DSNY 10-K & 10-Q changes, risk factors and insider trading

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 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. WeThe doCompany maintains a large portion of its financial reserves in Canadian dollars to mitigate the downside risk of adverse exchange rates on its operating expenditures. Company has not currentlyentered hedgeinto ourcontracts for foreign currencyexchange exposures.hedges.

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

We have previously 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.

During the year ended August 31, 2024,2025, 42.7%46.9% of the Company's revenue is derived from one customer with operations in numerous countries. This customer iscurrently currentlyoperates under a month-to-month arrangement without a long-term contractual commitment. This customer remains 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.

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

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.

Total revenue for the year ended August 31, 20242025 increased by 9.6%2.3% to $4,420,768$4,524,448 compared to the revenue of $4,034,384$4,420,768 for the year ended August 31, 2023.2024. Adjusted for impacts of foreign currency translation, Play MPE® revenue increased 8.9%2.6% year over year. Foreign currency fluctuations had an immaterial impact to revenue.

An increase of 97.1%77.4% in (non-cash) amortization expenditures, primarily related to the commencementcapitalization of softwaresalaries costsand related to the MTR™ platform which launched commerciallywages in theprevious United States in the fourth quarter of fiscal 2024.periods. This increase contributed a 7.2%9.7% increase to overall expenditures.

Depreciation and amortization expense increased to $833,614 for the year ended August 31, 2025 from $469,801 for the year ended August 31, 2024 from $238,355 for the year ended August 31, 2023,2024, an increase of 97.1%77.4% was due to depreciation of additionally capitalized software development costs associated with MTR.MTRTM, Theand amortizationrecently expensecapitalized associated with MTR for Quarter 4 alone amountedadditions to $97,258.Play MPE platform.

Interest income earned on the Company's Guaranteedmutual Investment Certificatesfunds was $51,201$25,189 for the year ended August 31, 20242025 (20232024 - $36,498$51,201). The interest income increaseddecreased by 40%50.8% year over year mostly due to increaseddecreased interest rates.

Net Income (Loss)

For the year ended August 31, 2024,2025, we reported a net loss of $637,877 (2024 - net income of $111,758 (2023 - $335,098).

Net cash used in financing activities during the year ended August 31, 20242025 was $470,271$nil (20232024 - $21,135$470,271). -In 2024, this cash was used to repurchase and retire common stock of the Company under the Normal Course Issuer Bid ("NCIB"). TheNone increasesuch repurchases occurred in net cash used in financing activities was driven by the higher number of shares repurchased in the year.2025.

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,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.

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in "Item 11.A - Risk Factors" in our Form 10-K for the fiscal year ended August 31, 20252025, filed with the SEC. These risks could materially and adversely affect our business, financial condition and results of operations. The risks described in our Form 10-K have not changed materially, however, they are not the only risks we face. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

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,Distributions, 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 428,400, 157522 WestE5th Georgia Street,Avenue, Vancouver, British Columbia V6GV5T 2V3.1G8. 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 "DSYDSY.V", on the OTCQB U.S. ("OTCQB") under the symbol "DSNY", and on various German exchanges (Frankfurt, Berlin, Stuttgart and Xetra) under the symbol "DME1DME1.F".

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARYMAY 28,31, 2026 AND 2025

Total revenue for the three months ended May 31, 2026 was $1,039,118 compared to the revenue of $1,133,963 for the three months ended May 31, 2025, a decrease of 8.4% period over period. Total revenue for the nine months ended May 31, 2026 was $3,285,366 compared to the revenue of $3,379,692 for the nine months ended May 31, 2025, a decrease of 2.8% period over period. Revenue decreased during the periodquarter primarily due to the execution of a longer-term agreement with a major label customer, which resulted in the elimination of certain short-term premium pricing that had previously contributed to revenue. ThisRevenue decreasefrom certain major label customers was also lower compared to the prior year period. These decreases were partially offset by growthcontinued strength in revenue from the Company's independent customer base,segment, drivensupported by a 23% increase in the number of Play MPE® customers and higher average spend per customer. The increasegrowth in customer spendacquisition, wasimproved influencedsales inconversion partrates byand pricing adjustments implemented during the year. While the total number of releases distributed during the quarter decreased compared to the prior year period, revenue generated per release increased. MTR™ revenue increaseddecreased by 13.5%11.8% during the quarter; however, it remains nominal.an immaterial component of the Company's overall revenue.

