DSNY Destiny Media Technologies Inc (QB)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

None.

DESTINY MEDIA TECHNOLOGIES, INC.

TABLE OF CONTENTS

FORM 10-K

For the Year Ended August 31, 2023

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-K contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as "may," "can," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "seek," "estimate," "continue," "plan," "point to," "project," "predict," "could," "intend," "target," "potential" and other similar words and expressions of the future.

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

• our goals and strategies;
• our future business development, financial condition and results of operations;
• expected changes in our revenue, costs or expenditures;
• growth of and competition trends in our industry;
• our expectations regarding demand for, and market acceptance of, our products;
• our expectations regarding our relationships with investors, institutional funding partners and other parties with whom we collaborate;
• fluctuations in general economic and business conditions in the markets in which we operate; and
• relevant government policies and regulations relating to our industry.

These forward-looking statements reflect our management's beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Annual Report on Form 10-K and are subject to risks and uncertainties. We discuss many of these risks in greater detail under "Risk Factors." Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should read this Annual Report on Form 10-K and the documents that we reference and have filed as exhibits to the Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Annual Report on Form 10-K by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

In this report, "we," "us," "our," "our company", "Destiny" and similar references refer to Destiny Media Technologies, Inc., a Nevada corporation, and its wholly-owned subsidiaries: Destiny Software Productions, Inc. ("DSNY"), MPE Distributions, Inc. ("MPE"), Tonality, Inc. ("Tonality"), and Sonox Digital Inc. ("Sonox"), and (ii) the term "common stock" refers to the common stock, par value $0.001 per share, of Destiny Media Technologies, Inc., a Nevada corporation. The financial information included herein is presented in United States dollars unless otherwise indicated.

ITEM 1.  BUSINESS.

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 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.

Our principal executive office is located at Suite 428, 1575 West Georgia Street, Vancouver, British Columbia V6G 2V3. 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, WKN 935 410.

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

OUR PRODUCTS AND SERVICES

Destiny develops and markets software as a service (SaaS) solutions that solve critical digital distribution and promotion problems for businesses in the music industry.

Play MPE®

Currently, the Company's core business is the Play MPE® online platform. Play MPE® distributes promotional content (broadcast quality audio, video, images, promotional information, metadata and other digital content) from record labels and artists to broadcasting professionals, music curators and music reviewers to discover, download, broadcast and review the content. Curators include radio programmers, digital streaming broadcasters, media reviewers, industry VIP's, DJ's, film and TV personnel, sports stadiums, retailers etc. In providing the distribution, Play MPE® provides several capabilities developed and designed to address the unique needs of both music promoters and broadcasters. Play MPE® was first to market, and is the largest provider of this service and provides the most feature rich platform in the world.

Record labels and artists are Play MPE®'s customers. When adding music to the Play MPE® system, clients are targeting specific industry recipients who review and broadcast their music. Play MPE®'s primary value proposition in this marketing effort is a direct increase to record label and artist revenue through on-air broadcast royalties, streaming royalties and synchronization revenue (revenue collected when a song is placed within video advertisements, television, or film), and indirect increases in revenue through growing song and artists' popularity.

Also, Play MPE® provides numerous capabilities that dramatically reduce record label costs while providing functionality necessary for certain strategic marketing plans. The platform also provides administrative controls to enhance security for record label content. In doing so, Play MPE® satisfies a broad range of stakeholders representing diverse interests at record labels. Music is protected by Play MPE®'s patented proprietary watermarking system which provides watermarks unique to each recipient.

Described more fully below, features within Play MPE® are grouped into four main categories: local distribution software, global distribution architecture, targeted recipient list curation and recipient players.

Customers range from small independent artists to the world's largest record labels (the "Major Record Labels"). The Major Record Labels are Universal Music Group ("Universal"), Warner Music Group ("Warner") and Sony Music Entertainment ("Sony"). These record labels directly own numerous sub-labels that include; Capitol Music Group, Def Jam Recordings, Interscope Records, Island Records, Republic Records, Polydor, Deutsche Grammophon, Motown, Verve Label Group, Virgin Music Group, EMI, RCA Records, Epic Records, Columbia Records, Arista Records, Legacy Recordings, Provident Entertainment, Warner Records, Hollywood Records, Atlantic Records Group, 300 Elektra Entertainment, to name only a few. Play MPE® welcomes all of these labels into its customer base.

Customers choose Play MPE® for its powerful set of tools, ease of use and its effectiveness in achieving the record label's promotional objectives.

Play MPE® CASTER (local distribution software)

Play MPE®'s cloud-based Caster software includes local distribution functions that provide capabilities for a client to create and schedule release announcements and select its targeted audience. Play MPE® is designed uniquely to suit music marketing plans and its significant components include:

• Release Creator includes drag and drop functionality to quickly embed images, social media links, insert video, add promotional files etc. to quickly create effective announcements.
• Release Scheduling allows numerous scheduling functions for initial announcements, repeated and updated announcements, changes in DRM (a recipient's ability to download or only stream the content) etc.. These schedules can be uniquely edited by recipient or recipient list. Several administrative features here are also available to facilitate and manage release scheduling at scale.
• Templates facilitate consistent label branding and presentation while reducing release preparation time. Each release announcement can be saved as a template and reused or edited for future announcements. Clients can design and save unlimited templates to provide unique design and branding for individual artists or record labels.
• Contacts Management provides features that allow record labels to upload and manage their own targeted distribution lists. There are many features within this platform that provide efficiencies in destination management for all customers of Play MPE®. However, this section of the platform provides numerous functions that are critical for efficient contacts management at scale and is described in Caster's global distribution functionality. Within Contacts Management, users can easily select curated lists of engaged recipients provided by Play MPE® (see description below) or select their own managed recipient lists.
• Assets Management allows users to maintain and manage a repository of assets (single or multitrack releases) outside of the release creation process. This functionality saves users time when creating new releases and allows them to plan for future releases more efficiently. Assets Management also supports Quickshare, a newly designed 1:1 secure file sharing function (see below).
• Reporting of release results shows recipient interactions including downloads, streams, clicks and opens.

