-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ClIaFHDhzw9Q+RythAQS5Rxka9Rin/Tyk8wuIC1hSavZibKZytlYuT/OhUd54kBP zdKeks+16H04vDn0s7t2nw== 0001075793-02-000288.txt : 20020715 0001075793-02-000288.hdr.sgml : 20020715 20020712195626 ACCESSION NUMBER: 0001075793-02-000288 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DESTINY MEDIA TECHNOLOGIES INC CENTRAL INDEX KEY: 0001099369 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 841516745 STATE OF INCORPORATION: CO FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28259 FILM NUMBER: 02702359 BUSINESS ADDRESS: STREET 1: 555 WEST HASTINGS STREET STREET 2: SUITE 950 CITY: VANCOUVER STATE: A1 ZIP: V6B 4N4 BUSINESS PHONE: 6046097736 MAIL ADDRESS: STREET 1: 555 WEST HASTINGS STREET STREET 2: STE 950 CITY: VANCOUVER STATE: A1 ZIP: V6B 4N4 10QSB 1 formtenqsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (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, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission file number: 0-028259 DESTINY MEDIA TECHNOLOGIES INC. ------------------------------- (Exact name of registrant as specified in its charter) COLORADO 84-1516745 - -------------------------------- ---------- (State or other jurisdiction of (IRS Employer Identification incorporation or organization) No.) 555 West Hastings Street, Suite 950, Vancouver, British Columbia Canada V6B 4N4 ------------------------------- (Address of Principal Executive Offices) Registrant's telephone number, including area code: (604) 609-7736 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months and (2) has been subject to the above filing requirements for the past 90 days. Yes X No __ -- State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 28,490,903 Shares of $0.001 par value common stock outstanding as of May 31, 2002 Transitional small business disclosure format (check one): Yes __ No X - 1 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS. The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and Item 310 (b) of Regulation S-B, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the nine months ended May 31, 2002 are not necessarily indicative of the results that can be expected for the year ending August 31, 2002. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the accompanying Financial Statements and Notes thereto included within this report. In addition to historical information, this Form 10-QSB and the following discussion contain forward-looking statements that reflect our plans, estimates, intentions, expectations and beliefs. These statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including but not limited to the risks of increased competition in the Company's industry and other risks detailed in the Company's Securities and Exchange Commission filings. Accordingly, actual results may differ, possibly materially from the forward-looking statements contained herein. OVERVIEW Destiny Media Technologies Inc. was incorporated in August 1998 under the name of Euro Industries Ltd. and was initially involved in the mining industry. In July of 1999, a new management team acquired Euro Industries Ltd. In October of 1999, the Company changed its name to Destiny Media Technologies and acquired Destiny Software Productions Inc., a software company specializing in streaming media and digital media distribution technologies. Destiny Media Technologies Inc. is a developer of easy-to-use software tools for distributing digital media through the Internet. The Company's suite of streaming and downloadable products includes: Clipstream, a java-based tool which enables web pages, e-mail and banners to stream audio or video without the use of a player; MPE, a complete, secure media distribution system that provides e-commerce and digital rights management directly from within an MP3-compatible multimedia file; and the RadioDestiny Broadcaster and Destiny Media Player, 2 which allows a user to webcast live or scripted internet radio from a computer to anyone on the internet. PLAN OF OPERATIONS During the fiscal year ending August 31, 2002, management plans on concentrating its efforts in the following areas in order to become profitable: 1. Marketing the "Clipstream" java-based audio streaming solution. Development has been completed and the Company has embarked on a marketing and sales program to fully exploit and maximize revenue from this product. A sales group has been assembled for direct sales efforts. This includes both inside and outside sales. License agreements and partnership opportunities will be sought with larger content providers, aggregators and resellers. 