,489,578  
Australasia   31,781     79,275     133,476     218,035  
Africa   6,563     1,626     19,642     6,092  
Total Play MPE®   998,512     1,082,445     3,027,403     3,130,658  
                         
Clipstream®                        
North America   770     1,542     2,450     8,005  
Total $ 999,282   $ 1,083,987   $ 3,029,853   $ 3,138,663  

Revenue in the above table is based on location of the customer's billing address. Some of these customers have distribution centers located around the globe and distribute around the world. During the nine months ended May 31, 2022, the Company generated 41% of total revenue from one customer (May 31, 2021 - 42%).

It is in management's opinion that the Company is not exposed to significant credit risk.

As at May 31, 2022, one customer represented $570,964 (or 73%) of the trade receivables balance (August 31, 2021, one customer represented $142,758 (or 36%)).

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

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

The following discussion should be read in conjunction with the accompanying financial statements and notes thereto included within this Quarterly Report on Form 10-Q.  In addition to historical information, the information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements involve risks and uncertainties, including statements regarding the Company's capital needs, business strategy and expectations.  Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. 

In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology.  Actual events or results may differ materially.  In evaluating these statements, you should consider various factors described in this Quarterly Report, including the risk factors under "Item 1A. Risk Factors." of part II, and, from time to time, in other reports the Company files with the Securities and Exchange Commission. These factors may cause the Company's actual results to differ materially from any forward-looking statement. The Company disclaims any obligation to publicly update these statements or disclose any difference between its actual results and those reflected in these statements. Such information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

OVERVIEW AND CORPORATE BACKGROUND

Destiny Media Technologies Inc. was incorporated in August 1998 under the laws of the State of Colorado and the corporate jurisdiction was changed to Nevada effective October 8, 2014. We carry out our business operations through our wholly owned subsidiaries: Destiny Software Productions Inc., a British Columbia company that was incorporated in 1992, MPE Distribution, Inc., a Nevada company that was incorporated in 2007, Tonality, Inc., a Nevada company that was incorporated in 2021, and Sonox Digital Inc., incorporated under the Canada Business Corporations Act in 2012. The "Company", "Destiny Media", "Destiny", "we" or "us" refers to the consolidated activities of all five companies.

Our principal executive office is located at 428 - 1575 West Georgia Street Vancouver, British Columbia, V6G 2V3, Canada. Our telephone number is (604) 609-7736 and our facsimile number is (604) 609-0611.

Our common stock trades on TSX Venture Exchange in Canada under the symbol "DSY", on the OTCQB U.S. ("OTCQB") under the symbol "DSNY", and on various German exchanges (Frankfurt, Berlin, Stuttgart and Xetra) under the symbol "DME".

Our corporate website is located at http://www.dsny.com.

OUR PRODUCTS AND SERVICES

Destiny develops and markets software as a service (SaaS) solution that solves critical digital distribution and promotion problems for businesses in the music industry.  The core of our business is Play MPE®. Play MPE® is a service for promoting and securely distributing broadcast quality audio, video, images, promotional information and other digital content through the internet. The system is currently used by the recording industry for transferring pre-release broadcast quality music, radio shows, and music videos to trusted recipients such as radio stations, media reviewers, VIP's, DJ's, film and TV personnel, sports stadiums and retailers. Music is protected by Play MPE®'s patented proprietary watermarking system which provides watermarks unique to each recipient.

Destiny is currently developing additional functionality and services that are expected to increase the services to existing platform users and therefore expand Play MPE®'s addressable market, or act as catalysts to the Company's sales activities.  As well, the Company is investing into research and development on incremental product offerings expected to add addressable market opportunities.