Intuitive designs and functionality across all areas of this portion of the platform simplify the distribution process, reduce customer time required to distribute, and facilitate the inclusion of information to improve engagement which ultimately increases record label and artist revenue.

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

When competing with an established service within a local market, it is these features balanced against changing consumer behaviors that determine Play MPE®'s ability to increase and acquire market share. Competing services offer the basic distribution requirements inherent in the service but do so while missing many features that provide efficient delivery, engaged recipients and accurate and complete distribution lists.

Caster consistently receives high reviews on the platform's ease of use, capabilities and on its ultimate effectiveness. Public reviews can be found at https://www.plaympe.com/testimonials/.

Play MPE® Quickshare

Added during the year, Play MPE®'s Quickshare provides a simplified distribution tool for Play MPE® customers to promote music directly to anyone inside or outside the Play MPE® platform. Quickshare is a simplified local distribution tool. With this feature, customers can send a link to a dedicated webpage to allow streaming or downloading of content outside of Play MPE® Player. The distribution does not include numerous features included within Caster's full version and distribution is intended only to replace other file sharing services while attracting greater use within the Play MPE® platform. The initial version will provide limited access and sharing capabilities free of charge and is a value added feature within Play MPE® local distribution suite of features.

Play MPE® CASTER (global architecture)

Play MPE®'s global distribution architecture was developed in close collaboration with our largest client to address the needs of its global approach to release distribution. This architecture provides functionality required for our largest client to conduct their unique approach to music distribution and provides numerous significant competitive advantages for this client. These features improve marketing coordination and revenue generation while reducing overall label staff time and costs.

Significant components include:

• Staff role management: Customers can grant varying capabilities or permissions for different staff positions. For example, one staff member can create a release while another can approve the release of this content. In a larger organization, this control ensures accurate and professional distributions are conducted, but allows for segregation of duties to maximize efficiency.
• Label management: With label management, administrative staff can determine which users have access to which labels and which content. Each label has a unique account environment allowing for its own unique setup, list curation, favorites, staff roles, templates etc. These unique environments also improve release security for a record label with a large global footprint.
• Global release sharing (replication): With global release sharing, distribution centers can share a release to a territory. That territory then can reuse the release while localizing it to suit the particular needs of that jurisdiction (editing language, artist information, local concert dates, local contacts etc). This eliminates duplication of upload and data entry while reducing errors. In the context of global distribution, across multiple territories, multiple labels, and thousands of unique releases, savings of staff time is significant. Metadata completeness and accuracy are also increased. When complete metadata is conveyed, recipient engagement is higher. Higher recipient engagement, increases record label revenue. Within the included metadata are ISRC codes which are unique codes used to remit track royalties globally. When ISRC codes are communicated, royalty remittances are complete and timely. These aspects provide significant competitive advantages.

• Release embargos: When marketing and promotion departments create global campaigns for highly anticipated music releases, staff restrict access to this content until the public release time. Here, record labels can permit early access to the relevant content so local offices can edit, localize and schedule releases but controls are added to restrict certain permissions and prevent premature release. Our largest client enjoys competitive advantages with these capabilities derived through cost savings and improved marketing campaigns. Absent these functions, global release coordination is more costly, less coordinated and often delayed.
• Asset repository integration: With this integration, Play MPE® automatically captures music, art, and associated metadata from an archival repository of our largest client, vastly reducing errors in release creation and data entry while making the process quicker. This further expands the competitive advantages enjoyed in global release sharing.
• Release management: There are numerous capabilities within release management that are necessary for efficient global release management. Content owners can change DRM for specific recipient groups within a release and quickly remove content globally if necessary etc.
• Asset management: Assets include music tracks, album art, metadata etc. Within the assets management portion, several features allow assets to be used, recomposed, combined, recombined etc. Features here allow efficient and quick delivery of new releases. Various aspects of assets management are used in global distribution situations.
• Release scheduling: While release scheduling is available for local distribution, many additional administrative features are designed to facilitate actions that reduce staff time in a global environment.
• Contacts management: Critically important to all promotions is the distribution of content to an interested and engaged audience. As introduced in the local distribution discussion, Caster provides a contacts management system with numerous 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 ultimately inaccurate.

Collectively, functionality in global release management provides numerous competitive advantages that reduce overall costs, and improve marketing collaboration while increasing record label revenue and cash flow. We are unaware of any other service that provides these global distribution functions.

Play MPE® CASTER (targeted list management services)

Recipient lists are bundles of active and engaged recipients with an interest in specific music types or genres. Lists are sold as a fixed price per list (or package). As recipient lists are adjusted in real time, changes in gross recipient numbers or active recipients does not directly or immediately impact revenue.

Fundamental to our customers' success in music marketing is reaching music curators capable of, and actively engaged in, remarketing the promoted content to a wider consumer audience. To limit unwanted access to new music and to increase recipient engagement, targeted and limited distribution is a vital component in music promotion. Thus, Play MPE® is a permissions-only access system and only recipients designated or targeted to receive content obtain access to that content. Current and correct identification of engaged recipients is therefore critical to our customers' success. While targeted distribution limits access to new content, this aspect also improves recipient side engagement by eliminating unwanted content.

Play MPE® actively manages curated and targeted distribution lists or "packages". List creation and list maintenance involve several proprietary processes that are designed to create complete, active, accurate, and targeted lists to facilitate efficient marketing campaigns. Play MPE® provides more than 400 unique targeted lists comprising of more than 17,000 unique and active recipients over 30 countries. To facilitate targeted music marketing campaigns, these lists are grouped by territory (typically by country), by genre of music, and by recipient type (see recipient player discussion). Relying on proprietary technical innovations and processes, these recipient lists are updated in real time. With an annual churn averaging between 27-34%, these recipient lists would quickly become inaccurate absent Play MPE®'s active curation. Play MPE® regularly monitors activity levels and recipients through proprietary analytics. Play MPE® provides the widest and most accurate distribution channels available in the industry.