2. Cutting expenses without affecting revenue growth. The Company will have to raise additional funds to complete the aforementioned business plan due to the Company's significant working capital deficit. The Company's goal is to obtain these funds through an optimal mix of internal and external financing opportunities including cash flows from operations, strategic partnerships and beneficial investment banking arrangements. To date, no investment banking agreements or other financing agreements have been entered into. There is no guarantee that the Company will be able to raise the capital necessary to complete its business plan. OPERATING RESULTS Three Months Ended May 31, 2002 Revenues for the three months ended May 31, 2002 increased $160,745 or 359% over the same three-month period in 2001. The increase in revenues is due to the assembly of a new sales group and a company wide shift in efforts to market and sell the currently available products. These increased sales and marketing efforts have resulted in increased sales of our Clipstream java-based audio and video streaming products. Total expenses for the three months decreased from $491,438 in 2001 to $309,213 in 2002. Consequently, net loss for the three months was reduced from $446,296 in 2001 to $103,746 in 2002 for an aggregate decrease of $342,550 or 77%. General and administrative expenses for the quarter increased $8,968 from $101,514 in 2001 to $110,482 in 2002 primarily as a result of higher professional fees. Sales and marketing expenses were reduced from $162,794 in 2001 to $125,079 in 2002 as a result of lower travel and entertainment costs. Research and development costs for the quarter were reduced from $162,667 in 2001 to 3 $63,231 in 2002 representing a shift in the Company's efforts from developing to marketing and selling its Clipstream java-based audio and video streaming product. Research and development costs were significantly lower when compared to 2001 given the concentrated efforts and costs incurred during 2001 for developing and producing market accepted products. Depreciation and amortization for the quarter was $10,421 in 2002 compared to $64,043 in 2001 amounting to a decrease of $53,622. The decrease in depreciation and amortization is due to the lower average net book value of property and equipment outstanding in the quarter ended May 31, 2002, as a result of limited additions of property and equipment in the current period. Interest and other income decreased $2,775 from $2,917 in 2001 to $142 in 2002. Interest expense for the quarter increased from $420 in 2001 to $1,060 in 2002. Nine Months Ended May 31, 2002 Revenues for the nine months ended May 31, 2002 increased $260,497 or 102% over the same nine-month period in 2001. The increase in revenues is due to the assembly of a new sales group and a company wide shift in efforts to market and sell the currently available products. These increased sales and marketing efforts have resulted in increased sales of our Clipstream java-based audio and video streaming products. Total expenses for the nine months decreased from $1,501,443 in 2001 to $1,004,311 in 2002. Consequently, net loss for the nine months was reduced from $1,245,612 in 2001 to $487,983 in 2002 for an aggregate decrease of $757,629 or 61% due to managements' cost reduction efforts and increased sales. General and administrative expenses decreased $46,158 from $341,620 in 2001 to $295,462 in 2002 as a result of managements' efforts to cut costs. Sales and marketing expenses were reduced from $472,735 in 2001 to $423,818 in 2002. Research and development costs were reduced from $497,216 in 2001 to $201,139 in 2002 representing a shift in the Company's efforts from developing to marketing and selling its Clipstream java-based audio and video streaming product. Research and development costs were significantly lower when compared to 2001 given the concentrated efforts and costs incurred during 2001 for developing and producing market accepted products. Depreciation and amortization for the nine-month period was $83,892 compared to $189,872 in 2001 amounting to a decrease of $105,980. The decrease in depreciation and amortization is due to the lower average net book value of property and equipment as a result of limited additions of property and equipment in the current period. Interest and other income decreased $5,993 from $10,259 in 2001 to $4,266 in 2002. Interest expense decreased from $3,109 in 2001 to $2,817 in 2002. 4 LIQUIDITY AND FINANCIAL CONDITION The Company has financed its operations to date primarily through the sale of equity securities and borrowings from shareholders. The Company has been unprofitable from its inception and has incurred losses in each year including a net loss of $104,664 for the quarter ended May 31, 2002. The Company will have to rely on funding from private placements, cash flows and other offerings for future operating costs. Revenues to date have provided insufficient funding for the Company's working capital requirements. The Company has a Shareholders' deficiency of $917,709 as at May 31, 2002 compared to a Shareholders' deficiency of $526,517 as at August 31, 2001. As at May 31, 2002 the Company had a working capital deficiency of $1,020,138 versus a working capital deficiency of $696,917 for the year ended August 31, 2001. The increase in the working capital deficiency is directly attributable to increases in accounts payable and accrued liabilities, increases in outstanding demand loans and increases in the current portion of deferred revenues. The Company is currently considering all options available to extinguish $155,118 of the accounts payable and accrued liabilities that have arisen due to the cancellation of various agreements. As a result, substantial doubt exists about its ability to continue as a going concern. The Company's future operations are dependent upon the identification and successful completion of additional long-term or permanent equity financing, the continued support of creditors and shareholders, and, ultimately, the achievement of profitable operations. There can be no assurances that the Company will be successful. If it is not, the Company will be required to reduce operations or liquidate assets. