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**UNITED STATESSECURITIES AND EXCHANGE
COMMISSION**Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] Annual Report Pursuant To Section 13 Or 15(D) Of The
Securities Exchange Act Of 1934 
For the fiscal year ended August 31, 2009

[   ] Transition Report Under Section 13 Or 15(D) Of
The Securities Exchange Act Of 1934 
For the transition period from _____ to _____

COMMISSION FILE NUMBER 000-28259

DESTINY MEDIA TECHNOLOGIES INC.(Name of small business issuer in its charter)

|COLORADO                                                             | 84-1516745                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|570 Granville Street, Suite 800                                      |                                     
|Vancouver, British Columbia, Canada                                  | V6C 3P1                             
|(Address of principal executive offices)                             | (Zip Code)                          
|                                                                     |                                     
|604-609-7736                                                         |                                     
|Issuer's telephone number                                            |                                     

|Securities registered under Section 12(b) of the Exchange
      Act: | NOT APPLICABLE                         
|-------------------------------------------------------------------- | ---------------------------------------
|                                                                     |                                        
|Securities registered under Section 12(g) of the Exchange
      Act: | COMMON STOCK, PAR VALUE $0.001 PERSHARE

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X]    No [   ]

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

Large accelerated filer [   ]
    
    Accelerated
      filer                 
      [   ]Non-accelerated filer   [   ]
    (Do not check if a smaller reporting
    Smaller reporting company [X]company)


Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

YES [   ]    NO [X]

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the registrants most
recently completed second fiscal quarter.

1

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38,092,659 common shares @ $0.20(1)= $7,618,531(1) Closing price as quoted on
the OTC Bulletin Board on February 27, 2009.

Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest practicable date.

52,059,647 Shares of $0.001 par value common stock
outstanding as of November 26, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

None

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DESTINY MEDIA TECHNOLOGIES INC.FORM 10-K

INDEX

|               |                                                                                                                             | PAGE
|-------------- | --------------------------------------------------------------------------------------------------------------------------- | ----
|               |                                                                                                                             |     
|PART
      I   |                                                                                                                             |     
|               |                                                                                                                             |     
|Item
      1.  | Description
      Of Business.                                                                                              | 5   
|               |                                                                                                                             |     
|Item
      2.  | Description
      Of Property.                                                                                              | 14  
|               |                                                                                                                             |     
|Item
      3.  | Legal
      Proceedings.                                                                                                    | 14  
|               |                                                                                                                             |     
|Item
      4.  | Submission
      Of Matters To A Vote Of Security Holders.                                                                  | 15  
|               |                                                                                                                             |     
|PART
      II  |                                                                                                                             |     
|               |                                                                                                                             |     
|Item
      5.  | Market
      For Common Equity And Related Stockholder Matters.                                                             | 15  
|               |                                                                                                                             |     
|Item
      6.  | Management's
      Discussion And Analysis Or Plan Of Operation.                                                            | 16  
|               |                                                                                                                             |     
|Item
      7.  | Financial
      Statements.                                                                                                 | 22  
|               |                                                                                                                             |     
|Item
      8.  | Changes
      In And Disagreements With Accountants On Accounting And Financial
      Disclosure.                           | 23  
|               |                                                                                                                             |     
|Item
      8A  | Controls
      and Procedures                                                                                               | 23  
|               |                                                                                                                             |     
|Item
      8B  | Other
      Information                                                                                                     | 23  
|               |                                                                                                                             |     
|PART
      III |                                                                                                                             | 23  
|               |                                                                                                                             |     
|Item
      9.  | Directors,
      Executive Officers, Promoters And Control Persons; Compliance With Section
      16(A) Of The Exchange Act | 23  
|               |                                                                                                                             |     
|Item
      10. | Executive
      Compensation.                                                                                               | 25  
|               |                                                                                                                             |     
|Item
      11. | Security
      Ownership Of Certain Beneficial Owners And Management.                                                       | 28  
|               |                                                                                                                             |     
|Item
      12. | Certain
      Relationships And Related Transactions.                                                                       | 30  
|               |                                                                                                                             |     
|Item
      13. | Exhibits
      And Reports On Form 8-K                                                                                      | 31  
|               |                                                                                                                             |     
|Item
      14. | Principal
      Accountant Fees and Services                                                                                | 31  
|               |                                                                                                                             |     
|Signatures     | 33                                                                                                                         

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PART I

FORWARD LOOKING STATEMENTS

The information in this Annual Report on Form 10-K contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements involve risks and uncertainties,
including statements regarding Destiny Media's capital needs, business strategy
and expectations. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may",
"will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks outlined below, and, from time to time, in other reports Destiny Media
files with the SEC. These factors may cause Destiny Media's actual results to
differ materially from any forward-looking statements. Destiny Media disclaims
any obligation to publicly update these statements, or disclose any difference
between its actual results and those reflected in these statements. The
information constitutes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.

CURRENCY

All dollar amounts in this Annual Report on Form 10-K are
presented in United States dollars unless otherwise indicated.

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ITEM
1.             
DESCRIPTION OF BUSINESS.

OVERVIEW AND CORPORATE BACKGROUND

Destiny Media Technologies, Inc. was incorporated in August
1998 under the laws of the State of Colorado. We carry out our business
operations through our wholly owned subsidiary, Destiny Software Productions
Inc., a British Columbia company that was incorporated in 1992, and MPE
Distribution, Inc. a Nevada company that was incorporated in 2007. The
Company, Destiny or we refers to the consolidated activities of all three
companies.

Our principal executive office is located at #800-570 Granville
Street, Vancouver, British Columbia V6C 3P1. Our telephone number is (604)
609-7736 and our facsimile number is (604) 609-0611.

Our common stock trades on the OTC Bulletin board under the
symbol DSNY and on various German exchanges (Frankfurt, Berlin, Stuttgart and
Xetra) under the symbol DME 935 410.

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

OUR PRODUCTS

Destiny develops and markets solutions which enable media
owners to securely distribute their digital media content globally through the
internet. The Company has two main product lines: MPE® enables content to be
transferred permanently to authorized recipients, so they possess it the way
they would CD or DVD. Clipstream® is analogous to radio or TV where content is
streamed to the viewer in a transient manner.

The MPE® Product Line

MPE® enables the secure download of audio or video to a users
computer and consists of two products: Play MPE® and PODDS.

Security is provided by patented and patent pending
technologies, which give record labels the choice of locking content so that
only authorized devices can play it or allowing copies, but embedding tracking
information so the source of unauthorized copies can be traced:

| | 1. | Digital Locking technology: "Digital Media Distribution
      Method and System" (US 20020146122, WIPO 01/65796) issued on Dec. 16,
      2008. This method uniquely identifies a device and permits playback of
      content on the authorized machine and not on any other computer or
      device.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                        
| | 2. | Digital Trace: "Methods for Watermarking Media Data" (US
      20080098022) was published in April 2008 and is currently pending review.
      Using this method a trace is embedded in each digital file identifying the
      source of copies.                                                      

A) Play MPE®http://www.plaympe.comhttp://www.myplaympe.com

The Play MPE® service is currently our main offering in this
line and is a system for securely moving pre-release music to radio stations,
media, buyers, film and TV, DJs, stadiums, VIPs and other trusted recipients.
All four Major Record Labels (Universal Music Group, Warner Music Group, EMI and
Sony Music) use the Play MPE® service commercially for sending their pre-release
music.

The system is highly automated where label staff, each with
their own access rights, collaborate using encoder tools to upload album
artwork, broadcast quality music and video, meta data, photos, marketing
materials, meta data and localized copy, release dates and recipient lists.
Optional email alerts that new music is available are automatically generated
based

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on selectable templates. The system detects whether a recipient
is in the system and automatically sends them an email explaining how to
download the software to access the new content.

Packages of new content (music, associated graphics, music
video, liner notes, etc.) automatically appear in a library of available
content, custom to each recipient. The recipient would use either a browser or
custom player software developed by Destiny (Mac/Windows/iPhone) to stream or
download the content in a locked format. If they have the rights, they can
export into any standard industry format or burn to CD. Destiny has partnered
with leading radio automation vendors so that song meta data can be exported
into third party tools.

Proprietary Play MPE® player access software is currently
available in twenty-four languages in versions for web browsers, the Mac, PC and
the iPhone.

B) Poddshttp://www.podds.ca

This online music store solution facilitates the sale of new
music through proprietary player software with integrated e-commerce
functionality. It was originally launched as a solution to sell music Destiny
licensed to DJs, clubs and internet enabled digital jukeboxes, but based on a
low return on investment, management has reduced focus on this opportunity. The
system remains as a proof of concept which is available to be licensed to third
party music retailers who could license and rebrand the solution to securely
sell music to their customers.

The Clipstream® Product Line

Clipstream® is an innovative "instant play" solution for
playback of streaming audio and streaming video. Unlike Windows Media Player or
Quicktime, there is no player that has to launch for the content to playback.
Unlike Flash, multiple Clipstream® objects can play on the same page and the
content can be uploaded to any website. Clipstream® uses up to 90% less
bandwidth than these three solutions while providing a 98% playback rate,
including across devices other than computers. Because there is no special
player or server and everything is standards based, Clipstream® content never
has to be re-encoded as technologies change.

The Clipstream® software suite enables audio or video content
to be streamed so that the media plays instantly and automatically when the
user initiates playback. Creating streaming video content with other
technologies can be a complicated process and in most cases, users are required
to purchase and maintain streaming servers. With Clipstream®, content owners
simply encode the content into the Clipstream® format, then upload to an
existing website. Clipstream® is a standards based technology built around the
cross platform Java language, supported natively by most operating systems and
devices.

Clipstream® encoded content plays instantly in most cases,
without requiring the user to download CODECS or player software. This results
in a much higher play rate for site owners and because there is no player
executable, users are not exposed to viruses, trojan horses or unstable code
that could crash their computer.

A) Licenses http://www.clipstream.com
    E) Server licenses
      http://www.clipstreamserver.comB) On demand audio streaming
      http://www.clipstreamaudio.com
    F) Telephone streaming
      http://www.audio-mail.comC) Internet Radio http://www.pirateradio.com
    G) Video Survey Solutions
      http://www.surveyclip.com


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D) Internet TV http://live.clipstream.com
    H) Advertising Solutions
      http://www.clipstreamad.com


BUSINESS DEVELOPMENT

MPE®

Play MPE® was first marketed to the recording industry as an
alternative to the much higher cost physical (couriered envelopes) distribution
of CD copies of their pre-release music. For several reasons, the concept was
well received by our record label clients and by radio. The initial challenge
was in changing the way the entire industry distributed and received their
music. Record labels were initially unwilling to pay and commit to digital only
transmission until radio adopted the system while radio was concerned about the
volume of new content (songs) in the system. Consequently the Company initially
provided the Play MPE® service free from charge while promoting the system to
both radio and record labels. Full commercialization in the United States began
in January 2008. Revenue from Play MPE® has consistently grown over the past
four years with the larger increases coming in the most recent twelve to
eighteen months.