For smaller record labels and independent artists, the provision of a list of destinations is a requirement for sale as these customers do not know who to contact. For larger record labels, promotions staff can upload their own contact lists. However, proprietary processes ensure Play MPE® lists are more accurate, complete and engaged. The majority of releases distributed through Play MPE®, include at least one targeted distribution list, curated by Play MPE®.

Play MPE® Player

Music curators review and download content through a cloud-based player and mobile 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.

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 curators, 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 to, and appropriate for, that recipient.

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 access to release metadata. Recipient side satisfaction directly increases activity which directly improves the effectiveness of promotional efforts of record label customers.

MTR™ 

MTR™ (or "Music Tracking Radar" or "Meter" https://www.musicmtr.com) is a digital tracking service that tracks and reports the number and times an individual track is played. MTR™ uses a proprietary algorithm to uniquely identify and match a track. The Company launched MTR™ in beta in fourth quarter of 2023. During the beta phase of this new product, the Company will test monitoring uptime, customer acquisition activities and is adding functionality for sale at scale. The beta version of the platform will initially monitor digital broadcasts of 800 stations in Canada.

Digital transmission of music has provided the music industry new opportunities to reach and target its audience. These opportunities include digital streaming providers, social media, radio broadcasting, narrowcasting, and other transmissions. Traditional terrestrial radio and newer internet only stations now stream to digital receivers. With this industry change, a product like MTR™ is now possible.

MTR™ is a standalone business distinct from the Play MPE® platform. The Company expects that MTR™'s initial customers will overlap with the Play MPE® customer base. Play MPE® customers have expressed an interest in this type of service.

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.

Products under development

Destiny is currently developing additional functionality and complimentary services that are expected to expand the Company's addressable market, or act as catalysts to the Company's sales activities for Play MPE®. These are described more fully in business development.

BUSINESS DEVELOPMENT

Play MPE®
 

The Company's immediate term objective is to expand its global market share of promotional distribution of music by expanding the use of the Play MPE® platform in new market segments and well-established markets. Management believes that its current competitive advantages and market dynamics will lead to an increased market share for Play MPE® worldwide. In addition to currently existing competitive advantages, management is currently investing in new features and processes to grow activity and users both sides of the transactions that generate revenue for Play MPE® and improved marketing processes. Management believes that growth in Play MPE® market share will come from new territory acquisition, and growth in established territories through the addition of value added services, complementary products, expanded destinations (larger average sales), and growth in retained clients.

When developing a new territory, services are initially provided free of charge in order to establish recipient activity. At this stage, Play MPE® is focused on growing content and growing active recipient engagement. When sufficient active users are engaging within a new segment, commercial use of the relevant list begins. Initial charges can take the form of pilot agreements with nominal fees to larger customers or by introductory list pricing for customers that do not yet have frequent and predictable use.

Targeted list management services

Play MPE®'s curated destination lists are selected on the majority of releases sent through the platform. Customers range from those that have the capacity to curate their own customer contacts to those that have no capacity to do so. Play MPE® lists are carefully curated, targeted and current. Where provided, Play MPE® curated lists generate significantly greater activity than seen on lists maintained solely by our clients and provide significant value to all customers of the platform.

Where Play MPE® can provide more active and engaged recipient list options, Play MPE® will grow revenue. During the year, the Company increased pricing for certain curated lists, expanded list options and modified the list selection process to encourage greater list selection.

The Company expanded its commercially available destinations with a series of international distribution lists by genre. These lists initially comprise existing active user lists that were previously listed solely in the specific jurisdictions. Throughout the year the Company added eleven new international genre lists for Alternative, Dance/EDM/Rhythmic, Jazz & Classical, Country, Christian, Rock, Urban, Metal, Classic Hits, Non-Commercial/Community and a Holiday list at the conclusion of the fiscal year. As Play MPE® adds more territories, these international lists become more valuable and revenue will increase. International lists provide the ability for certain record labels and artists to promote their music more broadly. Typically, international recipient lists are selected only by labels without an international presence. Play MPE® also began a series of technical adjustments designed to increase the rate of new recipient additions in order to expand recipient list options. As yet, these technical adjustments have not materially added to our recipient lists.

In the fourth quarter, the Company improved its list selection process during release creation. These improvements contributed to an increase in the average number of distribution lists selected per release.

Developed markets

Play MPE® has long standing and well-established use in several genres of music within the United States, and all music genres in Australia, New Zealand, Sweden, Finland, Norway, and Denmark. Within the United States, Play MPE® has a very long history and strong user base within the Christian, Country, Non - Commercial/NPR, College, Adult Album Alternative (aka Triple A), and Americana music genres.

In these core markets, high customer retention results in a persistent revenue growth. Towards the end of the Company's second quarter, Play MPE® increased marketing resources to increase new customer acquisition through paid on-line advertising, search engine optimization strategies and improved website flows. These adjustments led to recovery of revenue in the latter half of the fiscal year.

Global

Play MPE® has maintained its global distribution agreement with our largest client. Play MPE® has been providing distribution to our largest client since 2004 and has had a global distribution agreement since 2009. Our largest client's distributions have grown dramatically since 2018 from expanded use in new territories and growing use of the online version of the platform.

This client regularly uses Play MPE® for distribution in over 40 countries around the globe. Both a PC application and the online Caster platform are available. Caster's local distribution tools were launched in 2018, while the global architecture platform was launched in January 2022.

As described above, Play MPE® has several global distribution features that provide competitive advantages that enhance label revenue and provide substantial efficiencies in the process. However, while Play MPE® has Major Record Label and international independent commercial use in several territories, Play MPE® does not currently have other global agreements in place.

Developing markets

Developing markets include twenty Latin American or Spanish-speaking countries, additional genres of music within the USA, Canada, South Africa, and international distributions for independents.