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. When possible, the Company has issued common stock for the acquisition of assets or services and debt settlement. During the quarter ended May 31, 2002, there were no new issuances of common shares. However, the Company cancelled 150,000 common shares held in treasury, leaving a net aggregate increase of 1,313,545 common shares for the nine-month period ended May 31, 2002. During the quarter ended February 28, 2002, the Company issued 125,000 common shares. These shares issued were to a former officer of the Company for services rendered during the previous quarter. During the quarter ended November 30, 2001, the Company issued 1,338,545 common shares. Of these shares issued, 624,940 common shares were issued to officers of the Company in settlement of $68,743 of outstanding accounts payable and accrued liabilities of the Company. In addition, 363,605 common shares were issued to officers of the Company for services rendered prior to August 31, 2001. Compensation expense of $44,372 related to these services was fully accrued as 5 at August 31, 2001. A further 100,000 common shares were issued relating to the proceeds on a private placement received by the Company prior to August 31, 2001. At May 31, 2002, the Company had accounts payable to related parties of $1,370 compared to $ 1,352 at August 31, 2001. In compliance with Statement of Position No. 97-2 "Software Revenue Recognition", the Company has total deferred revenues of $326,122 at May 31, 2002 compared to $242,246 at August 31, 2001. Deferred revenues reflect cash received in advance of meeting the revenue recognition criteria as described in the notes to the financial statements. Total cash flows from financing activities for the nine months ended May 31, 2002 were $160,000 compared to $340,504 in 2001. Cash flows used in operating activities for the nine months ended May 31, 2002 were $120,640 compared to $396,550 in 2001. CRITICAL ACCOUNTING POLICIES The company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States, and makes estimates and assumptions that affect its reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable in the circumstances. Actual results may differ from these estimates. The following critical accounting policies affect the Company's more significant estimates and assumptions used in preparing its consolidated financial statements. - - The consolidated financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. If the Company were not to continue as a going concern, it would likely not be able to realize on its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the consolidated financial statements. There can be no assurances that the Company will be successful in generating additional cash for operations. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. - - The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, the fee is fixed or determinable, collection is reasonably assured, and there are no substantive performance obligations remaining. The Company's revenue recognition policies are in conformity with AICPA's Statement of Position No. 97-2, "Software Revenue Recognition", as amended ("SOP 97-2). 6 The Company generates revenue from software arrangements involving multiple element sales arrangements. Revenue is allocated to each element of the arrangement based on the relative fair value of the elements and is recognized as each element is delivered and the Company has no significant remaining performance obligations. If evidence of fair value for each element does not exist, all revenue from the arrangement is recognized over the term of the arrangement. To-date, evidence of fair value for each element has not been available on sales arrangements. 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings Destiny Software Productions Inc, a wholly-owned subsidiary of Destiny Media Technologies, Inc. has commenced legal proceedings against Impatica.com Inc. in the Supreme Court of British Columbia, Canada for payment of approximately US$512,500 in unpaid technology licensing fees. During November, 2000 Destiny agreed to license its Clipstream(TM) and Videoclipstream(TM) technology to Impatica in return for a US$675,000 license fee. The agreement called for payment of that fee in three installments against delivery of the technology in three phases. The technology was delivered and Destiny received the first two payments totaling US$162,500, but Impatica has defaulted in paying the last US$62,500 in cash and delivering the 200,000 Impatica shares which were to make up the balance of the purchase price. It is Destiny's position that Impatica has repudiated the licensing agreement and that the unpaid license fees totaling US$512,500 are a debt owing by Impatica to Destiny. The outstanding balance has not been booked as revenue. The Writ of Summons was filed in the BC Supreme Court on June 6, 2001. The S.C.B.C. Registry No. is S013166. On April 4, 2002, Sanderson Business Resources Ltd., a private company owned and operated by a former employee, filed a claim against Destiny Media Technologies Inc. in the British Columbia Supreme Court, for breach of a consulting contract. The plaintiff