2009 proved to be a pivotal year for both the Play MPE® service
and the Company as the Play MPE® network expanded into Europe, Australia and
Canada and showed continued growth in the US. The Company established agreements
within the industry, while providing extensive technical advancements, enhancing
the value of the Play MPE® service and providing additional barriers to entry
for potential competitors. Some of the highlights for the year include:

- December 2008: Play MPE® enrolls in the internationally approved antipiracy
  certification program of the Content Distribution and Storage Association
  (CDSA)
- February 2009: Warner Music Group announced a global commercial contract to
  use Play MPE® representing our third (of four) US Major Record Labels under
  agreement
- February 2009: Patent Granted for locking security technology entitled
  Digital Media Distribution Method andSystem
- November 2008 - February 2009: Australian expansion includes EMI, Warner
  Music Group, Universal Music Group, and Shock Records (etc)
- March 2009: New versions of server system and encoder, under development
  since 2006, supporting new features including multiple server locations, real
  time backup, failover, label staff collaboration tools, and lists and content
  control and reuse across territories.
- April 2009: New player software for Windows and PC, available in 24
  languages redesigned to support global expansion.
- May 2009: In the 3rdquarter of fiscal 2009, the Company showed
  its first operating profit on the strength of a 42% increase in revenue from
  the prior quarter and consistent increases in overall revenue.
- May 2009: Tracing security technology patent entitled Methods for
  Watermarking Media Dataapplication expanded to include European Union
  and Japan.
- May 2009: Universal Music Group, based in the United Kingdom announced a
  new commercial agreement to use Play MPE® in 77 additional territories
  covering the globe outside of North America.
- August 2009: Revenue increased to $872,549 for the 4thquarter
  ended August 31, 2009 resulting in income and earnings before interest taxes
  depreciation and amortization (EBITDA) $302,749 for the quarter.
- September 2009: Apple approves Play MPE® iPhone App now available on
  iTunes. This proprietary player software provides Play MPE® industry
  recipients, including staff at Apple, extremely high quality broadcast quality
  audio files and playback which can be optionally downgraded to provide
  playback through iTunes.

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Clipstream®

Our traditional area of strength for sales in Clipstream®
licenses is the market research community where it has become a standard for
secure global questionnaires. Because of the cost of acquisition of a survey
participant and the sensitivity of the content, the high play rate and security
of the Clipstream® solution is critical. This area was adversely impacted by the
economic conditions in 2009, but is expected to be an area of growth for the
Company in 2010.

The main focus for Clipstream® in fiscal 2009 was the
development of higher margin recurring service based offerings. The Clipstream®
Cloud offering was originally expected to launch in 2009 but was delayed by
diversion of resources to the new Play MPE® service infrastructure. The launch
of this solution is expected to occur in the first half of fiscal 2010.

Development of professional service based versions of
Clipstream® TV and Clipstream® Radio began in the second half of 2009 and these
solutions are also expected to be available in fiscal 2010.

While the Company will continue to offer Clipstream® technology
licenses, the fiscal 2010 sales focus will be on market research and these two
new services currently under development:

1. Clipstream® Cloud Offering

Like a You Tube for Business, this
solution will be an easy to use solution which allows business people to display
and share rich media content without going through an IT department. Self serve
accounts will be marketed directly to individuals who can purchase monthly
recurring access plans with their corporate or personal credit cards while OEM
versions of the system will be marketed to larger accounts that would be able to
rebrand to their customer base.

Audio and video content would be
automatically encoded into the Clipstream® format for streaming, while the
original would still be available for download. A telephone based system would
allow users to leave audio messages, which would be automatically converted into
streaming audio content. Content types would not be restricted and users would
be empowered to upload any digital content (web pages, photos, documents, etc.).

Users can choose from an included
webpage or to embed the uploaded content into a website of their choosing. For
example, a video could be posted in a discussion forum and would appear to be
part of that discussion site but would be hosted by Clipstream® servers.
Advertisers could create rich media ads including rollover audio and video that
they could paste into the sites they advertised on.

The solution will feature the ability
to create and maintain email lists, so that rich content can be sent to
subscribers by the Clipstream® servers and access control and reporting will be
available for each asset.

2. Internet Radio and Internet TV

Destiny currently markets Internet
radio under the Radio Destiny brand as a software sale to hobbyists who
broadcast using their own bandwidth. Destiny provides a directory (http://www.stationdirectory.com) to access these
hobbyist signals.

Destiny also sells licenses for
Internet TV software. Users can run the software on their local computer
(requires a low cost TV tuner card) and access their signal globally and without
player software from any web browser.

In fiscal 2010, the Company will be
rolling out professional versions of these tools which automatically repeat the
signals through Destinys servers enabling radio and TV broadcasters to more
easily and economically transmit their terrestrial signal at high volume to
recipients through their company web page. These products will be marketed
through pop up download links in the Play MPE® network and directly to the head
offices of the chains.

Ancillary services, such as the ability
to log the broadcast stream to Destinys servers to meet regulatory archiving
requirements may be built out in future versions.

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Marketing of the new Clipstream® solutions is expected to be
viral and initially to existing customers and is expected to be largely
sustained from Clipstream® sales. The goal is for these new business units to be
profitable in 2010 and for growth in these units to be funded through positive
cash flow

OUR BUSINESS OPERATIONS

We lease 10,100 square feet of office space, with the lease
expiring in August of 2010, and we currently have twenty full time employees and
one part time employee. Our employees include our President and Chief Executive
Officer, Chief Financial Officer, ten sales and technical support personnel, and
five software developers. We also employ contractors as needed.

We manage our own server infrastructure and use the services of
an external hosting facility. We have racks of server and storage hardware at
three physical locations (two in Vancouver, Canada and one in London, England).
Servers are highly redundant with RAIDs, custom switches, redundant power
supplies and multiple connections to the internet backbone. The primary access
to customers it through the Vancouver primary server which connects into the
backbone at one gigabit per second.

COMPETITION

MPE®

Although there are regional competitors in some geographic
locations, the system is leading the industry towards becoming the global
standard for distributing pre-release music digitally with all four US Major
Record labels and hundreds of major independents and promoters commercially
using Play MPE® with large growth seen across geographic lines. The Play MPE®
service is currently being rolled out in Europe, Asia, Africa and South America
and the plan to roll out the system to seventy-seven countries in fiscal 2010
has commenced.

The main competitor for our Play MPE® distribution service
remains the physical distribution of music CDs and promotional security free
digital distribution of MP3s. The Company is not aware of a secure digital
distribution competitor with a comparable or significant presence in the US or
internationally.

Barriers to entry include the installed base of our encoder and
player software, our brand familiarity, our partnerships with other industry
participants, our lead time in developing our offering and our proprietary
patented technologies and trade secrets. The MPE® system has been under
development since 1999 and would take a number of years of development for a new
competitor to provide a similar offering.

Clipstream®

Our principal competitor for Clipstream® is Adobe Flash and to
a lesser extent, the player solutions provided by Apple and Microsoft. Flash is
recognized as the dominant player in the space, with a near monopoly over
instant play streaming video. Clipstream® has a number of economic and usability
advantages that make it extremely compelling in certain circumstances, but the
margins on streaming licenses are low. The corporate strategy is to license
Clipstream® to niches where its cost, security and performance advantages are
extremely beneficial, while creating new service offerings that embrace
competing technologies while extending them with the benefits of Clipstream®.
The Clipstream® Cloud, a hosted solution featuring automated encoding and
reporting uses up to 90% less bandwidth than hosting solutions provided by other
technologies, so the Company will be positioned to provide the same service at a
much lower internal cost then competitors.

Competitors for the new Clipstream® Cloud hosting solutions
will include video encoding companies, Internet hosting companies and file
sharing companies such as Yousendit and Rapidshare. All are substantially larger
than we are and have significantly greater financial resources available and
have increased their commitment to and presence in the streaming media industry.
We anticipate they will continue to increase the competitive pressure in the
overall market for streaming media software. This increased competition could
lead to increased pressure to decrease the price of streaming media

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software. This pressure on price could force us to reduce the
price that we are able to charge our customers for our software products.

Clipstream® Advantages

- A Clipstream® powered website does not require that its visitors download
  and install player software. Clipstream® just plays. Other solutions require
  intrusive codecs and new versions of their player in the background.
- As Clipstream® is playerless, management estimates that at least 10% more
  visitors see the rich media content
- Clipstream® playback takes minimal CPU and memory resources, so the
  viewer's computer is free for other tasks. This means that many Clipstream®
  objects can appear on the same page. Other solutions often restrict to one
  piece of content per page.
- The Clipstream® solution is less intrusive and, as a result, safer for
  users. Alternative solutions control a users device and can be used by
  malicious sites to install malware. Because it is restricted to the safe Java
  sandbox, Clipstream® content will never crash or compromise your machine.
- Clipstream® content is uploaded to any brand of web server and just works.
  Alternative solutions require that you purchase, install and configure
  streaming server systems, running on dedicated hardware.
- Clipstream® plays on any Java enabled device, so playback is not restricted
  to computers. This cross platform approach means the same object will work for
  any browser on any brand of computer or device at any bitrate. (An autodetect
  procedure automatically delivers the highest possible stream quality).
- Because there is no player, Clipstream® encoded media never becomes
  obsolete and never has to be re-encoded. Content encoded in Clipstream® ten
  years ago still plays today. Other solutions launch new player software
  without backwards compatibility.
- Clipstream® media will automatically cache because it is an ordinary web
  component, just like a graphic or a block of text. This means that Clipstream
  will save up to 90% on bandwidth cost (over 90% for ads), while providing much
  more reliable playback This standards based approach means that there is no
  limit to simultaneous streams.
- Clipstream® components can be uploaded to the cloud for third party
  hosting. Player solutions require complicated server farms to handle more than
  a few thousand simultaneous visitors.
- Clipstream® objects can be embedded into databases for long terms storage
  and easy context sensitive retrieval. Every aspect of the Clipstream® engine
  can be accessed by web authoring tools to create a customized look and feel
- Dozens of parameters provide functionality not available from any other
  streaming solution. For example, Clipstream® provides the only technology
  available to link every pixel or group of pixels in a banner to a different
  audio stream. This technology can be used for audio navigation of a website or
  to provide ads that do not require the visitor to leave the host site to
  listen to an ad.