Management's strategy in new developing markets starts with providing access to the system without commercial arrangements to seed the platform with desirable content. This content is required to directly engage recipient activity. Content that normally facilitates recipient activity comes from the Major Record Labels or larger multi-national independent record labels ("Major Independent Labels"). To establish initial use in a new market, our business development and marketing staff collaborate to expand brand awareness, educate customers and establish trial use. Establishing a foothold in a new market therefore requires substantial face to face direct interaction with knowledgeable business development staff.

As recipient activity builds, our business development and operations teams adds saleable distribution lists in these new territories.

Latin

The Company's Latin initiative refers to music curators of Latin music and all territories where Spanish is predominant. This includes the United States, Spain, the Caribbean, Central America, and South America. This segment is currently highly fragmented and does not benefit from any one well established system for distribution and review. As a result, the Company believes its focussed business development effort and market leading advantages will result in considerable growth in this segment. These territories include active Play MPE® users in the United States (and Puerto Rico), Mexico, Colombia, Dominican Republic, Cuba, Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Ecuador, Peru, Brazil, Bolivia, Chile, Uruguay, Argentina, and Spain.

Throughout the fiscal year the business development team has worked to individually onboard both critical recipients and independent label users in the region. The marketing team has executed partnerships with important industry events such as the Latin Alternative Music Conference and Dominican Music Week in order to aid this education process.

The Company's Caster and Player software, product website, and supporting tutorial video library are all available in Spanish.

United States

While Play MPE® enjoys a market dominate position in the aforementioned genres of music within the United States, the Company has stronger competition in various Rock genres, Urban, Rhythmic and Pop/Top 40 formats. While we were first to the market, we did not expand to these genres and competitors filled this space. With greater investments in product and business development staff than competitive platforms, Play MPE® is hoping to expand and displace competitive platforms.

Canada

In 2019, the Company saw an opportunity to expand into Canada due to the relative strengths of Play MPE® over an established system which operates within Canada. While the competing system in Canada has numerous competitive weaknesses, it benefits from brand awareness and process inertia. In order to attract users to the Play MPE® platform, the Company initially focused its business development efforts on garnering Major Label and Major Independent content.

Stronger Play MPE® recipient list management processes and a superior recipient experience helped Play MPE® make inroads in active use.

Initial revenue within Canada was derived from record labels sending content outside of Canada. This customer led desire in part influenced the Company's international list creation discussed above. With growing success and adoption at Canadian radio, the Company has begun to grow revenue within the Canadian market. The growing recipient engagement has helped the Company secure several exclusive agreements with independent record labels within the territory.

South Africa

Play MPE® has been in active use by Universal Music South Africa within South Africa since 2016. Play MPE® has now developed an established user base and brand recognition. Warner Music South Africa entered into an exclusive two-year renewable agreement with Play MPE® at the beginning of fiscal 2022. South African total revenue was immaterially up over prior year.

Radio monitoring (MTR™)

The Company beta launched MTR™ one month prior to the end of the fiscal year. Play MPE® customer feedback initially drove the creation of MTR™. While MTR™ operates as a distinct business, its customer base is expected to initially be existing Play MPE® customers. The beta launch was open only to customer tracking content play in Canada. Immediately following the beta launch the Company began investigating various customer acquisition strategies as the product development team continue to test various technical aspects and grow necessary features.

Clipstream®

In fiscal 2018, after completing a detailed review of the resources required to progress Clipstream further, the Company stopped development. Business development efforts are focused on identifying strategic alternatives for this product, business, and intellectual property outside the Company.

Significant Customers

During the year ended August 31, 2023, we generated 41.9% of total revenue from one customer (2022 - 41.3%).

OUR BUSINESS OPERATIONS

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. Since then, the Company has secured a one-year renewable annual lease for office space in downtown Vancouver, British Columbia, scheduled to expire in April 2024.

As of November 28, 2023, the Company had 35 full-time employees and 5 full-time consultants.

COMPETITION

Play MPE®

Where a specific platform or method of distribution dominates a particular market segment, there are significant barriers to entry. This aspect applies where Play MPE® dominates a market segment or where a competitive platform dominates a segment in which Play MPE® is attempting to expand. Customers are reluctant to move to a new method and abandoning established processes in favor of an improved platform. This creates a resistance to change at both the recipient and sender level.

Play MPE® has numerous regional competitors isolated to a specific segment. Competitive alternatives include physical delivery, one-time digital deliveries providers or digital archives. Digital archives are libraries of browsable music content that keep music in an organized database that can be accessed over a period of time. Play MPE® is a digital archive.

Digital archives have numerous advantages over both physical and simply digital delivery services. In many cases these options are not designed for the industry, do not provide integrations, do not provide reporting, artist information and metadata are unavailable or less accessible and produce a lower rate of transfer. While these options are typically less expensive, they also provide significantly lower value.

Play MPE®'s advantages over competing archival platforms can be grouped into functionality that is either necessary to efficiently manage global marketing processes, or functionality that is isolated to local promotions campaigns or a more intuitive, improved user experience.

No other competing system provides the breadth of international distribution recipient lists or active recipients. The Company is also unaware of any system that provides the unique global distribution functionality that provides significant competitive advantages in a cross market, cross label, global music marketing environment. Play MPE®'s features that facilitate global marketing campaigns are critical to the Company's global agreement with our largest client and a significant barrier to entry for a competitive offering. This agreement facilitates use by this client in numerous territories globally but does not guarantee it.

Play MPE® provides a superior user experience with its local distribution platform and on its players. The superior user experience and accurate and engaged recipient lists that Play MPE® provides results in increased activity on both sides of the platform. With increased activity, a marketing campaign's effectiveness increases.

When targeting a specific and incremental territory, the Company either has a dominant competitor or the market is fragmented. In both cases, it is critical that Play MPE® establish a network of activity on both sides of the platform by gathering content and obtaining recipient activity.