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Play MPE®

The Company's core business is the Play MPE® platform.  Play MPE® is a two-sided B2B marketplace that enables music labels and artists to distribute promotional content and musical assets on the one side, and for music broadcasting professionals, music curators and music reviewers to discover, download, broadcast and review the music, on the other.  Play MPE® provides a software-based tool to assist record labels and artists in marketing their music.  Record labels and artists are Play MPE®'s customers and pay for submission into the system.  Recipients are provided no charge access to review music.  When adding music to the Play MPE® system, record labels are targeting specific industry recipients who review and broadcast their music.  With this marketing effort, record labels are targeting an increase in their revenue directly through on-air broadcast royalties, streaming royalties and synchronization revenue (revenue when the reproduction of a song is coordinated with video advertisements, television, or film), and indirect increases in revenue through growing song and artists' popularity (for example concert ticket sales etc.). 

Customers range from small independent artists to the world's largest record labels (the "Major Record Labels"), such as Universal Music Group ("Universal"), Warner Music Group ("Warner") and Sony Music Entertainment ("Sony").  Customers choose Play MPE® for its powerful set of tools, ease of use and its effectiveness in achieving the record label's promotional objectives. Recipients enjoy easy access to desirable music in high quality audio files.

Play MPE® CASTER (Distribution software)

Play MPE®'s Caster is a full-service distribution management system that includes a complete set of operational functions that provide all necessary software tools to enable labels to manage global marketing campaigns.  Broadly, these components include administration functions and distribution functions.  Administration functions allow management of labels and sub-labels, management of the assets (audio files, video files, and associated cover art, artist information) that are distributed, and management of client-side users and user permissions (roles with selectable capabilities). Distribution management functions offer powerful contacts management capabilities, release creation, distribution announcements and distribution scheduling, digital rights management by release and by recipient, and release replication and its associated scheduling and digital rights management components. 

This full suite of tools within Play MPE® was developed for the music industry and in close collaboration with Universal to cater the functions to its global marketing workflow.  Many clients do not use the full suite of tools. However, this full set of tools is critical to Universal's global promotional campaign workflow and the core reason Play MPE® distributes internationally for Universal. 

Caster is available in English, Spanish, German, Japanese and French. 

Play MPE® is a permissions-only access system such that only recipients designated or targeted to receive content obtain access to that content.  Record labels can use Play MPE®'s contacts management system to administer recipient lists. Contacts management offers several features that facilitate efficient updates and maintenance actions that are critically important where users maintain a large recipient database, across multiple users, and multiple recipient lists.  Absent these features, list maintenance becomes overly cumbersome, inefficient and leads to inaccuracies. The functionality within the contacts management system is critically important to both distribution hubs at Universal and the Play MPE® operations team to efficiently maintain accurate and active recipient lists. 

Within Play MPE®'s contacts management platform, the Company's operations team offers for sale carefully curated and actively maintained recipient lists with more than 14,000 music curators around the world.  These lists include complete lists in 12 countries and lists under construction in an additional 38. These selectable lists eliminate the need for our clients to maintain current recipient contact information.  These lists offer significant value to all customers and are critical for smaller independent labels and artists who do not have the resources to maintain current contacts.  Without these curators lists, many sales would not be possible.  As active lists in new territories are completed, Play MPE® will grow revenue.

In addition to the contacts management functionality, the Play MPE® product and engineering staff are developing new technical processes to facilitate list development and maintenance. With these technical solutions, it is expected that Play MPE® will expand saleable lists and thereby increase revenue. 

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Play MPE® Player

Music curators enjoy free access to review and download content through an easy-to-use web-based player or mobile player apps (iOS and Android). Web-players are currently available in 15 different languages: English, Spanish, Swedish, Finnish, Italian, Dutch, Portuguese, French, Japanese, German, Norwegian, Latvian, Lithuanian, Estonian, and Danish. 