We must continue to innovate and improve the performance of our
software products to compete in the media technologies market, to maintain our
customer base and to increase our customer base. We anticipate that
consolidation will continue in this industry and related industries such as
computer software, media and communications. Consequently, competitors may be
acquired by, receive investments from or enter into other commercial
relationships with, larger, well-established and well-financed companies. There
can be no assurance that we will be able to establish or sustain a leadership
position in these market segments. We are committed to working toward market
penetration of our brand, products and services, which, as a strategic response
to changes in the competitive environment, may require pricing, licensing,
service or marketing changes intended to extend our current brand and
technology. Price concessions or the emergence of other pricing or distribution
strategies by competitors may reduce the prices that we may charge our customers
for our software products. In addition, many of our current and potential
competitors have greater name recognition, larger overall installed bases, more
employees and significantly greater financial, technical, marketing, public
relations and distribution resources than we do. These competitive factors may
have a material adverse effect on our business, financial condition and results
of operations.

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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.

RISK FACTORS

We face risks in executing our business plan and achieving
revenues. The following risks are material risks that we face. We also face the
risks identified elsewhere in this Annual Report, including those risks
identified under Item 1  Description of Business, including Competition and
Government Regulation, and Item 6  Management Discussion and Analysis or Plan
of Operations. If any of these risks occur, our business and our operating
results and financial condition could be seriously harmed.

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

Approximately 88% of our revenue is generated from our Play
MPE® distribution service. The main competitor for our Play MPE® system remains
the physical distribution of music CDs and promotional security free digital
distributions of MP3s. 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.

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

We have been successful in containing our operating expenses.
Operating expenses decreased substantially to $2,515,666 for the year ended
August 31, 2009 from $3,983,821 for the year ended August 31, 2008. Our ability
to achieve profitability is conditional upon our ability to maintain our
operating expenses. While we have been successful in containing 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 and marketing in order to
increase product sales or our determination that more research and development
expenditures are required in order to keep our current software products
competitive or in order 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.

We are currently party to four claims against the Company, as
described in Item 3 of Part I under the heading Legal Proceedings. If we are
not successful in these legal proceedings and are forced to make payments of
damages to the plaintiffs, then our business and our financial condition would
be adversely affected.

Our success is dependent, to a large degree, upon the
efforts of Mr. Steve Vestergaard, our current executive officer.

Mr. Vestergaard was the founder of Destiny Software and has
been involved in our business operations since our inception. The loss or
unavailability of Mr. Vestergaard could have an adverse effect on our business
operations and financial condition. We do not maintain key man life insurance
policies for Mr. Vestergaard or for any of our other employees. In addition, our
continued success is dependent upon our ability to attract and retain qualified
personnel in all areas of our

11

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business, especially management positions. In the event that we
are unable to attract and retain qualified personnel, our business 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 increasing our loss from operations. Management is
in a position to counteract negative impacts through hedging contracts which can
mitigate some of this loss.

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 shipments. 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.

Our ability to manage growth.

Should we be successful in the sales and marketing efforts of
our software products, we will experience significant growth in operations. If
this occurs, management anticipates that additional expansion will be required
in order 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 will need to recruit qualified
personnel in all areas of its 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 its 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.

Risk of 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 also may 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.

Lack of established market for products and services;
dependence on internet and intranets as mediums of commerce and communications.

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.

12

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The electronic commerce market is relatively new and evolving.
Sales of our products depend in large part on the 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.

Product delays and errors.

We have experienced development delays and cost overruns
associated with its product development. 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.

Online commerce security risks.

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.

International operations.

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. We do not currently hedge our foreign currency exposures.

Dividend policy.

We do not presently intend to pay cash dividends in the
foreseeable future, as any earnings are expected to be retained for use in
developing and expanding its business. Our ability to declare dividends will
depend on results of operations, cash requirements and future prospects of us
and other factors.

The global financial crisis may have impacts on our business
  and financial condition that we currently cannot predict.

The continued credit crisis and related turmoil in the global
financial system, as well as the global economic recession, may have an impact
on our business and our financial condition, and we may face challenges if
conditions in the financial markets do not improve. The current economic
situation could have a material adverse impact on our customers causing them to
fail to meet their obligations to us.

As shares of our common stock are classified as penny stock,
investors may have difficulty selling their shares.

Our common stock is subject to penny stock rules as defined
in 1934 Securities and Exchange Act rule 3151-1. The Securities and Exchange
Commission has adopted rules that regulate broker-dealer practices in connection
with transactions in penny stocks. Our common shares are subject to these penny
stock rules. Transaction costs associated with purchases and sales of penny
stocks are likely to be higher than those for other securities. Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system).

13

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The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customers account. The bid and
offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customers confirmation.

In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchasers written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the common
shares in the United States and shareholders may find it more difficult to sell
their shares.

ITEM
2.             
DESCRIPTION OF PROPERTY.

Our head office is located in leased premises at Suite 800, 570
Granville Street, Vancouver, British Columbia, Canada V6C 3P1. Our principal
business operations are carried out from head office. Our leased premises
consist of approximately 10,100 square feet. We pay rent of approximately
$28,000 Canadian (equal to approximately $25,600 US) per month. The lease
expires August 30, 2010. We consider our leased premises adequate for our
current business purposes.

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

We have one granted patent and one outstanding patent
application for the MPE® distribution system covering our innovative security
features. The United States Patent & Trademark Office has granted the first
patent, entitled 'Digital Media Distribution Method and System' patent
application (USPTO Publication No. 20020146122, International WIPO 01/65796).
The second patent titled Methods for Watermarking Media Data(US
20080098022) was published in April 2008 and is pending review by the USPTO.

We have been granted a trademark for Clipstream® in the US,
Canada, Japan, Israel and Europe in connection with our software products. We
have been granted trademarks for MPE® in the US, Canada and Europe. We have been
granted trademarks for PLAY MPE® in the US and Japan. We have also been granted
trademarks for Sonox Digital in Japan.

We have applied for trademark protection for MPE® in China and
Japan. We have applied for trademark protection for PLAY MPE® in the Canada,
China and Europe and SONOX DIGITALTMin the US, Canada, China, and
Europe. This protection is currently pending.

We generally develop our own technologies and algorithms in
house and have a number of technologies that we rely on to maintain our
competitive advantage. Additionally we have in excess of 40 registered domain
names.

ITEM
3.             
LEGAL PROCEEDINGS.

The Company is involved in three actions with a competitor in
Canada (Yangaroo Inc. Yangaroo, formerly Musicrypt Inc.) regarding various
patent claims as described below:

a)             
On March 7, 2006, the Company filed a statement of claim in the Federal Court of
Canada against Yangaroo (the Defendant) to assert that the Companys
technology does not infringe on the stated patent owned by the Defendant and to
further declare that Defendants patent is invalid. On June 7, 2006, the
Companys counsel received a statement of defense and counterclaim from the
Defendant, requesting specified damages or audited profits from the Play MPE®
system sourced to Canada.

b)             
On May 3, 2007, the Company filed a claim in Ontario Superior Court against the
Defendant (Yangaroo Inc.), and executives of the Defendant, Chief Executive
Officer of the Defendant and Chief Financial Officer of the Defendant
(collectively the Defendants) in the amount of $25,000,000 caused by the
Defendants making

14

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statements constituting defamation and
injurious falsehood, making false or misleading statements tending to discredit
the business, making false or misleading representations contrary to the
Competition Act of Canada, and unlawful interference with the Companys economic
relations. On June 7, 2007, the Defendant filed a statement of defense and
counterclaim against the Company for the same amount and for the same causes.

c)****
On May 12, 2009, the Company was served with a complaint in the United States
District Court for the Eastern District of Wisconsin by the Defendant (the
Claimant) in the Canadian litigation above, alleging that the Company
infringes on its recently issued one method claim in United States Patent No.
7,529,712. The Company initially filed a motion to dismiss the complaint as not
being properly pled due to a issue regarding the method claim itself. The Court
has ruled that it would be premature to issue a dismissal on such grounds until
it had considered the meaning of the patent claim terms. On September 18, 2009
the Company filed an Answer, which included a statement of its defenses. One
defense the Company has asserted is the patent claim has limitations regarding
operations on a server and because Companys servers are outside the United
States, the Claimants U.S. patent cannot be asserted against the Company. On
October 13, 2009 the U.S. District Court issued a scheduling order that limits
discovery in the U.S. case to the Companys defense of extraterritoriality and
that the Court will entertain a motion for summary judgment by the Company
dismissing the case on that basis alone, prior to further discovery, if any. It
is managements opinion that the Claimant was sufficiently aware of the location
of Companys servers well prior to the date it brought suit and, given
Claimants duty to investigate the law regarding extraterritoriality prior to
bringing suit, this case is improper. As a result, the Company will be seeking
legal costs from the Claimant, if successful.

The amount of damages awarded to the Company or the
Defendants/Claimant, if any, cannot be reasonably estimated and no amount has
been recognized in the financial statements. Management believes it is unlikely
that the outcome of this matter will have an adverse impact on its result of
operations and financial condition.

On August 12, 2009 the Company received a statement of claim in
the Supreme Court of British Columbia from a former employee for wrongful
dismissal and breach of contract. The claim was for approximately $180,000 CDN
plus an award of stock options and unspecified damages. The Company believes the
claim is completely without merit and will vigorously defend its position and
reputation and filed a response on September 11, 2009. The former employees
deadline to respond to our response was October 2, 2009. As of November 29,
2009, the Company has not received a response from the former employee.
Management believes it is unlikely that the outcome of this matter will have an
adverse impact on its result of operations and financial condition.

ITEM
4.             
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to our security holders for a vote
during the fourth quarter of our fiscal year ending August 31, 2009.

PART II

|ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCK HOLDER
        MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
|------- | ---------------------------------------------------------------------------------------------------------------------------

Market Information

Our shares are currently trading on the OTC Bulletin Board
under the stock symbol DSNY. The first day on which the Companys shares were
traded under the stock symbol DSNY was June 26, 2000. The high and the low
trading prices for our shares for each quarter of the last two fiscal years
were:

15

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QUARTER
    HIGH ($)
    LOW ($)1stQuarter 2008
    $0.63
    $0.402ndQuarter 2008
    $0.81
    $0.453rdQuarter 2008
    $0.70
    $0.474thQuarter 2008
    $0.62
    $0.351stQuarter 2009
    $0.43
    $0.152ndQuarter 2009
    $0.39
    $0.153rdQuarter 2009
    $0.30
    $0.174thQuarter 2009
    $0.35
    $0.19


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

Holders of Common Stock

As of November 26, 2009 we had 52,059,647 shares of our common
stock outstanding and there were 73 registered shareholders of our common stock.

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 in order 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

During the year ended August 31, 2009, 500,000 stock options
were exercised for cash proceeds of $100,000. 133,333 previously issued common
shares were released from treasury to settle an incomplete private placement
between the Company and parties involved in the August 2000 private
placement.

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

We did not purchase any of our shares of common stock or other
securities during the year ended August 31, 2009.

ITEM
6.             
MANAGEMENT'S DISCUSSION AND ANALYSIS.