MTR™

MTR™ is designed to track a small number of tracks across a broad number of broadcasting stations. In this respect, there is no established competitor with a significant market share and this is an underserved and undeveloped market. Initial digital marketing campaigns suggest that MTR™'s potential customers are unaware that a service like MTR™ exists. Typically, the information that MTR™ is designed to produce, is provided by costly charting services that monitor a limited number of stations, in a limited number of territories. In providing this information, however, charting services provide a comprehensive report showing a much broader list of tracks and has greater information than MTR™ currently provides.

It is expected that MTR™'s initial customers will be those that need information from either a broader list of stations or a limited number of tracks at a lower access price.

SEASONALITY AND CYCLICALITY

Our operating results and operating cash flows have been subject to significant seasonal variations where holidays around late December typically result in lower than average sales. The Company has recently begun promoting archival distributions to take advantage of staff capacity and to provide greater value to both clients and recipients and to increase revenue around this time.

GOVERNMENT REGULATION

We are not currently subject to direct regulation by any governmental agency other than laws and regulations generally applicable to businesses. It is possible that a number of laws and regulations may be adopted in both the United States and Canada with particular applicability to the Internet. Governments have and may continue to enact legislation applicable to us in areas such as content distribution, performance and copying, other copyright issues, network security, encryption, the use of key escrow data, privacy protection, caching of content by server products, electronic authentication or "digital" signatures, illegal or obscene content, access charges and retransmission activities. The applicability to the Internet of existing laws governing issues such as property ownership, content, taxation, defamation, and personal privacy is also uncertain. Export or import restrictions, new legislation or regulation or governmental enforcement of existing regulations may limit the growth of the Internet, increase our costs of doing business or increase its legal exposure.

The Company owns proprietary algorithms, source code, web domain addresses, patents, trademarks and other intellectual property.

Patents

1. Digital Locking "Digital Media Distribution Method and System" (US Patent No. 7466823)

This patent provides a method of locking digital content which prevents play back on unauthorized machines and devices. Claims include separating security from the content, so that content files can be shared securely over peer-to-peer networks. This is one of the earliest patents for securing peer-to-peer distributed content.

One of the more important claims in this patent is the ability to uniquely recognize a particular computer. Uniquely identifying a person's computer is a common issue which is usually approached by saving cookies or beacons to the user's computer or by tracking IP addresses. These are not reliable solutions as cookies are easily deleted and IP addresses easily changed. The Company's proprietary hash code process creates a serial number that can be used to recognize the user on subsequent visits without ever saving anything to that user's computer.

Watermarking "Methods for Watermarking Media Data"

i. US Patents No. 7983441,8300885, 9165560, 9679574

ii. US pending application No. 15/358834

We have developed a watermarking technology which can uniquely identify the individual who originally accessed a particular song. Our watermark is unique as it can be embedded and identified rapidly, it is inaudible, it survives on air broadcast, compression and conversion to other formats and is virtually impossible to remove. Our watermarking technology is used in the Play MPE® distribution system when songs are exported or when streaming a track. Other watermarking technologies are slow and provide a trade-off between a destruction of audio quality and the ease that they can be filtered out. When the original patent claims were granted in the US, the Company filed a set of new additional, broader claims in a continuation application in Canada and the US to further protect the technology.

2. Cross Platform Streaming Video "Script Based Video Rendering"

a. US Patents No. 9143826, 9137567, 9215499, 9571886, 9380338, 9432726 and 9432727

b. China Patent No. 201280050754.7

c. Pending India Application No. 1961/DELNO/2014

This solution enables publishers to serve streaming video from their web site without the need for a separate streaming server. The solution will play instantly in all recent browsers, including mobile devices, without the need for a separate video player.

Registered Trademarks

Play MPE®

Granted: USA, Canada, Japan, European Union, China and Australia

MPE®

Granted: Canada, Japan,

Sonox Digital®

Granted: China, Canada

Clipstream®

Granted: USA, Canada, Japan, Israel, European Union, China and Australia

MTR™

Domain Names

We own a large number of domain names, including many valuable four-letter domain names (dice.net, dsny.com) and URL's featuring common words (radio-play.com, streamingaudio.com, pirateradio.com and many others).

ITEM 1A. RISK FACTORS.

You should carefully consider the following risk factors, together with the other information contained in this annual report on Form 10-K, including our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before making a decision to purchase or sell shares of our common stock. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition and growth prospects. If that were to happen, the trading price of our common stock could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations or financial condition. In this section, we first provide a summary of the more significant risks and uncertainties we face and then provide a full set of risk factors and discuss them in greater detail.

If revenues decline, then our financial condition and results of operations will be adversely affected.

Our revenue is predominantly generated from our Play MPE® distribution service. Competitors may arise and/or customers may not renew distribution contracts. This factor could cause our revenue to decrease with the result that our financial condition and operating results would be adversely affected. Competitors have been small, regionally based, have limited resources, and have yet to capture a material share of the market. If a competitor were to develop a comparable or superior product, our market share could be reduced.

If we are not able to control our operating expenses, then our financial condition may be adversely affected.

Our ability to maintain profitability is conditional upon our ability to control our operating expenses. There is a risk that we will have to increase our operating expenses in the future. Factors that could cause our operating expenses to increase include: our determination to spend more on sales, marketing, and business development to increase product sales, our determination that more research and development expenditures are required to keep our current software products competitive, or to develop new products for the market. To the extent that our operating expenses increase without a corresponding increase in revenue, our financial condition would be adversely impacted.

If we are not successful in legal proceedings against us, then our business and financial condition could be adversely affected.

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, however if we are not successful in these legal proceeding and are forced to make payments of damages to the plaintiffs, then our business and our financial condition would be adversely affected.

Our financial results may be adversely impacted by currency fluctuations.

Our revenues are primarily in United States dollars and Euros while our operating expenses are primarily in Canadian dollars. An increase in the value of the Canadian dollar in relation to the United States dollar and/or Euro could have the effect of decreasing our income from operations. We do not currently hedge our foreign currency exposures.