is seeking judgment for the sum of CDN $23,701.62 for outstanding invoices, the judgment for the sum of $300,000 being purported to be payable in connection with an equity placement, the issuance of 120,000 fully vested stock options exercisable at the price of USD $0.25. The Company has filed a statement of defense denying any liability to the plaintiff on the basis that the plaintiff was in breach of the contract and no private placement financing was completed that would entitle the plaintiff to a fee under the agreement. The Company's policy is to provide for costs related to contingencies when a loss is probable and the amount reasonably determinable. It is the opinion of management, based in part on advice of legal counsel, that the ultimate resolution of this contingency will not have a material adverse affect on the financial condition of the Company. On April 22, 2002, David Lawrence, a former officer of the Company, filed a claim against Destiny Media Technologies Inc. in the British Columbia Supreme Court, claiming breach of an employment contract as a result of alleged wrongful dismissal. The plaintiff is seeking damages for wrongful dismissal and alleged negligent misrepresentation, CDN $61,269.19 for unpaid salary and expenses and USD $16,299.83 for expenses. The Company has filed a statement of defense denying any liability to Mr. Lawrence on the basis that the employment agreement was terminated for cause. No amounts have been recorded in the financial statements at May 31, 2002 as it is too early to assess a probable outcome. Any Adjustments to the amounts recognized will be recorded when determinable. It is the opinion of management, based in part on advice of legal counsel, the ultimate 8 resolution of this contingency will not have a material adverse affect on the financial condition of the Company. Item 2. Changes in Securities and Use of Proceeds The Company did not complete the sale of any registered securities during the quarter ended May 31, 2002. Item 3. Default Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Securities Holders No matters were submitted to a vote of securities holders during the quarter ended May 31, 2002. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. None. (b) Reports on Form 8-K. No current reports on Form 8-K were filed during the quarter ended May 31, 2002. 9 Interim Consolidated Financial Statements (Expressed in United States dollars) DESTINY MEDIA TECHNOLOGIES INC. Nine months ended May 31, 2002 and 2001 (Unaudited)
DESTINY MEDIA TECHNOLOGIES INC. Interim Consolidated Balance Sheets (Expressed in United States dollars) - -------------------------------------------------------------------------------------------- May 31, August 31, 2002 2001 - -------------------------------------------------------------------------------------------- (unaudited) Assets Current assets: Cash and cash equivalents $ 24,845 $ 30,443 Short-term investments 7,290 7,022 Accounts and other receivables, net of allowance for doubtful accounts of $2,014 (August 31, 2001 - $683) 92,487 62,981 Prepaid expenses 16,904 11,946 - -------------------------------------------------------------------------------------------- Total current assets 141,526 112,392 Other assets, net of accumulated amortization of $16,305 (August 31, 2001 - $5,959) 37,726 29,862 Notes receivable 99,946 99,946 Property and equipment: Furniture and fixtures 53,939 53,256 Computer hardware 109,058 102,397 Computer software 15,088 12,696 Leasehold improvements 5,845 5,771 - -------------------------------------------------------------------------------------------- 183,930 174,120 Accumulated depreciation and amortization (100,077) (79,626) - -------------------------------------------------------------------------------------------- Net property and equipment 83,853 94,494 Intellectual property, net of accumulated amortization of $156,892 (August 31, 2001 - $137,293) - 19,599 Goodwill, net of accumulated amortization of $275,258 (August 31, 2001 - $240,850) - 34,408 - -------------------------------------------------------------------------------------------- Total assets $ 363,051 $ 390,701 ============================================================================================ Liabilities and Stockholders' Deficiency Current liabilities: Accounts payable and accrued liabilities (note 5) $ 505,536 $ 388,277 Related party payable 1,370 1,352 Demand loans (note 7) 260,000 100,000 Deferred revenue 229,634 156,657 Current portion of long-term debt 165,124 163,023 - -------------------------------------------------------------------------------------------- Total current liabilities 1,161,664 809,309 Long-term debt 22,608 22,320 Deferred revenue 96,488 85,589 Stockholders' deficiency: Common stock, par value $0.001 Authorized: 100,000,000 shares Issued and outstanding: 28,490,903 shares (August 31, 2001 - 27,177,358) 28,491 27,178 Common stock issuable - 54,372 Additional paid-in capital 2,798,358 2,647,768 Deferred stock compensation (21,461) (44,931) Deficit (3,683,632) (3,197,098) Accumulated other comprehensive loss (39,465) (13,806) - -------------------------------------------------------------------------------------------- Total stockholders' deficiency (917,709) (526,517) - -------------------------------------------------------------------------------------------- Total liabilities and stockholders' deficiency $ 363,051 $ 390,701 ============================================================================================