The following discussion of our results of operations and
financial condition should be read together with the consolidated financial
statements and related notes that are included later in this Annual Report on
Form 10-K. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors.

RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2009

Revenue

Revenue continued to grow during our fourth quarter and was the
highest in the Companys history. Fourth quarter revenue was 77% higher than the
same quarter in the prior year and more than 31% above the previous quarter in
fiscal 2009. Total revenue for the quarter is $872,569 (third quarter fiscal
2009 - $665,829). Total revenue for the year was $2,560,447 (2008 - $1,578,888),
an increase of approximately 62% over the fiscal 2008 year.

16

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The growth in revenue is driven by the growth in our Play MPE®
system, where access fees for the year have grown by more than 95% over the
previous year. Play MPE® continues to see the same substantial revenue growth
that it has seen over the previous three years.

2009
    2008
    **2007**Play MPE® Revenue
    $2,256,871
    $1,154,845
    $446,594Growth over prior
      year
    95%
    159%
    138%


The increases in revenue from Play MPE® have continued since we
ceased pilot usage of the Play MPE® system at the beginning of the 2007 fiscal
year. Play MPE® is the world leader which dominates an evolving business and
leads the transformation of the way in which record labels distribute
pre-release music. The music industry has begun to use Play MPE® in some markets
as the primary distribution method. We have seen the transition from traditional
distribution methods to Play MPE® begin gradually and the growth seen in 2008
has continued into 2009. The growth in revenue over the previous year has been
realized across formats, through existing clients, and through new clients in
new geographic areas and includes; a 48% increase in North American Major Record
Label revenue, and a 62% increase in North American independent record label
revenue. The addition of European and Australasian based revenue added a further
increase of $540,145 (24% of total 2009 MPE® revenue).

Over the course of fiscal 2009, we added Warner Music Group and
Universal Music Group International to our major label agreements that already
included EMI and Universal Music Group (North America). Also during the year, we
expanded into Australia with commercial agreements with Warner Australia,
Universal Music Group (Australia) and EMI (Australia) as well as many additional
independent clients in Australia. We have several agreements with subsidiaries
of Sony BMG and several additional labels operate on a pay-as-you-go basis. We
began to see Play MPE® expand to include numerous European countries. While some
use has been seen Asia, South America and Africa this use has had little impact
to revenue to date as these revenues are typically recorded through the European
parent label which is billed for that usage. We expect  Play MPE® service
fees to continue to grow throughout all geographic regions in 2010.

While this market development is still at an early stage, the
value propositions of the Play MPE® system are both compelling and numerous and
we have found we compete well against existing or traditional methods of
dissemination as well as alternatives in the market. Our product provides
significant advantages such as reducing the costs and lead times, and providing
feedback on usage to the record labels. Further, the added benefit of being
environmentally friendly appeals to all considered. We compete favorably against
the distribution of MP3s by the superior sound quality of files in our system,
the security, the reporting (feedback) and the network of recipients using our
system. Play MPE® provides many significant advantages over competing solutions
such superior sound quality, superior security, constructive business
relationships, more advantageous partner relationships, a network of regular
users and countless added functions of the player software and total service
offering.

Our revenue model is based on a price per send. In October
2009, we reached new milestones having delivered more than 160,000 individual
songs in more than 150 million transactions with over 32,000 users. We refer to
a transaction as one song which is made available to one recipient. For
revenue purposes, fees are based on sends as defined in standard agreements,
and could include a single transaction or group of transactions. A send is a
song, bundle of songs, album, box set, or video, authorized to be sent to a
particular recipient. The revenue associated with each send will be on a
sliding scale depending on the size of the particular send (song length for
example). The system provides each label under contract to manage their own
lists of recipients and directly encode and distribute their songs. This added
ability provided to our clients substantially eliminates the strain on our own
internal resources that can be seen in competing solutions and allows for high
growth potential.

For customers where it is not appropriate to enter into a
formal contract we provide access to the Play MPE® system through www.myplaympe.com.

Real time usage statistics for Play MPE® are available at:
http://www.plaympe.com/v4/company/plaympestats.php

The MPE® security engine also powers our online music store
software suite (www.podds.ca) which provides
for the remainder of MPE® revenue.

17

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Approximately 11% of our revenues are derived from sales of our
Clipstream® software which declined from the previous year by 5%. This reflects
a management strategy of focusing sales, marketing and support resources on MPE®
until the new automated system for Clipstream® is available. We hope to increase
sales of Clipstream® licenses through our hosted solution, and other license
opportunities.

Radio Destiny sales represent 1% of our total revenue.

Operating Expenses

Overview

As our technologies and products are developed and maintained
in-house, the majority of our expenditures is on salaries and wages and
associated expenses; office space, supplies and benefits. Some fluctuation is
seen due to the fluctuation in exchange rates during the course of the year. As
our operations are primarily conducted in Canada, the majority of our costs are
incurred in Canadian dollars while the majority of our revenue is in Euros and
US dollars. Thus, the results of operations are impacted to the extent they are
not hedged by the rise and fall of the relative values of Canadian dollar to
these currencies. During the year, the Company was able to expand into Europe
and Australia, and increase revenue in the US, within current spending
levels.

For the year of 2009, our total operating expenses have
decreased by 37% to $2,515,666 from $3,983,821 and have remained steady
throughout the year.

Rent expense of $278,316 is offset by our sub-lease rental
income of $95,788 which is included in Other income in the Statement of
Operations.

|General and administrative     |  | 31-Aug  |  |  | 31-Aug    |  |  | $        |   |  | %      | 
|------------------------------ |  | ------- |  |  | --------- |  |  | -------- | - |  | ------ | 
|                               |  | 2009    |  |  | 2008      |  |  | Change   |   |  | Change | 
|                               |  |         |  |  |           |  |  |          |   |  |        | 
|Wages and benefits             |  | 366,920 |  |  | 408,902   |  |  | (41,982  | ) |  | -10.3% | 
|Rent                           |  | 71,139  |  |  | 59,893    |  |  | 11,246   |   |  | 18.8%  | 
|Telecommunications             |  | 23,468  |  |  | 19,674    |  |  | 3,794    |   |  | 19.3%  | 
|Bad debt                       |  | 16,474  |  |  | 54,094    |  |  | (37,620  | ) |  | -69.5% | 
|Office and
      miscellaneous |  | 77,020  |  |  | 193,662   |  |  | (116,642 | ) |  | -60.2% | 
|Professional fees              |  | 205,024 |  |  | 312,468   |  |  | (107,444 | ) |  | -34.4% | 
|                               |  | 760,045 |  |  | 1,048,693 |  |  | (288,648 | ) |  | -27.5% | 

Our general and administrative expenses consist primarily of
salaries and related personnel costs including overhead, professional fees, and
other general office expenditures.

The decrease in professional fees is due to a reduction of
volume of legal work associated with litigation, and patents and trademark
applications. Office and miscellaneous costs have decreased due to the reduction
in fees associated with corporate awareness and communications.

|Sales and marketing       |  | 31-Aug  |  |  | 31-Aug    |  |  | $        |   |  | %      | 
|------------------------- |  | ------- |  |  | --------- |  |  | -------- | - |  | ------ | 
|                          |  | 2009    |  |  | 2008      |  |  | Change   |   |  | Change | 
|                          |  |         |  |  |           |  |  |          |   |  |        | 
|Wages and benefits        |  | 379,529 |  |  | 639,408   |  |  | (259,879 | ) |  | -40.6% | 
|Rent                      |  | 71,139  |  |  | 89,575    |  |  | (18,436  | ) |  | -20.6% | 
|Telecommunications        |  | 23,468  |  |  | 29,424    |  |  | (5,956   | ) |  | -20.2% | 
|Meals and entertainment   |  | 828     |  |  | 19,590    |  |  | (18,762  | ) |  | -95.8% | 
|Travel                    |  | 49,451  |  |  | 84,805    |  |  | (35,354  | ) |  | -41.7% | 
|Advertising and marketing |  | 297,510 |  |  | 635,220   |  |  | (337,710 | ) |  | -53.2% | 
|                          |  | 821,925 |  |  | 1,498,022 |  |  | (676,038 | ) |  | -45.1% | 

18

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Sales and marketing expenses consist primarily of salaries and
related personnel costs including overhead, sales commissions, advertising and
promotional fees, and travel costs. During the prior year ended August 31, 2008,
we had significantly expanded our marketing and advertising efforts for Play
MPE® in its initial commercial push in the United States and the reduction seen
in fiscal 2009 reflected the reduced requirements for market awareness. During
the year ended August 31, 2009, Play MPE® has received significant support from
the worlds largest record labels and achieved symbiotic relationships with
partners within the music industry resulting in cost effective and organic
marketing efforts and the need for higher cost marketing efforts has decreased.
We expect that the business relationships we have developed will provide
catalysts to global expansion and barriers to entry with potential competitors
should they arise.

|Research and development |  | 31-Aug  |  |  | 31-Aug    |  |  | $        |   |  | %      | 
|------------------------ |  | ------- |  |  | --------- |  |  | -------- | - |  | ------ | 
|                         |  | 2009    |  |  | 2008      |  |  | Change   |   |  | Change | 
|                         |  |         |  |  |           |  |  |          |   |  |        | 
|Wages and benefits       |  | 701,655 |  |  | 1,165,463 |  |  | (463,808 | ) |  | -39.8% | 
|Rent                     |  | 136,038 |  |  | 170,708   |  |  | (34,670  | ) |  | -20.3% | 
|Telecommunications       |  | 44,878  |  |  | 56,074    |  |  | (11,196  | ) |  | -20.0% | 
|Repairs and maintenance  |  | 11,144  |  |  | -         |  |  | 11,144   |   |  | -      | 
|                         |  | 893,715 |  |  | 1,392,245 |  |  | (498,530 | ) |  | -35.8% | 

Research and development costs consist primarily of salaries
and related personnel costs including overhead and consulting fees with respect
to product development and deployment. The decrease is mainly due to decreased
staffing and consulting requirements due to the technical maturity of the Play
MPE® product.

Amortization

Amortization expense arose from fixed assets and other assets.
Amortization decreased to $39,981 for the fiscal year ended August 31, 2009 from
$44,861 for the fiscal year ended August 31, 2008, a decrease of $4,880 or
10.88% .

Other earnings and expenses

Other income decreased to $102,351 for the year ended August
31, 2009 from $111,741 for the year ended August 31, 2008, a decrease of $9,390.

Interest income decreased to $3,107 for the year ended August
31, 2009 from $24,959 for the year ended August 31, 2008, a decrease of $21,852.
Interest expense decreased to $4,692 for the year ended August 31, 2009 from
$24,945 for the year ended August 31, 2008, a decrease of $20,253. Additionally
we realized a gain on settlement of debt of $15,008 for the year ended August
31, 2009(nil - August 31, 2008).