If our products are defective or contain errors, we may become subject to product liability claims.

As a result of their complexity, our software products may contain undetected errors or failures when first introduced or as new versions are released. There can be no assurance that, despite testing we undertake and testing and use by current and potential customers, errors will not be found in new products after commencement of commercial use. The occurrence of such errors could result in loss of or delay in market acceptance of our products, which could have a material adverse effect on our business, financial condition, and results of operations. Our products also may be vulnerable to break-ins and similar disruptive problems caused by Internet or other users.

Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through the computer systems of our customers, which may result in significant liability to us and deter potential customers. The sale and support of our products may entail the risk of liability claims. A product liability claim brought against us could have a material adverse effect on our business, financial condition, and results of operations.

Successful expansion of our business will depend on our ability to manage growth.

Should we be successful in the sales, marketing, and business development efforts of our software products, we will experience significant growth in operations. If this occurs, management anticipates that additional expansion will be required to continue our product development. Any expansion of our business would place further demands on our management, operational capacity, and financial resources. We anticipate that we may need to recruit qualified personnel in all areas of operations, including management, sales, marketing, delivery, and software development. There can be no assurance that we will be effective in attracting and retaining additional qualified personnel, expanding operational capacity or otherwise managing growth. In addition, there can be no assurance that our current systems, procedures, or controls will be adequate to support any expansion of our operations. The failure to manage growth effectively could have a material adverse effect on our business, financial condition, and results of operations.

Our network infrastructure could be vulnerable to system failure and/or security risks.

Despite the implementation of security measures, our network infrastructure could be vulnerable to unforeseen computer problems. Although we believe we have taken steps to mitigate much of the risk, we may in the future experience interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees, or others. Unknown security risks may result in liability to us and may also deter new customers from purchasing our software and services, and individuals from utilizing it. Although we intend to continue to implement and establish security measures, there can be no assurance that measures implemented by us will not be circumvented in the future, which could have a material adverse effect on our business, financial condition, or results of operations.

Our business depends on continued development of the internet and intranets as mediums of commerce and communications, and our ability to evolve along with these mediums.

The market for our streaming media products and services is new and evolving rapidly. It depends on increased use of the Internet and intranets. If the Internet and intranets are not adopted as methods for commerce and communications, or if the adoption rate slows, the market for our products and services may not grow or may develop more slowly than expected.

Sales of our products depend in large part on the continued development of the Internet as a viable commercial marketplace. There are now substantially more users and much more "traffic" over the Internet than ever before, use of the Internet is growing faster than anticipated, and the technological infrastructure of the Internet may be unable to support the demands placed on it by continued growth. Delays in development or adoption of new technological standards and protocols, or increased government regulation, could also affect Internet use. In addition, issues related to use of the Internet and intranets, such as security, reliability, cost, ease of use and quality of service, remain unresolved and may affect the amount of business that is conducted over the Internet and intranets.

We could experience product delays and errors, which could affect our ability to adapt to technological changes and evolving industry standards.

We have experienced development delays and cost overruns associated with our product development efforts. We may encounter such problems in the future. Delays and cost overruns could affect our ability to respond to technological changes, evolving industry standards, competitive developments, or customer requirements. Our products also may contain undetected errors that could cause adverse publicity, reduced market acceptance of the products, or lawsuits by customers.

Our business could be adversely affected by online commerce security failures.

Online commerce and communications depend on the ability to transmit confidential information securely over public networks. Any compromise of our ability to transmit confidential information securely, and costs associated with the prevention or elimination of such problems, could have a material adverse effect on our business.

Our business is international and could be affected by unexpected changes in international regulatory standards and laws.

We market and sell our products in the United States, Canada, Europe, Asia, South America, Africa and Australia. As such, we are subject to the normal risks of doing business abroad. Risks include unexpected changes in regulatory requirements, export and import restrictions, tariffs and trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, potential adverse tax consequences, exchange rate fluctuations, increased risks of piracy, limits on the our ability to enforce our intellectual property rights, discontinuity of our infrastructures, limitations on fund transfers and other legal and political risks. Such limitations and interruptions could have a material adverse effect on our business.

Customer concentration.

During the year ended August 31, 2023, 41.9% of the Company's revenue is derived from one customer with operations in numerous countries. This customer is currently of key importance to our operations and any adverse change to the revenue from this customer would have a material adverse effect on our results of operations.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

Up until January 31, 2022, our head office was located in a leased premises of approximately 6,600 square feet at Suite 1110, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3E8. Rent paid was approximately $21,000 per month. The Company terminated the lease agreement on January 31, 2022. Since then, the Company has secured a one-year renewable annual lease for office space in downtown Vancouver, British Columbia, scheduled to expire in April 2024.

For additional information, see Note 5, Right-of-Use Asset and Lease Liability included in Item 8 of this Annual Report on Form 10-K.

ITEM 3.  LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as described below, we are not aware of any such legal proceedings or claims against us.

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.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our shares are currently trading on the OTCQB under the stock symbol DSNY. The average high and the low trading prices for our shares for each quarter of the last two fiscal years were:

The trades reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.

Our shares are also traded on the TSX Venture Exchange under the symbol DSY.

Holders of Common Stock

As of November 28, 2023 our shareholders' list for our common stock showed 60 registered shareholders and 9,924,610 shares of our common stock outstanding.

Dividends

We have neither declared nor paid any cash dividends on our capital stock and do not anticipate paying cash dividends in the foreseeable future. Our current policy is to retain any earnings to finance the expansion of our operations. Our Board of Directors will determine future declaration and payment of dividends, if any, in light of the then-current conditions they deem relevant and in accordance with applicable corporate law.

Recent Sales of Unregistered Securities

For a description of our equity compensation plans, please see Item 12 of this report on Form 10-K.

Repurchases of Equity Securities by the Issuer and Affiliated Purchasers

During the year ended August 31, 2023, the Company repurchased and cancelled 25,651 common shares for $21,135 (2022 - 143,100 common shares for $179,401).