Commitment (note 8) Contingencies (note 9) See accompanying notes to interim consolidated financial statements. 1
DESTINY MEDIA TECHNOLOGIES INC. Interim Consolidated Statements of Operations (Unaudited) (Expressed in United States dollars) - ------------------------------------------------------------------------------------------ Three Three Nine months Nine months months months ended ended ended ended May 31, May 31, May 31, May 31, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------ Sales $ 516,328 $ 255,831 $ 205,467 $ 44,722 Operating expenses: General and administrative 295,462 341,620 110,482 101,514 Sales and marketing 423,818 472,735 125,079 162,794 Research and development 201,139 497,216 63,231 162,667 Depreciation and amortization 83,892 189,872 10,421 64,043 - ------------------------------------------------------------------------------------------ 1,004,311 1,501,443 309,213 491,018 - ------------------------------------------------------------------------------------------ Loss from operations (487,983) (1,245,612) (103,746) (446,296) Other income (expenses): Interest expense (2,817) (3,109) (1,060) (420) Interest income and other income 4,266 10,259 142 2,917 - ------------------------------------------------------------------------------------------ 1,449 7,150 (918) 2,497 - ------------------------------------------------------------------------------------------ Loss for the period $ (486,534) $(1,238,462) $ (104,664) $ (443,799) ========================================================================================== Loss per common share, basic and diluted $ (0.02) $ (0.05) $ (0.00) $ (0.02) ========================================================================================== Weighted average common shares outstanding, basic and diluted 28,023,235 24,099,905 28,140,903 25,384,567 ==========================================================================================
See accompanying notes to consolidated financial statements. 2
DESTINY MEDIA TECHNOLOGIES INC. Interim Consolidated Statements of Stockholders' Deficiency and Comprehensive Loss (Expressed in United States dollars) - ----------------------------------------------------------------------------------------------------------- Common stock Additional Shares Deferred --------------------- paid-in issuable stock Shares Amount capital amount compensation Deficit - ----------------------------------------------------------------------------------------------------------- Balance, August 31, 2001 27,177,358 $27,178 $2,647,768 $ 54,372 $ (44,931) $(3,197,098) Loss for the period - - - - - (486,534) Cumulative translation adjustment - - - - - - Comprehensive loss Common stock issued for services rendered in current and prior quarter (note 6) 488,605 488 58,884 (44,372) - - Common stock issued for debt 624,940 625 68,118 - - - Common stock issued for services to be rendered 250,000 250 (250) - - - Common stock issued for cash on private placement (note 6) 100,000 100 19,900 (10,000) - - Common stock cancelled (150,000) (150) 150 - - - Cancellation of stock options - - (2,269) - 2,269 - Amortization of deferred stock compensation - - - - 21,201 - Options issued to non-employees for services - - 6,057 - - - - ----------------------------------------------------------------------------------------------------------- Balance, May 31, 2002 (unaudited) 28,490,903 $28,491 $2,798,358 $ - $ (21,461) $(3,683,632) - ----------------------------------------------------------------------------------------------------------- Cumulative Total translation stockholders' adjustment deficiency - ------------------------------------------------------------------------- Balance, August 31, 2001 $ (13,806) $ (526,517) Loss for the period - (486,534) Cumulative translation adjustment (25,659) (25,659) ------------- Comprehensive loss (512,193) Common stock issued for services rendered in current and prior quarter (note 6) - 15,000 Common stock issued for debt - 68,743 Common stock issued for services to be rendered - - Common stock issued for cash on private placement (note 6) - 10,000 Common stock cancelled - - Cancellation of stock options - - Amortization of deferred stock compensation - 21,201 Options issued to non-employees for services - 6,057 - ------------------------------------------------------------------------- Balance, May 31, 2002 (unaudited) $ (39,465) $ (917,709) =========================================================================
See accompanying notes to interim consolidated financial statements. 3