Income

We have realized a net income of $610,831 for the year (2008 
loss of $2,293,178). Included in net income for the year is a future income tax
recovery amount of $450,000 representing tax deductions such as operating losses
that are available to offset future taxable income. The amount recognized is the
tax effected amount (the gross deductions for tax multiplied by the relevant tax
rate) expected to be realized during fiscal 2010.

Income before provision for income taxes is $160,831 for year.
The profit realized during the year is the result steady improvements of the
Companys income and earnings before interest taxes depreciation and
amortization (EBITDA).

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $253,100 as at August 31, 2009 compared to cash
of $91,369 as at August 31, 2008. We had a working capital surplus of $658,673
as at August 31, 2009 compared to a working capital deficiency of $192,772 as at
August 31, 2008.

19

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Cash Flows

Net cash generated in operating activities was $74,257 for the
year ended August 31, 2009, compared to $1,707,169 used for the year ended
August 31, 2008. The increase is mainly due to an increase in total revenue of
approximately $1,000,000 and a reduction of costs associated with our initial
marketing push and associated support for the Play MPE® service.

The cash used in investing activities was $39,997 for the year
ended August 31, 2009, compared to $43,566 for the year ended August 31, 2008.

Net cash provided by financing activities was $117,894 for the
year ended August 31, 2009 compared to $568,048 for the year ended August 31,
2008.

Our cash from operation was able to provide sufficient funds
during the fiscal year end of August 31, 2009. We are encouraged by our revenue
growth in fiscal 2009 as our record label clients incorporate Play MPE® into
their work flow.

MATERIAL OFF-BALANCE SHEET ARRANGEMENTS

None.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the United States, and make
estimates and assumptions that affect our reported amounts of assets,
liabilities, revenue and expenses, and the related disclosures of contingent
liabilities. We base our estimates on historical experience and other
assumptions that we believe are reasonable in the circumstances. Actual results
may differ from these estimates.

The following critical accounting policies affect our more
significant estimates and assumptions used in preparing our 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 we were not to continue as
  a going concern, we would likely not be able to realize on our 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 we will be successful in
  generating additional cash from equity or other sources to be used 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.
- We recognize 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. Our revenue recognition policies are in conformity with AICPAs
  Statement of Position No. 97-2, Software Revenue Recognition, as amended
  (SOP 97-2). We generate 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 we have 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.
  Changes in our business priorities or model in the future could materially
  impact our reported revenue and cash flow. Although such changes are not
  currently contemplated, they could be required in response to industry or
  customer developments.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the Financial Accounting Standards Board
(FASB) issued Software (Topic 985): Certain Revenue Arrangements That Include
Software Elementsa consensus of the FASB Emerging Issues Task Force and
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangementsa
consensus of the FASB Emerging Issues Task

20

---

Force providing guidance on accounting for
multiple-deliverable arrangements to enable vendors to account for products and
services separately rather than as a combined unit. The guidance addresses how
to separate deliverables and how to measure and allocate arrangement
consideration to one or more units of accounting. The new guidance is effective
for revenue arrangements entered into or materially modified in annual periods
beginning on or after June 15, 2010. Early adoption is permitted. The Company is
evaluating the potential impact, if any, of the adoption of the new guidance on
its consolidated financial statements.

In June 2009, FASB issued SFAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles  a replacement of FASB Statement No. 162. The FASB Accounting
Standards Codification (Codification) will become the source of authoritative
U.S. generally accepted accounting principles (GAAP) recognized by FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. On the
effective date of this statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. This statement is effective for financial
statements issued for interim and annual periods ending after September 30,
2009. The adoption of this statement is not expected to have a material effect
on the Companys financial statements.

In May 2009, FASB issued SFAS No. 165, Subsequent Events.
SFAS 165 establishes general standards of for the evaluation, recognition and
disclosure of events and transactions that occur after the balance sheet date.
Although there is new terminology, the standard is based on the same principles
as those that currently exist in the auditing standards. The standard, which
includes a new required disclosure of the date through which an entity has
evaluated subsequent events, is effective for interim or annual periods ending
after June 15, 2009. The adoption of SFAS 165 did not have a material effect on
the Companys consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. It is effective 60 days following the SECs approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The adoption of this statement is not expected to have a material
effect on the Companys consolidated financial statements.

In March 2008, the Financial Accounting Standards Board
(FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an amendment to FASB Statement No. 133. SFAS No. 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008, with early adoption
encouraged. Our company would adopt it at the fiscal year beginning September, 1
2009. The adoption of this statement is not expected to have a material effect
on the Companys consolidated financial statements.

In April 2008, the FASB issued FSP FAS 142-3, Determination of
the Useful Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of FSP
FAS 142-3 is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141(R) and other applicable
accounting literature. FSP FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, which for our
company, would be the fiscal year beginning September 1, 2009. Our company is
currently assessing the impact of FSP FAS 142-3 on its financial position and
results of operations.

In December 2007, the FASB issued SFAS No. 141R, Business
Combinations. This statement replaces SFAS 141 and defines the acquirer in a
business combination as the entity that obtains control of one or more
businesses in a business combination and establishes the acquisition date as the
date that the acquirer achieves control. SFAS 141R requires an

21

---

acquirer to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values as of that date. SFAS 141R also requires the
acquirer to recognize contingent consideration at the acquisition date, measured
at its fair value at that date. This statement is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008, and earlier adoption is prohibited. Our company would adopt it at the
fiscal year beginning September 1, 2009. The adoption of this statement is not
expected to have a material effect on the Company's consolidated financial
statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements Liabilities an Amendment of ARB
No. 51. This statement amends ARB 51 to establish accounting and reporting
standards for the Noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This statement is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008, and earlier adoption is prohibited. The adoption of this statement
does not have a material effect on our consolidated financial statements.

During the first quarter of 2009, the Company adopted Statement
of Financial Accounting Standard No. 157, Fair Value Measurements ("SFAS 157").
SFAS 157 defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. SFAS 157 applies under
other accounting pronouncements that require or permit fair value measurements,
the Financial Accounting Standards Board having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS 157 does not require any new fair value measurements. The
adoption of this standard did not have a material impact on the Companys
consolidated results of operations, cash flows or financial position.

During the first quarter of 2009, the Company adopted Statement
of Financial Accounting Standard No. 159 The Fair Value Option for Financial
Assets and Financial Liabilities  including an amendment of FASB Statement No.
115 (SFAS 159) which permits entities to choose to measure many financial
instruments and certain other items at fair value. The adoption of this standard
did not have a material impact on the Companys consolidated results of
operations, cash flows or financial position.

ITEM
7.             
FINANCIAL STATEMENTS.

Index to Audited Consolidated Financial Statements for the Year
Ended August 31, 2009:

|1. | Report
      of Independent Registered Public Accounting Firm;                                                                  
|-- | --------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                 
|2. | Consolidated
      Balance Sheets as at August 31, 2009 and 2008;                                                               
|   |                                                                                                                                 
|3. | Consolidated
      Statement of Operations for the Years Ended August 31, 2009 and 2008;                                        
|   |                                                                                                                                 
|4. | Consolidated
      Statement of Changes in Stockholders' Equity (Deficiency) for the Years
      Ended August 31, 2009 and 2008;
|   |                                                                                                                                 
|5. | Consolidated
      Statement of Cash Flows for the Years Ended August 31, 2009 and 2008;                                        
|   |                                                                                                                                 
|6. | Notes
      to Consolidated Financial Statements.                                                                               

22

---







Consolidated Financial Statements

Destiny Media Technologies Inc.August 31, 2009 and 2008 
    (Expressed in
    United States dollars)







F-1

---



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of 
  Destiny Media
  Technologies Inc.

We have audited the accompanying consolidated balance sheet of
  Destiny Media Technologies Inc. as of August 31, 2009 and the related
  consolidated statement of operations, cash flows and stockholders equity for
  the year ended August 31, 2009. These consolidated financial statements are the
  responsibility of the Companys management. Our responsibility is to express an
  opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards
  require that we plan and perform the audits to obtain reasonable assurance about
  whether the financial statements are free of material misstatement. An audit
  includes examining, on a test basis, evidence supporting the amounts and
  disclosures in the financial statements. The Company is not required to have,
  nor were we engaged to perform, an audit of its internal control over financial
  reporting. An audit includes consideration of internal control over financial
  reporting as a basis for designing audit procedures that are appropriate in the
  circumstances, but not for the purpose of expressing an opinion on the
  effectiveness of internal control over financial reporting. Accordingly, we
  express no such opinion. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as
  evaluating the overall financial statement presentation.

In our opinion, the consolidated financial statements referred
  to above, present fairly, in all material respects, the consolidated financial
  position of Destiny Media Technologies Inc., as of August 31, 2009 and the
  results of its operations and its cash flows for the year ended August 31, 2009
  in conformity with accounting principles generally accepted in the United
  States.

CHARTERED ACCOUNTANTS

Vancouver, Canada

November 27, 2009

F-2

---

Destiny Media Technologies Inc.

CONSOLIDATED BALANCE SHEETS

|As at August 31 | (Expressed in United States dollars)
|--------------- | ------------------------------------