Operating costs during the three months ended FebruaryMay 28,31, 2026 increased by 19.3%%4.6% to $1,405,340$1,097,213 (FebruaryMay 28,31, 2025-2025 $1,178,272- $1,049,348). The increase in operating costs was primarily the result of the following:

For ease of reference the following table has been prepared to present operating results had the Company not capitalized software development salaries for the three months ended FebruaryMay 28,31, 2026 and 2025.

Total generalGeneral and administrative expenses increased by 49%66.3% during the period, primarily due to higher wages and benefits, including a one-time employee-related charge,charge and increased consulting costs, as well as increasedhigher consultingprofessional fees associated with changes in management.fees. The increase was also impacted by foreign exchange fluctuations. These increases were partially offset by lowerfavorable professionalforeign feesexchange movements compared to the prior year period.

Depreciation and amortization expense decreased to $167,017$164,499 for the three months ended FebruaryMay 28,31, 20262026, from $183,724$190,425 for the three months ended FebruaryMay 28,31, 2025, a decrease of 9.1%,13.6% primarily due to a lower level of capitalized software development costs in recent quarters, resulting in a reduced amortization base.

Interest income earned on the Company's mutual funds was $4,053$7,025 for the three months ended FebruaryMay 28,31, 2026 (FebruaryMay 28,31, 2025 - $6,493$4,969). One time gain on sale of property and equipment was $3,981 for the three months ended May 31, 2026 (May 31, 2025- $nil), resulting from the sale of certain assets during the period.

RESULTS OF OPERATIONS FOR SIXTHE NINE MONTHS ENDED FEBRUARYMAY 28,31, 2026 AND 2025

Total revenue for the sixnine months ended FebruaryMay 28,31, 2026 was $2,246,248$3,285,366 compared to the revenue of $2,245,729$3,379,692 for the sixnine months ended FebruaryMay 28,31, 2025, a decrease of 0.02%2.8% period over period.

Operating costs during the sixnine months ended FebruaryMay 28,31, 2026 increased by 11.7%9.3% to $2,388,689$3,485,902 (FebruaryMay 28,31, 2025 - $2,139,182$3,188,530). This rise can be primarily attributed to the following factors:

An increase in wages and benefits of $344,821,$438,524, representingprimarily approximatelydue 16.1% of the overall increase in operating expenses, which includedto a one-time employee-related charge of $244,125 and$354,592, lower capitalization of development costs of $100,868 due to a reduction in activities qualifying for capitalization under U.S. GAAP, resulting in a higher portion of payroll costs being expensed induring the periodperiod, Professionaland feesincreased contributedconsulting tocosts. approximatelyThis 8.5%increase decreasewas inpartially totaloffset operatingby expenses,lower primarilystock-based duecompensation to legal costs associated with litigation in the prior year that did not recur in the current period.expense.

For ease of reference the following table has been prepared to present operating results had the Company not capitalized software development salaries for the sixnine months ended FebruaryMay 28,31, 2026 and 2025.

Total generalGeneral and administrative expenses increased by 38.5%46.1% during the period, primarily due to higher wages and benefits, including a one-time employee-related charge, aslower wellcapitalization asof development costs and increased consulting fees associated with changes in management. The increase was also impacted by foreign exchange fluctuations.costs. These increases were partially offset by lower professional fees compared to the prior year period, primarily due to litigation-related legal costs incurred in the prior year that did not recur in the current period.

Product development costsexpenses increased asby a2.5% resultduring ofthe aperiod, primarily due to lower capitalization rate associated withof software development.development Thiscosts, increaseresulting is partially offset byin a reductionhigher inportion overallof staffing,development payroll being recognized as the Company prioritized increased productivity and operational efficiency.expense.