DESTINY MEDIA TECHNOLOGIES INC. Interim Consolidated Statements of Cash Flows (Unaudited) (Expressed in United States dollars) - ----------------------------------------------------------------------------------------------------------- Nine months Nine months ended ended May 31, May 31, 2002 2001 - ----------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Loss for the period $(486,534) $(1,238,462) Items not involving cash: Depreciation and amortization 83,892 189,872 Shares issued or issuable for services rendered 15,000 202,800 Stock-based compensation - employees 21,201 163,615 Stock-based compensation - non-employees 6,057 - Interest accrued on note receivable 3,475 (6,894) Changes in non-cash working capital: Accounts and other receivables (32,551) 69,826 Prepaid expenses (4,804) 11,110 Accounts payable and accrued liabilities 192,872 122,164 Deferred revenue 80,752 89,419 - ----------------------------------------------------------------------------------------------------------- Net cash used in operating activities (120,640) (396,550) Cash flows from investing activities: Purchase of property and equipment (6,973) (13,563) Disposal of property and equipment - 14,065 Purchase of other assets (19,136) (29,438) - ----------------------------------------------------------------------------------------------------------- Net cash used in investing activities (26,109) (28,936) Cash flows from financing activities: Net proceeds from issuance of debt - 10,336 Net proceeds from shareholder loans - 64,418 Net proceeds from issuances of common stock and subscriptions - 265,750 Net proceeds from demand loan 160,000 - - ----------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 160,000 340,504 - ----------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period 13,251 (84,982) Effect of foreign exchange rate changes on cash (18,849) (7,639) Cash and cash equivalents, beginning of period 30,443 97,928 - ----------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 24,845 $ 5,307 =========================================================================================================== Supplementary disclosure: Cash paid for: Interest $ - $ - Income tax - - Non-cash transactions: Stock issued for settlement of debt 68,743 - Stock issued for services rendered 15,000 202,800 Deferred stock-based compensation - 56,982 Note receivable for return of profit from shareholder from short-swing profit - 6,637 Advertising obtained through barter transaction 36,000 - Stock issued for cash received in prior period on private placement 10,000 - ===========================================================================================================
See accompanying notes to interim consolidated financial statements. 4 DESTINY MEDIA TECHNOLOGIES INC. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in United States dollars) Nine months ended May 31, 2002 and 2001 - -------------------------------------------------------------------------------- 1. Organization: Destiny Media Technologies Inc. (the "Company") was incorporated on August 24, 1998 as Euro Industries Ltd. under the laws of the State of Colorado. On October 12, 1999, the Company's name was changed to Destiny Media Technologies Inc. The Company develops enabling 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. 2. Continuing operations: These financial statements have been prepared on the going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities and commitments in the ordinary course of business. Operations to date have been primarily financed by cash flows from operations, long-term debt and equity transactions. At May 31, 2002, the Company has a working capital deficiency of $1,020,138 and a deficiency of assets to liabilities of $917,709. As a result, the Company's future operations are dependent upon the identification and successful completion of additional long-term or permanent equity financing, the continued support of creditors and shareholders, and, ultimately, the achievement of profitable operations. There can be no assurances that the Company will be successful in generating additional cash for operations. If it is not successful in generating cash for operations, the Company will be required to reduce operations or liquidate assets. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. 3. Unaudited interim financial information: The financial information at May 31, 2002 and for the three month and nine month periods ended May 31, 2002 and 2001 is unaudited. During the quarter ended May 31, 2002, the Company has determined that it is no longer in the development stage, and accordingly, has not provided cumulative information since inception in these consolidated financial statements. The Company is earning revenues from its planned principal operations. The accompanying unaudited consolidated financial statements are prepared in accordance with United States generally accepted accounting principles but do not include all information and footnotes required by United States generally accepted accounting principles for annual financial statements. However, in the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the relevant periods have been made. 4. Comparative figures: Certain comparative figures have been reclassified to conform with the current period presentation. 5 DESTINY MEDIA TECHNOLOGIES INC. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in United States dollars) Nine months ended May 31, 2002 and 2001 - -------------------------------------------------------------------------------- 5. Accounts payable and accrued liabilities: Included in the accounts payable and accrued liabilities balance as at May 31, 2002 is $155,118 of disputed amounts arising from the cancellation of various agreements. Management is considering all options available to extinguish these liabilities. 