|                                                                   |  | 2009       |   |  | 2008       |  
|------------------------------------------------------------------ |  | ---------- | - |  | ---------- | -
|                                                                   |  | $          |   |  | $          |  
|                                                                   |  |            |   |  |            |  
|ASSETS                                                             |  |            |   |  |            |  
|Current                                                            |  |            |   |  |            |  
|Cash                                                               |  | 253,100    |   |  | 91,369     |  
|Accounts receivable, net of allowance for                          |  |            |   |  |            |  
|doubtful accounts of $2,289
      [2008  $56,365]                 |  | 502,275    |   |  | 323,940    |  
|Other receivables                                                  |  | 15,120     |   |  | 12,794     |  
|Prepaid expenses                                                   |  | 59,201     |   |  | 73,171     |  
|Deferred tax
      assets                                          |  | 450,000    |   |  |           |  
|Total current assets                                               |  | 1,279,696  |   |  | 501,274    |  
|Deposits                                                           |  | 9,158      |   |  | 48,863     |  
|Property and equipment, net [note 3]                               |  | 123,770    |   |  | 111,300    |  
|Deferred
      commission costs                                    |  | 13,320     |   |  |           |  
|Total assets                                                       |  | 1,425,944  |   |  | 661,437    |  
|                                                                   |  |            |   |  |            |  
|LIABILITIES AD STOCKHOLDERS EQUITY                                |  |            |   |  |            |  
|Current                                                            |  |            |   |  |            |  
|Accounts payable                                                   |  | 349,164    |   |  | 382,606    |  
|Accrued liabilities                                                |  | 176,624    |   |  | 245,977    |  
|Shareholder loan payable [note 4]                                  |  | 68,681     |   |  | 44,152     |  
|Deferred revenue                                                   |  | 17,198     |   |  | 21,311     |  
|Obligation under capital leases  current portion [note
      8]   |  | 9,356      |   |  |           |  
|Total current liabilities                                          |  | 621,023    |   |  | 694,046    |  
|Obligation for share settlement [note 5]                           |  |           |   |  | 100,000    |  
|Obligation under
      capital leases  long term portion [note 8] |  | 13,987     |   |  |           |  
|Total liabilities                                                  |  | 635,010    |   |  | 794,046    |  
|                                                                   |  |            |   |  |            |  
|Commitments and contingencies [notes 8 and
      10]               |  |            |   |  |            |  
|                                                                   |  |            |   |  |            |  
|Stockholders equity                                               |  |            |   |  |            |  
|Common shares, par value $0.001                                    |  |            |   |  |            |  
|Authorized: 100,000,000 shares                                     |  |            |   |  |            |  
|Issued and outstanding: 51,723,647 shares                          |  |            |   |  |            |  
|[August 31, 2008 - 51,090,314 shares]                              |  | 51,725     |   |  | 51,092     |  
|Issued and held for settlement: Nil shares                         |  |            |   |  |            |  
|[August
      31, 2008 - 133,333 shares]                           |  |            |   |  |            |  
|Additional paid-in capital                                         |  | 9,492,168  |   |  | 9,208,131  |  
|Deficit                                                            |  | (8,900,614 | ) |  | (9,511,445 | )
|Accumulated other
      comprehensive income                       |  | 147,655    |   |  | 119,613    |  
|Total stockholders equity (deficiency)                            |  | 790,934    |   |  | (132,609   | )
|Total
      liabilities and stockholders equity                   |  | 1,425,944  |   |  | 661,437    |  

See accompanying notes

F-3

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

|Years ended August 31 | (Expressed in United States dollars)
|--------------------- | ------------------------------------

|                                                            |  | 2009       |   |  | 2008       |  
|----------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                            |  | $          |   |  | $          |  
|                                                            |  |            |   |  |            |  
|Revenue [note 11]                                           |  | 2,560,447  |   |  | 1,578,888  |  
|                                                            |  |            |   |  |            |  
|Operating expenses                                          |  |            |   |  |            |  
|General and administrative                                  |  | 760,045    |   |  | 1,048,693  |  
|Sales and marketing                                         |  | 821,925    |   |  | 1,498,022  |  
|Research and development                                    |  | 893,715    |   |  | 1,392,245  |  
|Amortization                                                |  | 39,981     |   |  | 44,861     |  
|                                                            |  | 2,515,666  |   |  | 3,983,821  |  
|Income (loss) from
      operations                         |  | 44,781     |   |  | (2,404,933 | )
|Other income (expenses)                                     |  |            |   |  |            |  
|Other income                                                |  | 102,351    |   |  | 111,741    |  
|Gain on settlement of debt                                  |  | 15,284     |   |  |           |  
|Interest income                                             |  | 3,107      |   |  | 24,959     |  
|Interest and other expense                                  |  | (4,692     | ) |  | (24,945    | )
|Income (loss) before
      provision for income taxes       |  | 160,831    |   |  | (2,293,178 | )
|Recovery (provision) for income taxes                       |  | 450,000    |   |  |           |  
|                                                            |  |            |   |  |            |  
|Net income (loss)                                           |  | 610,831    |   |  | (2,293,178 | )
|                                                            |  |            |   |  |            |  
|                                                            |  |            |   |  |            |  
|                                                            |  |            |   |  |            |  
|Net income (loss) per common share, basic and
      diluted |  | 0.01       |   |  | (0.05      | )
|                                                            |  |            |   |  |            |  
|Weighted average common shares
      outstanding:           |  |            |   |  |            |  
|Basic                                                       |  | 51,515,428 |   |  | 50,136,873 |  
|Diluted                                                     |  | 51,585,134 |   |  | 50,136,873 |  

See accompanying notes

F-4

---

Destiny MediaTechnologiesInc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
  EQUITY

|Years ended August 31 | (Expressed in United States dollars)
|--------------------- | ------------------------------------

|                                          |  |                     |  |  |         |  |  |            |  |  |               |   |  | Accumulated |  |  | Total         |  
|----------------------------------------- |  | ------------------- |  |  | ------- |  |  | ---------- |  |  | ------------- | - |  | ----------- |  |  | ------------- | -
|                                          |  |                     |  |  |         |  |  | Additional |  |  |               |   |  | other       |  |  | shareholders |  
|                                          |  | Common
      shares |  |  | paid-in |  |  |            |  |  | comprehensive |   |  | equity      | 
|                                          |  | Shares              |  |  | Amount  |  |  | capital    |  |  | Deficit       |   |  | income      |  |  |               |  
|                                          |  | #                   |  |  | $       |  |  | $          |  |  | $             |   |  | $           |  |  | $             |  
|Balance, August 31, 2007                  |  | 49,936,001          |  |  | 49,938  |  |  | 8,484,231  |  |  | (7,218,267    | ) |  | 35,727      |  |  | 1,351,629     |  
|Net income (loss) for the year            |  |                     |  |  |         |  |  |            |  |  | (2,293,178    | ) |  |             |  |  | (2,293,178    | )
|Foreign currency translation gain         |  |                     |  |  |         |  |  |            |  |  |               |   |  | 83,886      |  |  | 83,886        |  
|Comprehensive gain (loss)                 |  |                     |  |  |         |  |  |            |  |  |               |   |  |             |  |  | (2,209,292    | )
|Common shares issued on options exercised |  | 672,041             |  |  | 672     |  |  | 259,740    |  |  |               |   |  |             |  |  | 260,412       |  
|Common shares issued for share settlement |  | 482,272             |  |  | 482     |  |  | 263,002    |  |  |               |   |  |             |  |  | 263,484       |  
|Stock based compensation                  |  |                     |  |  |         |  |  | 201,158    |  |  |               |   |  |             |  |  | 201,158       |  
|Balance, August
      31, 2008            |  | 51,090,314          |  |  | 51,092  |  |  | 9,208,131  |  |  | (9,511,445    | ) |  | 119,613     |  |  | (132,609      | )
|Net income for the year                   |  |                     |  |  |         |  |  |            |  |  | 610,831       |   |  |             |  |  | 610,831       |  
|Foreign currency translation gain         |  |                     |  |  |         |  |  |            |  |  |               |   |  | 28,042      |  |  | 28,042        |  
|Comprehensive gain                        |  |                     |  |  |         |  |  |            |  |  |               |   |  |             |  |  | 638,873       |  
|Common shares issued on options exercised |  | 500,000             |  |  | 500     |  |  | 99,500     |  |  |               |   |  |             |  |  | 100,000       |  
|Common shares issued for share settlement |  | 133,333             |  |  | 133     |  |  | 99,867     |  |  |               |   |  |             |  |  | 100,000       |  
|Stock based compensation                  |  |                     |  |  |         |  |  | 84,670     |  |  |               |   |  |             |  |  | 84,670        |  
|Balance, August 31, 2009                  |  | 51,723,647          |  |  | 51,725  |  |  | 9,492,168  |  |  | (8,900,614    | ) |  | 147,655     |  |  | 790,934       |  

See accompanying notes

F-5

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|Years ended August 31 | (Expressed in United States dollars)
|--------------------- | ------------------------------------

|                                                          |  | 2009     |   |  | 2008       |  
|--------------------------------------------------------- |  | -------- | - |  | ---------- | -
|                                                          |  | $        |   |  | $          |  
|                                                          |  |          |   |  |            |  
|OPERATING ACTIVITIES                                      |  |          |   |  |            |  
|Net income (loss)                                         |  | 610,831  |   |  | (2,293,178 | )
|Items not involving cash:                                 |  |          |   |  |            |  
|Amortization                                              |  | 39,981   |   |  | 44,861     |  
|Gain on settlement of debt                                |  | (15,284  | ) |  |           |  
|Stock-based compensation                                  |  | 84,670   |   |  | 201,158    |  
|Loss on disposal of capital
      assets                  |  | 2,228    |   |  |           |  
|Deferred income taxes                                     |  | (450,000 | ) |  |           |  
|Changes in non-cash working capital:                      |  |          |   |  |            |  
|Accounts receivable                                       |  | (172,814 | ) |  | (97,306    | )
|Other receivables                                         |  | (2,529   | ) |  | 27,621     |  
|Prepaid expenses                                          |  | 46,910   |   |  | 75,520     |  
|Accounts payable                                          |  | (4,795   | ) |  | 279,095    |  
|Accrued liabilities                                       |  | (61,626  | ) |  | 43,048     |  
|Deferred revenue                                          |  | (3,315   | ) |  | 12,012     |  
|Net cash
      provided (used) in operating activities    |  | 74,257   |   |  | (1,707,169 | )
|                                                          |  |          |   |  |            |  
|INVESTING ACTIVITIES                                      |  |          |   |  |            |  
|Deferred commission costs                                 |  | (12,348  | ) |  |           |  
|Proceeds on disposal of capital assets                    |  |         |   |  | 1,053      |  
|Purchase of equipment                                     |  | (27,649  | ) |  | (44,619    | )
|Net cash used
      in investing activities               |  | (39,997  | ) |  | (43,566    | )
|                                                          |  |          |   |  |            |  
|FINANCING ACTIVITIES                                      |  |          |   |  |            |  
|Repayments on capital lease obligations                   |  | (5,877   | ) |  |           |  
|Proceeds of shareholder loans                             |  | 201,456  |   |  |           |  
|Repayments of shareholder loans                           |  | (177,685 | ) |  | (44,152    | )
|Proceeds from exercise of stock options                   |  | 100,000  |   |  | 260,412    |  
|Proceeds from issuance of common stock                    |  |         |   |  | 263,484    |  
|Net cash
      provided by financing activities           |  | 117,894  |   |  | 568,048    |  
|                                                          |  |          |   |  |            |  
|Effect of foreign exchange rate changes on cash           |  | 9,577    |   |  | 58,873     |  
|                                                          |  |          |   |  |            |  
|Net increase (decrease) in cash during the year           |  | 161,731  |   |  | (1,123,814 | )
|Cash, beginning of year                                   |  | 91,369   |   |  | 1,215,183  |  
|Cash, end of
      year                                   |  | 253,100  |   |  | 91,369     |  
|                                                          |  |          |   |  |            |  
|Supplementary disclosure                                  |  |          |   |  |            |  
|Interest paid                                             |  | 4,692    |   |  | 8,717      |  
|Income taxes paid                                         |  |         |   |  |           |  
|Non-cash investing activity                               |  |          |   |  |            |  
|Property and
      equipment acquired under capital lease |  | 27,517   |   |  |           |  

See accompanying notes

F-6

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

1. ORGANIZATION

Destiny Media Technologies Inc. (the Company) was
  incorporated in August 1998 under the laws of the State of Colorado. The Company
  develops technologies that allow for the distribution over the Internet of
  digital media files in either a streaming or digital download format. The
  technologies are proprietary. The Company operates out of Vancouver, BC, Canada
  and serves customers predominantly located in the United States and Canada.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the significant accounting
  policies used in the preparation of these consolidated financial statements:

Basis of presentation and fiscal year

These consolidated financial statements and related notes are
  presented in accordance with accounting principles generally accepted in the
  United States, and are expressed in US dollars. The Companys fiscal year-end is
  August 31.