Securities Authorized for Issuance Under Equity Compensation 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 420,000 common shares remain eligible for issuance under the 2015 Plan. On February 18, 2022, our Board of Directors approved the Company's 2022 Stock Option Plan (the "2022 Plan"), (together with the 2015 Plan, the "Plans"), whereby 1,000,000 common shares are reserved for issuance. A total of 361,000 common shares remain eligible for issuance under the 2022 Plan.

See Item 11 "Executive Compensation - Equity Compensation Plan Information" for additional information regarding the Plan.

ITEM 6.  SELECTED FINANCIAL DATA.

Per §229.301 of Regulation S-K, the Company, designated a Smaller Reporting Company as defined in Section §229.10(f)(1) of Regulation S-K, is not required to provide selected financial data. Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of the Company and should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended August 31, 2023.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and financing needs, includes forward-looking statements that involve risks and uncertainties and should be read together with the "Risk Factors" section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report and in other reports we file with the SEC, particularly those under "Risk Factors."

Components of Results of Operations

Service revenue

The majority of the Company's revenue is generated from digital media distribution service. The service is billed either based on usage or on a fixed fee which is based on the volume and size of distributions provided. All revenues are recognized as the services are rendered to customers.

Cost of revenue

Cost of revenue primarily consists of personnel costs for our operations service and technical support employees and engineering support staff, cloud infrastructure costs, incremental transaction costs such as merchant and processing fees, and costs of external customer support software and services. In each case, personnel costs include salaries, benefits and any other compensation paid to such staff.

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.

• General and administrative expenses consist of salaries and related personnel costs including overhead, office rent, professional fees, shareholder relations, and general office expenses.
• 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.
• Product development expenses consist primarily of salaries and related personnel costs including overhead and consulting fees with respect to product development and deployment.

RESULTS OF OPERATIONS FOR THE YEARS ENDED AUGUST 31, 2023 AND 2022

Revenue

Total revenue for the year ended August 31, 2023 increased by 0.3% to $4,034,384 compared to the revenue of $4,023,910 for the year ended August 31, 2022. Adjusted for impacts of foreign currency translation, Play MPE® revenue increased 1.9% year over year. The negative impact of foreign currency translation is attributed to the decline in the value of the Euro and the Australian dollar relative to the US dollar.

The Company experienced a 6.1% growth in revenue in the second half of the year recovering from a slow start to the year. This growth came as the result expanded distribution list options, increased investments in digital marketing that commenced at the beginning of our third quarter, in-platform list selection improvements that took effect in our fourth quarter and improvements in foreign exchange rates which eliminated the negative impact to revenue experienced in the first half of the year.

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

Gross Margin

Gross margin for the year ended August 31, 2023 was 87.2% of revenue, which represents an increase of 3.5% from the year ended August 31, 2022. 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 year ended August 31, 2023, our gross margin increased over the comparative year predominately due to a decrease in costs associated with the hosting services and a decrease of staffing in technical and customer support departments.

Operating Expenses

Operating costs during the year ended August 31, 2023 decreased by 0.5% to $3,218,092 (2022 - $3,233,860). The decrease in operating costs was primarily the result of the following:

• Favorable foreign exchange rates reduced the overall operating costs by approximately 3.7%. The majority of our operating costs are denominated in Canadian dollars. As the US dollar strengthened on average relative to the Canadian dollar, our operating costs as expressed in US dollars declined.
• While total salaries and wages remained relatively consistent with the prior year, we increased the amount capitalized to capital software assets and software under development intangible asset resulting in a decrease to total operating expenses of approximately 1.6%.
• With the growing capitalization of salaries and wages, amortization expense grew overall expenditures by 3.0%.
• One-time professional fees associated with resolving outstanding litigation grew overall expenditures by 1.6%.

For ease of reference the following table has been prepared to present operating results had the Company not capitalized software for fiscal years 2023 and 2022.

General and Administrative Expenses

The decrease in salaries and wages can be explained by a temporary decrease in full time equivalent staffing for August 31, 2023 and one-time staff recruitment fees. Professional fees were temporarily increased due to one-time litigation expenses, which were subsequently resolved through a favorable judgment in the Company's favour. The Company was awarded costs and has only partially recognized the collection of those costs.

Sales and Marketing Expenses

The decrease in wages and benefits is the result of a temporary decrease in full time equivalent staffing for August 31, 2023. The decrease in advertising and marketing expenses is related to timing of sponsorship, advertising, and attendance at industry events in the fiscal year 2023.

Product Development Expenses

The rise in wages and benefits can be attributed to the recruitment of additional development staff, aimed at accelerating the implementation of new additions to the product roadmap. Additionally, for the year ended August 31, 2023, the Company increased the amount of capitalized product development wages, reflecting a continued significant investment in product development to expand its addressable market. The increase in telecommunications costs is directly associated with the expansion of product development activities.

Depreciation and Amortization

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

Other Income

Interest income earned on the Company's Guaranteed Investment Certificates was $36,498 for the year ended August 31, 2023 (2022 - $9,153). The interest income more than doubled year over year due to increased interest rates in Canada.

Additionally, the Company terminated its lease agreement for the office space on January 31, 2022. Upon termination the Company disposed of leasehold fixtures and fittings and recorded a gain on lease termination of $11,018 for the year ended August 31, 2022.

Net Income

For the year ended August 31, 2023, we reported a net income of $335,098 (2022 - $149,074).

For the year ended August 31, 2023, adjusted EBITDA was $687,463 (2022 - $435,507). 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 from operations to Adjusted EBITDA:

LIQUIDITY, FINANCIAL CONDITION

As of August 31, 2023, we held $2,002,769 (2022 - $2,095,928) in cash and cash equivalents. The Company's cash equivalents consist of investments in mutual funds with a major Canadian financial institution that earn interest at variable interest rates ranging from 4.55% - 4.90%.

On August 31, 2023, we had working capital of $2,185,960 compared to $2,268,778 as at August 31, 2022. The decrease in our working capital was primarily due to operating results.