6. Share capital: During the period ended May 31, 2002, the Company issued 1,463,545 common shares, of which 150,000 common shares were cancelled for an aggregate total issued of 1,313,545. (a) Non-cash consideration: Shares issued for non-cash consideration have been valued at their market value at the date the services are provided. (i) During the nine month period ended May 31, 2002, 250,000 common shares were issued to a consultant and were held in escrow for future financing services. Management has not recorded any compensation under this contract as no services have been performed to May 31, 2002. The shares are contingently returnable to the Company in the event the services are not performed under the contract. (ii) During the nine month period ended May 31, 2002, the Company issued 624,940 common shares to officers of the Company in settlement of $68,743 of outstanding accounts payable and accrued liabilities of the Company. No gain or loss on settlement of debt resulted from these debt settlement transactions. (iii) During the nine month period ended May 31, 2002, the Company issued 363,605 common shares to officers of the Company for services rendered prior to August 31, 2001. Compensation expense of $44,372 related to these services was fully accrued as at August 31, 2001. The Company further issued 125,000 common shares valued at $15,000 for services rendered during the nine month period ended May 31, 2002, for an aggregate total of 488,605 common shares issued to May 31, 2002. (b) Common shares issued for cash: During the nine month period ended May 31, 2002, 100,000 common shares were issued relating to the proceeds on a private placement received by the Company prior to August 31, 2001. 6 DESTINY MEDIA TECHNOLOGIES INC. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in United States dollars) Nine months ended May 31, 2002 and 2001 - -------------------------------------------------------------------------------- 6. Share capital (continued): (c) Common shares issued for services: During the year ended August 31, 2001, 250,000 common shares were issued from treasury for payment on a consulting contract for future licensing and financing services. Management has not recorded any compensation under this contract as no services have been performed to May 31, 2002. Management believes that 100,000 common shares, which are being held by the contractor, are forfeitable and has requested that the common shares be returned to the Company for non-performance under the contract. The contractor is disputing the obligation to return the shares. The remaining 150,000 common shares issued from treasury under this contract have been cancelled by the Company during the nine month period ended May 31, 2002. 7. Demand loans: Demand loans are unsecured, non-interest bearing and are due on demand. Of the total amount outstanding at May 31, 2002, $100,000 is due to a former director (August 31, 2001 - $100,000). 8. Commitment: On September 13, 2001, the Company entered into an agreement with Clipstream Technologies Inc. ("CTI"), a related company, whereby CTI would acquire ClipstreamTM technologies, trademarks, patents, permits and licenses from the Company in exchange for 22,800,000 shares of CTI giving the Company majority interest shareholdings of CTI. Under the terms of the agreement, CTI would have had the right to pledge as security the ClipstreamTM technology. The agreement was contingent upon CTI obtaining at least Cdn. $750,000 in financing. On January 28, 2002, the Company cancelled the agreement with CTI as the required financing thresholds were not achieved. 9. Contingencies: (a) Destiny Software Productions Inc., a wholly-owned subsidiary of the Company, has commenced legal proceedings against Impatica.com Inc. ("Impatica") for payment of approximately $512,500 in unpaid technology license fees. It is the Company's position that Impatica has repudiated the licensing agreement and that the unpaid license fees totaling $512,500 are a debt owing by Impatica to the Company. The outstanding balance has not been booked as revenue. In addition, Impatica has filed a counter claim against Destiny Software alleging breach of contract and seeking return of $162,500 previously paid under this contract. No amounts have been recorded in the financial statements at May 31, 2002 as the outcome of this claim is not determinable. 7 DESTINY MEDIA TECHNOLOGIES INC. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in United States dollars) Nine months ended May 31, 2002 and 2001 - -------------------------------------------------------------------------------- 9. Contingencies (continued): (b) On April 4, 2002, a company owned and operated by a former employee, filed a claim against Destiny Media Technologies Inc., for breach of an employment contract. No amounts have been recorded in the financial statements at May 31, 2002 as the outcome of this claim is not determinable. Any amounts to be recognized will be recorded when determinable. (c) On April 22, 2002, a former officer of the Company filed a claim against Destiny Media Technologies Inc. for breach of an employment contract. No amounts have been recorded in the financial statements at May 31, 2002 as the outcome of this claim is not determinable. Any amounts to be recognized will be recorded when determinable. 8 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. Dated: July 13, 2002 /s/ Steve Vestergaard Steve Vestergaard, Chief Executive Officer 10 -----END PRIVACY-ENHANCED MESSAGE-----