Principles of consolidation

The accompanying consolidated financial statements include the
  accounts of the Company, and its wholly owned subsidiaries, Destiny Software
  Productions Inc. and MPE Distribution Inc. All inter-company balances and
  transactions have been eliminated on consolidation.

Use of estimates

The preparation of financial statements in accordance with
  United States generally accepted accounting principles requires management to
  make estimates and assumptions that affect the reported amounts of assets and
  liabilities at the dates of the financial statements and the reported amounts of
  net revenue and expenses in the reporting periods. We regularly evaluate
  estimates and assumptions related to revenue recognition, rebates, allowances
  for doubtful accounts, sales returns and allowances, stock-based compensation
  expense, deferred income tax asset valuation allowances, uncertain tax
  positions, litigation and other loss contingencies. These estimates and
  assumptions are based on current facts, historical experience and various other
  factors that we believe to be reasonable under the circumstances, the results of
  which form the basis for making judgments about the carrying values of assets
  and liabilities and the recording of revenue, costs and expenses that are not
  readily apparent from other sources. The actual results we experience

F-7

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

may differ materially and adversely from our original
  estimates. To the extent there are material differences between the estimates
  and actual results, our future results of operations will be affected.

Cash and cash equivalents

We consider all highly liquid investments that are readily
  convertible into cash and have an original maturity of three months or less at
  the time of purchase to be cash equivalents.

Revenue recognition

The Company recognizes revenue when there is persuasive
  evidence of an arrangement, delivery has occurred, the fee is fixed or
  determinable, collectability is reasonably assured, and there are no significant
  remaining performance obligations. The Companys revenue recognition policies
  are in conformity with the AICPAs Statement of Position No. 97-2, Software
    Revenue Recognition, as amended (SOP 97-2).

SOP 97-2 generally requires revenue from software arrangements
  involving multiple elements to be allocated to each element of the arrangement
  based on the relative fair values of the elements, such as software products,
  post-contract customer support, installation or training, and to be recognized
  as the element is delivered and the Company has no significant remaining
  performance obligations. The determination of fair value is based on objective
  evidence that is specific to the vendor. If evidence of fair value for each
  element of the arrangement does not exist, and the only outstanding deliverable
  is post-customer support, all revenue from the arrangement is recognized ratably
  over the term of the arrangement.

The majority of the Companys revenue is generated from digital
  media distribution service. Revenue is recognized when there is persuasive
  evidence of an arrangement and delivery to the customer has occurred, and
  provided the arrangement does not require significant customization of the
  software, the fee is fixed and determinable, and collectability is considered
  probable.

Service revenue from maintenance contracts is recognized
  ratably over the term of the maintenance contract, on a straight-line basis.
  Other service revenue is recognized at the time the service is performed.

The Company recognizes product revenue upon transfer of title
  as all other revenue recognition criteria are satisfied. When significant
  post-delivery obligations exist, revenue is deferred until such obligations are
  fulfilled. Cash received in advance of meeting the revenue recognition criteria

F-8

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

is recorded as deferred revenue. Royalty revenue from third
  party sales is recognized when there is persuasive evidence that the arrangement
  is complete, and only when all deliverables have been performed.

Long-lived assets

We account for long-lived assets, including other purchased
  intangible assets, in accordance with SFAS No. 144, Accounting for the
    Impairment or Disposal of Long-Lived Assets,or SFAS 144, which requires
  impairment losses to be recorded on long-lived assets used in operations when
  indicators of impairment, such as reductions in demand or significant economic
  slowdowns in the semiconductor industry, are present. Reviews are performed to
  determine whether the carrying value of an asset is impaired, based on
  comparisons to undiscounted expected future cash flows. If this comparison
  indicates that there is impairment, the impaired asset is written down to fair
  value, which is typically calculated using: (i) quoted market prices or (ii)
  discounted expected future cash flows utilizing a discount rate consistent with
  the guidance provided in FASB Concepts Statement No. 7, Using Cash Flow
    Information and Present Value in Accounting Measurements. Impairment is
  based on the excess of the carrying amount over the fair value of those
  assets.

Litigation and settlement costs

We are involved in disputes, litigation and other legal
  actions. In accordance with SFAS No. 5, Accounting for Contingencies, or SFAS 5,
  we record a charge equal to at least the minimum estimated liability for a loss
  contingency when both of the following conditions are met: (i) information
  available prior to issuance of the financial statements indicates that it is
  probable that an asset had been impaired or a liability had been incurred at the
  date of the financial statements and (ii) the range of loss can be reasonably
  estimated.

Allowance for doubtful accounts

The Company establishes an allowance for doubtful accounts
  through review of open accounts, and historical collection and allowance
  amounts. The allowance for doubtful accounts is intended to reduce trade
  accounts receivable to the amount that reasonably approximates their fair value
  due to their short-term nature. The Companys exposure to credit risk has
  increased as a result of global market conditions and increased revenue. The
  amount ultimately realized from trade accounts receivable may differ from the
  amount estimated in the consolidated financial statements based on collection
  experience.

F-9

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

Research and development costs

Research costs are expensed as incurred. Software and related
  development costs incurred are charged to expense until the technological
  feasibility of the product has been established. After technological feasibility
  is established and until the product is available for general release, software
  development, product enhancements and acquisition costs are capitalized and
  amortized on a product-by-product basis over the estimated economic life of the
  product, not to exceed three years. The software development costs that are
  capitalized are assessed for impairment on a periodic basis. The Company has not
  capitalized any product development costs during the year.

Property and equipment

Property and equipment are stated at cost. Amortization is
  taken over the estimated useful lives of the assets and is calculated using the
  declining balance method at the following annual rates, commencing upon
  utilization of the assets:

| | Furniture and fixtures | 20%                          
| | ---------------------- | -----------------------------
| | Computer hardware      | 30%                          
| | Computer software      | 100%                         
| | Leasehold improvements | Straight-line over lease term

Translation of foreign currencies

The Companys functional currency is the U.S. dollar. Financial
  statements of foreign operations for which the functional currency is the local
  currency are translated into U.S. dollars with assets and liabilities translated
  at the rate of exchange in effect at the balance sheet date and revenue and
  expense items translated at the average rates for the period. Unrealized gains
  and losses resulting from the translation of the consolidated financial
  statements are deferred and accumulated in a separate component of shareholders
  equity (deficiency) as a foreign currency translation gain(loss) in accumulated
  other comprehensive income.

Transactions denominated in foreign currencies are translated
  at the exchange rate in effect on the transaction date. We recorded losses on
  foreign currency translation of $14,929 for the year ended August 31, 2009
  compared to gains of $3,159 for the year ended August 31, 2008. Foreign currency
  gains and losses are included as a component of general and administrative
  expenses in the consolidated statements of operations.

F-10

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

The Company operates internationally, which gives rise to the
  risk that cash flows may be adversely impacted by exchange rate fluctuations.
  The Company has not entered into contracts for foreign exchange hedges.

Advertising

Advertising costs are expensed as incurred and totaled $118,147
  and $365,384 during the years ended August 31, 2009 and 2008, respectively.

Income taxes

The Company follows the liability method of accounting for
  income taxes. Under this method, the deferred tax assets and liabilities are
  determined based on the difference between the financial reporting and tax bases
  of assets and liabilities using substantively enacted tax rates that will be in
  effect for the year in which the differences are expected to reverse. Beginning
  on September 1, 2007, the Company also adopted the provisions of Financial
  Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
  Income Taxes recognized in an enterprises financial statements in accordance
  with Financial Accounting Standards Board Statement 109, Accounting for Income
  Taxes(FIN 48). FIN 48 prescribes a recognition threshold and measurement
  process for financial statement recognition and measurement of a tax position
  taken or expected to be taken in a tax return. FIN 48 also provides guidance on
  derecognition, classification, interest and penalties, accounting in interim
  periods, disclosure and transition. The Company and its subsidiaries are subject
  to U.S. federal income tax, Canadian income tax, as well as income tax of
  multiple state and local jurisdictions. Based on the Companys evaluation, the
  Company has concluded that there are no significant uncertain tax positions
  requiring recognition in the Companys financial statements. The Companys
  evaluation was performed for the tax years ended August 31, 1999 through August
  31, 2009, the tax years which remain subject to examination by major tax
  jurisdictions. The Company may from time to time be assessed interest or
  penalties by major tax jurisdictions, although any such assessments historically
  have been minimal and immaterial to the Companys financial results. In the
  event the Company has received an assessment for interest and/or penalties, it
  has been classified in the financial statements as selling, general and
  administrative expense.

F-11

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

Capital stock or equivalent issued for consideration other
  than cash

Capital stock or equivalent issued for consideration other than
  cash is recorded at an estimate of the fair value of the stock or equivalent
  issued or issuable or at an estimate of the fair value of the goods or services
  received, whichever is more readily ascertainable.

Stock based compensation

The Company accounts for stock-based compensation arrangements
  in accordance with Statement of Financial Accounting Standards No. 123(R)
  Share-Based Payments (FAS 123(R)). Under the fair value recognition
  provisions of FAS 123(R), stock based compensation cost is estimated at the
  grant date based on the fair value of the awards expected to vest and recognized
  as expense ratably over the requisite service period of the award. The Company
  has used the Black-Scholes option pricing model to estimate fair value of its
  stock-based awards which requires various judgmental assumptions including
  estimating stock price volatility and expected life. The Companys computation
  of expected volatility is based on a combination of historical and market-based
  implied volatility. In addition, the Company considers many factors when
  estimating expected life, including types of awards and historical experience.
  If any of the assumptions used in the Black-Scholes valuation model change
  significantly, stock-based compensation expense may differ materially in the
  future from that recorded in the current period.

Loss per share

Net income (loss) per share (basic) is calculated by dividing
  net income (loss) by the weighted average number of common shares outstanding
  during the period. Net income (loss) per share (diluted) is calculated by
  dividing net income for the period by the weighted average number of common
  shares outstanding during the period, plus the dilutive effect of outstanding
  common share equivalents. This method requires that the dilutive effect of
  outstanding options and warrants issued be calculated using the treasury stock
  method. Under the treasury stock method, all common share equivalents have been
  exercised at the beginning of the period (or at the time of issuance, if later),
  and that the funds obtained thereby were used to purchase common shares of the
  Company at the average trading price of common shares during the period, but
  only if dilutive.