Cash Flows

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

Operating Activities

Net cash provided by operating activities during the year ended August 31, 2023 was $705,634 (2022 - $307,198). The cash used in operating activities for the year ended August 31, 2023 was due to approximately $2.3 million spent on salaries and wages, $0.2 million in professional expenses, $0.15 million on telephone communications and cloud infrastructure, and approximately $0.1 million spent on research and development. The net cash used in operating activities for the year ended August 31, 2022 was due to approximately $2.4 million spent on salaries and wages, $0.1 million in professional expenses, $0.1 million on office expenses, $0.1 million on telephone communications and cloud infrastructure, and approximately $0.08 million spent on research and development. In 2023, the notable rise in net cash provided by operating activities compared to 2022 can be attributed primarily to the increased revenue of the Company and its proactive efforts to optimize and rightsize expenses.

Investing Activities

Net cash used in investing activities for the year ended August 31, 2023 was $716,024, compared to cash used by investing activities of $692,846 for the year ended August 31, 2022. The year-over-year increase was mainly driven by the higher proportion of software development salaries and wages being capitalized this year.

Financing Activities

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

CAPITAL RESOURCES

The Company does not have any material commitments for capital expenditures and the Company is able to meet current and expected growth with income from operations.

OFF-BALANCE SHEET ARRANGEMENTS

As of August 31, 2023, 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.

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.

While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations:

Revenue Recognition

The Company's revenue is derived from software as a service (SaaS) arrangements. The Company accounts for revenue in accordance with ASC 606. The core principle of ASC 606 is to recognize revenue upon the transfer of products or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. ASC 606 prescribes a five-step model for recognizing revenue from contracts with customers: (1) identify the contract(s) with customers; (2) identify the separate performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the separate performance obligations in the contract; and (5) recognize revenue when (or as) the performance obligations are satisfied. The majority of our revenue is generated from digital media distribution service. The service is billed either based on usage or on a fixed fee which is based on the volume and size of distributions provided. All revenues are recognized on a monthly basis as the services are delivered to customers.

Research and Development Expense for Software Products

Our software solutions are offered to our customers through software as a service delivery models. Development costs associated with the certain solutions offered exclusively through a software as a service model are accounted for in accordance with ASC 350-40 "Internal-Use Software". All other client solution development costs, which represent a significant majority of development costs, are accounted for in accordance with ASC 985-20 "Costs of Software to be Sold, Leased or Marketed". Under ASC 985-20, software development costs incurred in creating computer software solutions are expensed until technological feasibility has been established upon completion of a detailed program design. Thereafter, all software development costs incurred through the software's general release date are capitalized and subsequently recorded at the lower of amortized cost or net realizable value. Capitalized costs are amortized based on current and expected future revenue for each software solution with minimum annual amortization equal to the straight-line amortization over the estimated economic life of the solution. We amortize capitalized costs over two years. Under ASC 350-40, software development costs related to preliminary project activities and post-implementation and maintenance activities are expensed as incurred. We capitalize direct costs related to application development activities that are probable to result in additional functionality. We test for impairment whenever events or changes in circumstances that could impact recoverability occur.

Stock-Based Compensation

We recognize the costs of employee services received in stock-based payment transactions according to the fair value provisions of the current stock-based payment guidance. The fair value of employee services received in stock-based payment transactions is estimated at the grant date and recognized over the requisite service period. Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life. We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of our stock-based awards. The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, including the option's expected term and the price volatility of the underlying stock. Our current estimate of volatility is based on historical and market-based implied volatilities of our stock price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to vest. Our estimate of the forfeiture rates is based primarily on our historical experience. The estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. In the future, as empirical evidence regarding these input estimates is available to provide more directionally predictive results, we may change or refine our approach of deriving these input estimates.

Income Taxes

Deferred income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates by tax jurisdiction at each balance sheet date. Deferred income tax assets also result from unused loss carryforwards and other deductions. The valuation of deferred income tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate all available evidence, such as recent and expected future operating results by tax jurisdiction, and current and enacted tax legislation and other temporary differences between book and tax accounting to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. There is a risk that management estimates for operating results could vary significantly from actual results, which could materially affect the valuation of the future income tax asset. Although the Company has tax loss carryforwards and other deferred income tax assets, management has determined certain of these deferred tax assets do not meet the more likely than not criteria, and accordingly, these deferred income tax asset amounts have been completely offset by a valuation allowance as disclosed in Note 7 of our consolidated financial statements. If management's estimates of the cash flows or operating results do not materialize due to errors in estimates or unforeseen changes to the economic conditions affecting the Company, it could result in an impairment adjustment in future periods.

Accounts Receivable and Allowance for Doubtful Accounts

We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required. Accounts outstanding beyond the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer's current ability to pay its obligation to us. We write off accounts receivable when they are identified as uncollectible. All outstanding accounts receivable accounts are periodically reviewed for collectability on an individual basis.

Contingencies

As discussed under "Item 3. Legal Proceedings" and in Note 8 - "Commitments and Contingencies" in notes to consolidated financial statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In accordance with US GAAP, the Company records a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. In management's opinion, the Company does not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate materially adversely affect its financial condition or operating results. However, the outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Impairment of Long-Lived Assets

We evaluate the recoverability of our long-lived assets including tangible assets in accordance with authoritative guidance. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we recognize such impairment in the event the carrying amount of such assets exceeds the future undiscounted cash flows attributable to such assets. Intangible assets that are not subject to amortization are tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. We have not recorded any impairment losses to date.

New Accounting Pronouncements

See Note 2 to the Financial Statements included in Item 8 of this Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Exchange Risk

Our revenues are denominated primarily in United States dollars and Euros while our operating expenses are incurred 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 the Canadian dollar to these currencies. We do not believe aggregated foreign exchange fluctuations in the Euro, and the Australian, Canadian, and US dollars have had a material effect on our results of operations during the years presented.

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