In developing Play MPE®'s recipient interfaces, the Company's product and engineering teams focus on providing a very positive user experience. Recipients enjoy many features that make it easy to access, collaborate, review, and search for content. Play MPE®'s mobile apps offer off-line listening capabilities, the ability to utilize Google Chromecast and Apple Airplay streaming capabilities, creation of playlists, sorting, flagging and archiving features, and easier to access release metadata. Recipient side satisfaction directly increases activity which directly improves the effectiveness of promotional efforts of record label customers. 

Recipients on the Play MPE® platform have a wide variety of personas and include programming directors for internet streaming, satellite or terrestrial radio, retail store broadcasters, sports stadium DJs, clubs, events, music reviews in newspapers or magazines, on-air personalities, music supervisors who program TV, movies, commercials or video games, or "A&R" representatives at larger record labels. Each recipient within the Play MPE® platform has a unique library of music catered and appropriate for that recipient.

Clipstream®

The Company also developed Clipstream® for the online video industry for which it is pursuing strategic alternatives. The Clipstream® Online Video Platform (OVP) is a self-service system, for encoding, hosting and reporting on video playback which can be embedded in third party websites or emails. Playback is currently through the Company's proprietary JavaScript codec engine, which is only available on the internet through the Company.  The unique software-based approach to rendering video, has patents claiming initial priority to 2011. This product has incidental revenues and is not supported or marketed.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2022 AND 2021

Revenue

Total revenue for the nine months ended May 31, 2022 decreased by approximately 3.5% to $3,029,853 compared to the revenue of $3,138,663 for the nine months ended May 31, 2021; however, adjusted for impacts of foreign currency translation Play MPE® revenue increased 0.3% period over period. 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 period over period. Play MPE® revenue earned in North America and Africa during the nine months ended May 31, 2022, has grown period over period. Notwithstanding the negative impact of foreign currency translation, Play MPE® revenue earned in the European segment has also grown period over period.

Foreign currency fluctuations impacted the most recent quarter more strongly.  Total revenue for the three months ended May 31, 2022 showed a nominal decrease of 2.3% after adjusting for foreign exchange but decreased by 7.8% over the comparable quarter in fiscal 2021 to $999,282 (May 31, 2021 - $1,083,987) with no adjustment for foreign currency changes.

Gross Margin

Gross margin for the nine months ended May 31, 2022 was 84.2% of revenue, which represents a decrease of 6.9% from the nine months ended May 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.  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.  During the period ended May 31, 2022, our gross margin decreased over the comparative period predominately due to increase in costs associated with the hosting services and increased staffing in technical and customer support departments. 

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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.

Operating costs during the nine months ended May 31, 2022 increased by 1.4% to $2,607,336 (May 31, 2021 - $2,570,979).  The increase in costs was primarily the result of increased staffing and higher non-cash stock-based compensation recorded in the period due to share-based awards granted during the nine months ended May 31, 2022.  This additional staffing 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.  The increase in costs were slightly offset by a decrease in value of the Canadian dollar relative to the US dollar.

  Nine Months Ended May 31,              
General and administrative expenses   2022     2021     $ Change     % Change  
Wages and benefits $ 423,266   $ 209,442     213,824     102.1%  
Professional fees   98,290     169,291     (71,001 )   -41.9%  
Office and miscellaneous   83,674     55,550     28,124     50.6%  
Shareholder relations   52,940     47,640     5,300     11.1%  
Rent   39,187     15,391     23,796     154.6%  
Foreign exchange loss   34,779     21,838     12,941     59.3%  
Telecommunications   26,109     2,045     24,064     1176.7%  
Bad debt   18,772     (4,444 )   23,216     -522.4%  
Other   23,156     10,069     13,087     130.0%  
Total general and administrative expenses $ 800,173   $ 526,822     273,351     51.9%  

Our general and administrative expenses consist of salaries and related personnel costs including overhead, office rent, professional fees, shareholder relations, and general office expenses. The increase in salaries and wages can be explained by increased non-cash stock-based compensation due to the number of share-based awards granted during the nine months ended May 31, 2022 and one-time staff recruitment fees. The significant decrease in professional fees was due to the timing of litigation proceedings in the comparative period ended May 31, 2021. 