Depreciation and amortization expense decreased to $339,502$504,001 for the sixnine months ended FebruaryMay 28,31, 2026 from $350,703$541,128 for the sixnine months ended FebruaryMay 28,31, 2025, a decrease of 3.2%6.9% primarily due to a lower level of capitalized software development costs in recent quarters, resulting in a reduced amortization base.

Interest income earned on the Company's investmentsmutual funds was $8,979$16,004 for the sixnine months ended FebruaryMay 28,31, 2026 (FebruaryMay 28,31, 2025 - $14,901$19,870). One time gain on sale of property and equipment was $3,981 for the nine months ended May 31, 2026 (May 31, 2025- $nil).

During the three and sixnine months ended FebruaryMay 28,31, 2026 the Company reported a net loss of $566,310$213,327 and $695,985, respectively (May 31, 2025 - a net loss of $482,658, respectively (February 28, 2025 - net loss of $302,094$72,288 and net loss of $183,954,$256,242, respectively).

For the three and sixnine months ended FebruaryMay 28,31, 2026, adjusted EBITDA loss was $(402,64155,500) and $(150,097205,597), respectively (FebruaryMay 28,31, 2025 - $(116,719)adjusted EBITDA was $122,097 and $170,751,$292,848, respectively). Adjusted EBITDA is not defined under U.S. GAAP, and it may not be comparable to similarly titled measures reported by other companies. We used Adjusted EBITDA, along with other GAAP measures, as a measure of our profitability because Adjusted EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments and the effect of non-cash stock-based compensation expense.

We believe Adjusted EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to Adjusted EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based compensation from our earnings which can vary based on share price, share price volatility, and expected life of the equity instruments we grant. In addition, this stock-based compensation expense does not result in cash payments by the Company. Adjusted EBITDA has limitations as a profitability measure in that it does not include provisions for income taxes, the effect of our expenditures on capital assets, the effect of non-cash stock-based compensation expense and the effect of asset impairments. The following is a reconciliation of net income (loss) from operations to Adjusted EBITDA:

As at FebruaryMay 28,31, 2026, we held $1,151,271$1,397,098 (August 31, 2025 - $1,117,889) in cash and cash equivalents. The Company's cash equivalents consist of investments in mutual funds with a major Canadian financial institution earnsthat an averageearn interest ofat 2.01%.variable interest rates.

At FebruaryMay 28,31, 2026, we had working capital of $1,446,468$1,369,118 compared to $1,634,587 as at August 31, 2025. The decrease in our working capital was primarily due to operating results.

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

Net cash provided by operating activities during the sixnine months ended FebruaryMay 28,31, 2026 was $84,834$355,433 (FebruaryMay 28,31, 2025 - $47,646$138,911). The primary reason for the increase in cash flowsprovided fromby operating activities iswas relatedprimarily due to thefavorable timingchanges in working capital, including improved collections of receiptsaccounts from our customers and the timing of payments to our vendors.receivable.

Net cash used in investing activities for the sixnine months ended FebruaryMay 28,31, 2026 was $43,093,$53,662, compared to cash used byin investing activities of $223,440$314,225 for the threenine months ended FebruaryMay 28,31, 2025. The period-over-perioddecrease decreasein cash used in investing activities was mainlyprimarily drivendue by theto lower proportion ofcapitalized software development salariescosts and wages capitalized induring the current period.

Financing ActivitiesActivity

Net cash used in financing activitiesactivity during the sixnine months ended FebruaryMay 28,31, 2026 was $nil (FebruaryMay 28,31, 2025 - $nil).

For a description of our critical accounting policies, see the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgements and Estimates" and "Financial Statements and Supplementary Data - Note 2, Summary of Significant Accounting Policies" contained in our 2025 Form 10-K. There have not been any material changes to the critical accounting policies discussed therein during the sixthree and nine months ended FebruaryMay 28,31, 2026.

As of FebruaryMay 28,31, 20262026, 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.