  Nine Months Ended May 31,              
Sales and marketing expenses   2022     2021     $ Change     % Change  
Wages and benefits $ 644,358   $ 863,595     (219,237 )   -25.4%  
Advertising and marketing   89,338     36,498     52,840     144.8%  
Rent   36,064     91,016     (54,952 )   -60.4%  
Telecommunications   2,403     13,730     (11,327 )   -82.5%  
Total sales and marketing expenses $ 772,163   $ 1,004,839     (232,676 )   -23.2%  

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. The decrease in wages and benefits and rent relates to restructuring changes to the team incurred in the comparative period ended May 31, 2021. The increase in advertising and marketing expenses is related to increased sponsorship, advertising, and attendance at industry events in the first three quarters of the fiscal year.

14

  Nine Months Ended May 31,              
Product development expenses   2022     2021     $ Change     % Change  
Wages and benefits $ 775,142   $ 786,786     (11,644 )   -1.5%  
Software services   54,829     53,732     1,097     2.0%  
Rent   73,159     69,016     4,143     6.0%  
Telecommunications   41,813     52,396     (10,583 )   -20.2%  
Product development expenses $ 944,943   $ 961,930     (16,987 )   -1.8%  

Product development costs consist primarily of salaries and related personnel costs including overhead and consulting fees with respect to product development and deployment.  During the period ended May 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 nine months ended May 31, 2022, $331,601 in wages and benefits paid to product development staff were capitalized to software under development intangible assets and $259,801 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 expense increased to $90,059 for the nine months ended May 31, 2022 from $77,388 for the nine months ended May 31, 2021, an increase of 16.4% due to depreciation of additionally capitalized software development costs associated with Play MPE® recipient player applications during the period.

Other Income

Interest income earned on the Company's Guaranteed Investment Certificates was $4,693 for the nine months ended May 31, 2022 (May 31, 2021 - $3,162).

Net Income (Loss)

During the three and nine months ended May 31, 2022 we had net loss of $3,242 and $40,251, respectively (May 31, 2021 - net income of $69,594 and $290,830, respectively).

For the three months ended May 31, 2022, adjusted EBITDA was $106,548 (May 2021 - $108,577).  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 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 (loss) from operations to Adjusted EBITDA over the eight most recently completed fiscal quarters:

    Q3 2022     Q2 2022     Q1 2022     Q4 2021     Q3 2021     Q2 2021     Q1 2021     Q4 2020  
Net Income (Loss) $ (3,242 )  $ (202,610 )  $ 165,601    $ 91,699    $ 69,594    $ (29,466 )  $ 250,702    $ 158,187  
Stock-based compensation   75,163     68,789     25,905     12,620     13,133     26,400     12,848     17,936  
Depreciation, amortization, and deferred leasehold inducements   36,313     26,574     27,172     27,969     26,673     13,133     24,315     34,641  
Interest income   (1,686 )   (1,964 )   (1,043 )   (869 )   (823 )   (875 )   (1,464 )   (4,672 )
Adjusted EBITDA $ 106,548    $ (109,211 )  $ 217,635    $ 131,419    $ 108,577    $ 9,192    $ 286,401    $ 206,092  

15

LIQUIDITY AND FINANCIAL CONDITION

As at May 31, 2022, we held $1,953,454 (August 31, 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.

At May 31, 2022, we had working capital of $2,434,710 compared to $2,561,480 as at August 31, 2021.  During the nine months period ended May 31, 2022, the Company completed NCIB purchases totaling $179,401 (May 31, 2021 - $ 218,682).

Cash Flows


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

  Nine Months Ended May 31,              
Net cash and cash equivalents provided by (used in)   2022     2021     $ Change     % Change  
Operating activities $ (217,515 ) $ 437,538     (655,053 )   -149.7%  
Investing activities   (383,015 )   702,412     (1,085,427 )   -154.5%  
Financing activities   (190,676 )   (218,682 )   28,006     -12.8%  
Effect of foreign exchange rate changes on cash   (8,002 )   171,967     (179,969 )   -104.7%  
Net increase (decrease) in cash and cash equivalents $ (799,208 ) $ 1,093,235     (1,892,443 )   -173.1%  

Net cash used in operating activities during the nine months period ended May 31, 2022 was $217,515 (May 31, 2021 - cash provided was $437,538). The primary reason for the decrease in cash flows from operating activities is related to the timing of receipts from our customers.

Net cash used in investing activities for the nine months ended May 31, 2022 was $383,015, compared to cash provided by investing activities of $702,412 for the nine months period ended May 31, 2021. During the nine months period ended May 31, 2021, $800,624 was received on the maturity of our GICs. During the nine months ended May 31, 2022, the contributions made towards investing activities was cash spent on new capital assets and internally developed software.

Net cash used in financing activities during the nine months period ended May 31, 2022 was $190,676 (May 31, 2021 - $218,682), related to cash used to repurchase and retire 143,100 shares of common stock (May 31, 2021 - 114,400 shares of common stock) of the Company under the NCIB and to repurchase stock options.

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.

For a description of our critical accounting policies, see the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" and "Financial Statements and Supplementary Data - Note 2, Summary of Significant Accounting Policies" contained in our 2021 Form 10-K. There have not been any material changes to the critical accounting policies discussed therein during the nine months ended May 31, 2022.

OFF-BALANCE SHEET ARRANGEMENTS

As of May 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.

16

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Our revenues are generated primarily in United States dollars and Euros while our operating expenses are primarily in Canadian 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 Canadian dollar to these currencies. During the three and nine months ended May 31, 2022, as a result of fluctuations in the Euro, British Pound, and the Australian, Canadian, and US dollars, the Company recognized an unfavourable impact on reported revenues and a favorable impact on reported operating expenditures, for an overall marginal negative impact on reported net income.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with this quarterly report, as required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Company's management, including our company's Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Company's Chief Executive Officer and Chief Financial Officer concluded that as of May 31, 2022, our disclosure controls and procedures were effective as at the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes that would impact our internal controls for the period from September 1, 2021 to May 31, 2022. 

17

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On September 5, 2017, the Company's former President and Chief Executive Officer filed a Notice of Civil Claim in the Supreme Court of British Columbia against the Company, its subsidiaries, independent directors and current Chief Executive Officer, claiming damages for conspiracy, breach of contract, wrongful dismissal, defamation and aggravated and punitive damages. The Company believes the claims are without merit and will defend itself against the claims.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in "Item 1 - Risk Factors" in our Form 10-K for the fiscal year ended August 31, 2021 filed with the SEC. These risks could materially and adversely affect our business, financial condition and results of operations. The risks described in our Form 10-K have not changed materially, however, they are not the only risks we face. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

COVID-19 Pandemic

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company's. This outbreak could decrease spending, adversely affect demand for the Company's product and harm the Company's business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company's business or results of operations at this time.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.


ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

31.1* Section 302 Certification of Chief Executive Officer
31.2* Section 302 Certification of Chief Financial Officer
32.1* Section 906 Certification of Chief Executive Officer and Chief Financial Officer
101.INS* Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*    Filed herewith

18

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DESTINY MEDIA TECHNOLOGIES, INC.  
     
By: /s/ Frederick Vandenberg  
  Frederick Vandenberg  
  Chief Executive Officer, President  
  (Principal Executive Officer)  
  Date: July 12, 2022  
     
     
By: /s/ Olya Massalitina  
  Olya Massalitina  
 

Chief Financial Officer, Treasurer

 
 

(Principal Financing and Accounting Officer)

  
  Date: July 12, 2022

19

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