F-12

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

|                                           |  | Year
      Ended | 
|------------------------------------------ |  | ---------------- | 
|                                           |  | August 31,       | 
|                                           |  | 2009             | 
|                                           |  | $                | 
|Net income (loss)                          |  | 610,831          | 
|Weighted average common shares outstanding |  | 51,515,428       | 
|Effect of dilutive securities  warrants   |  | 69,706           | 
|Diluted weighted average                   |  |                  | 
|common
      shares outstanding            |  | 51,585,134       | 
|Earnings per share:                        |  |                  | 
|Basic                                      |  | 0.01             | 
|Dilutive                                   |  | 0.01             | 

Potentially dilutive securities of 3,939,000 and 6,902,136
  shares arising from stock options and share purchase warrants, respectively,
  were not included as their effect would be anti-dilutive for the year ended
  August 31, 2009 (2008  4,339,000 and 7,852,136 shares arising from stock
  options and share purchase warrants, respectively).

Comprehensive income

Comprehensive income includes all changes in equity except
  those resulting from investments by owners and distributions to owners.
  Accumulated other comprehensive income consists only of accumulated foreign
  currency translation adjustments for all years presented.

Recent accounting pronouncements

In October 2009, the Financial Accounting Standards Board
  (FASB) issued Software (Topic 985): Certain Revenue Arrangements That Include
  Software Elementsa consensus of the FASB Emerging Issues Task Force and
  Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangementsa
  consensus of the FASB Emerging Issues Task Force providing guidance on
  accounting for multiple-deliverable arrangements to enable vendors to account
  for products and services separately rather than as a combined unit. The
  guidance addresses how to separate deliverables and how to measure and allocate
  arrangement consideration to one or more units of accounting. The new guidance
  is effective for revenue arrangements entered into or

F-13

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

materially modified in annual periods beginning on or after
  June 15, 2010. Early adoption is permitted. The Company is evaluating the
  potential impact, if any, of the adoption of the new guidance on its
  consolidated financial statements.

In June 2009, FASB issued SFAS No. 168, The FASB Accounting
  Standards Codification and the Hierarchy of Generally Accepted Accounting
  Principles  a replacement of FASB Statement No. 162. The FASB Accounting
  Standards Codification (Codification) will become the source of authoritative
  U.S. generally accepted accounting principles (GAAP) recognized by FASB to be
  applied by nongovernmental entities. Rules and interpretive releases of the
  Securities and Exchange Commission SEC under authority of federal securities
  laws are also sources of authoritative GAAP for SEC registrants. On the
  effective date of this statement, the Codification will supersede all
  then-existing non-SEC accounting and reporting standards. All other
  non-grandfathered non-SEC accounting literature not included in the Codification
  will become non-authoritative. This statement is effective for financial
  statements issued for interim and annual periods ending after September 30,
  2009. The adoption of this statement is not expected to have a material effect
  on the Companys financial statements.

In May 2009, FASB issued SFAS No. 165, Subsequent Events.
  SFAS 165 establishes general standards of for the evaluation, recognition and
  disclosure of events and transactions that occur after the balance sheet date.
  Although there is new terminology, the standard is based on the same principles
  as those that currently exist in the auditing standards. The standard, which
  includes a new required disclosure of the date through which an entity has
  evaluated subsequent events, is effective for interim or annual periods ending
  after June 15, 2009. The adoption of SFAS 165 did not have a material effect on
  the Companys consolidated financial statements.

In May 2008, FASB issued SFAS No. 162, The Hierarchy of
  Generally Accepted Accounting Principles. SFAS 162 identifies the sources of
  accounting principles and the framework for selecting the principles to be used
  in the preparation of financial statements of nongovernmental entities that are
  presented in conformity with generally accepted accounting principles in the
  United States. It is effective 60 days following the SECs approval of the
  Public Company Accounting Oversight Board amendments to AU Section 411, The
  Meaning of Present Fairly in Conformity With Generally Accepted Accounting
  Principles. The adoption of this statement is not expected to have a material
  effect on the Companys consolidated financial statements.

In March 2008, FASB issued SFAS No. 161, Disclosures about
  Derivative Instruments and Hedging Activities  an amendment to FASB Statement
  No. 133. SFAS No. 161 is intended to improve financial standards for derivative
  instruments and hedging activities by requiring enhanced disclosures to enable
  investors to better understand their effects on an entity's financial

F-14

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

position, financial performance, and cash flows. Entities are
  required to provide enhanced disclosures about: (a) how and why an entity uses
  derivative instruments; (b) how derivative instruments and related hedged items
  are accounted for under Statement 133 and its related interpretations; and (c)
  how derivative instruments and related hedged items affect an entitys financial
  position, financial performance, and cash flows. It is effective for financial
  statements issued for fiscal years beginning after November 15, 2008, with early
  adoption encouraged. Our company would adopt it at the fiscal year beginning
  September, 1 2009. The adoption of this statement is not expected to have a
  material effect on the Companys consolidated financial statements.

In April 2008, the FASB issued FSP FAS 142-3, Determination of
  the Useful Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the
  factors that should be considered in developing renewal or extension assumptions
  used to determine the useful life of a recognized intangible asset under SFAS
  No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of FSP
  FAS 142-3 is to improve the consistency between the useful life of a recognized
  intangible asset under SFAS 142 and the period of expected cash flows used to
  measure the fair value of the asset under SFAS 141(R) and other applicable
  accounting literature. FSP FAS 142-3 is effective for financial statements
  issued for fiscal years beginning after December 15, 2008, which for our
  company, would be the fiscal year beginning September 1, 2009. Our company is
  currently assessing the impact of FSP FAS 142-3 on its financial position and
  results of operations.

In December 2007, the FASB issued SFAS No. 141R, Business
  Combinations. This statement replaces SFAS 141 and defines the acquirer in a
  business combination as the entity that obtains control of one or more
  businesses in a business combination and establishes the acquisition date as the
  date that the acquirer achieves control. SFAS 141R requires an acquirer to
  recognize the assets acquired, the liabilities assumed, and any noncontrolling
  interest in the acquiree at the acquisition date, measured at their fair values
  as of that date. SFAS 141R also requires the acquirer to recognize contingent
  consideration at the acquisition date, measured at its fair value at that date.

This statement is effective for fiscal years, and interim
  periods within those fiscal years, beginning on or after December 15, 2008, and
  earlier adoption is prohibited. Our company would adopt it at the fiscal year
  beginning September 1, 2009. The adoption of this statement is not expected to
  have a material effect on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling
  Interests in Consolidated Financial Statements Liabilities an Amendment of ARB
  No. 51. This statement amends ARB 51 to establish accounting and reporting
  standards for the Noncontrolling interest in a subsidiary and

F-15

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont d.)

for the deconsolidation of a subsidiary. This statement is
  effective for fiscal years, and interim periods within those fiscal years,
  beginning on or after December 15, 2008, and earlier adoption is prohibited. The
  adoption of this statement does not have a material effect on our consolidated
  financial statements.

During the first quarter of 2009, the Company adopted Statement
  of Financial Accounting Standard No. 157, Fair Value Measurements ("SFAS 157").
  SFAS 157 defines fair value, establishes a framework for measuring fair value
  and expands disclosures about fair value measurements. SFAS 157 applies under
  other accounting pronouncements that require or permit fair value measurements,
  the Financial Accounting Standards Board having previously concluded in those
  accounting pronouncements that fair value is the relevant measurement attribute.
  Accordingly, SFAS 157 does not require any new fair value measurements. The
  adoption of this standard did not have a material impact on the Companys
  consolidated results of operations, cash flows or financial position.

During the first quarter of 2009, the Company adopted Statement
  of Financial Accounting Standard No. 159 The Fair Value Option for Financial
  Assets and Financial Liabilities  including an amendment of FASB Statement No.
  115 (SFAS 159) which permits entities to choose to measure many financial
  instruments and certain other items at fair value. The adoption of this standard
  did not have a material impact on the Companys consolidated results of
  operations, cash flows or financial position.

F-16

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

3. PROPERTY AND EQUIPMENT

|                             |  |         |  |  | Accumulated  |  |  | Net book | 
|---------------------------- |  | ------- |  |  | ------------ |  |  | -------- | 
|                             |  | Cost    |  |  | amortization |  |  | value    | 
|                             |  | $       |  |  | $            |  |  | $        | 
|                             |  |         |  |  |              |  |  |          | 
|2009                         |  |         |  |  |              |  |  |          | 
|Furniture and fixtures       |  | 117,769 |  |  | 77,891       |  |  | 39,878   | 
|Computer hardware            |  | 294,246 |  |  | 223,017      |  |  | 71,229   | 
|Computer software            |  | 46,642  |  |  | 35,408       |  |  | 11,234   | 
|Leasehold improvements       |  | 4,286   |  |  | 2,857        |  |  | 1,429    | 
|                             |  | 462,943 |  |  | 339,173      |  |  | 123,770  | 
|                             |  |         |  |  |              |  |  |          | 
|2008                         |  |         |  |  |              |  |  |          | 
|Furniture and fixtures       |  | 102,385 |  |  | 70,765       |  |  | 31,620   | 
|Computer hardware            |  | 277,725 |  |  | 206,029      |  |  | 71,696   | 
|Computer software            |  | 32,390  |  |  | 27,337       |  |  | 5,053    | 
|Leasehold
      improvements |  | 4,397   |  |  | 1,466        |  |  | 2,931    | 
|                             |  | 416,897 |  |  | 305,597      |  |  | 111,300  | 

The gross amount of assets related to property and equipment
  under capital lease was $29,683 and $nil for years ended August 31, 2009 and
  2008, respectively. The accumulated amortization related to property and
  equipment under capital lease was $5,011 and $nil for the years ended August 31,
  2009 and 2008, respectively.

4. SHAREHOLDER LOAN PAYABLE

|                                                  |  | 2009   |  |  | 2008   | 
|------------------------------------------------- |  | ------ |  |  | ------ | 
|                                                  |  | **$**  |  |  | **$**  | 
|                                                  |  |        |  |  |        | 
|Shareholder loan payable, unsecured,              |  |        |  |  |        | 
|due on demand, interest bearing at 5.5%           |  | -      |  |  | 44,152 | 
|Shareholder loan payable, unsecured,              |  |        |  |  |        | 
|due
      on May 29, 2010, interest bearing at 7% |  | 68,681 |  |  | -      | 
|                                                  |  | 68,681 |  |  | 44,152 | 

The Company has received a loan in the amount of $68,681
  (CDN$75,000) from its Chief Financial Officer, Fred Vandenberg, who is a
  shareholder. The loan is bearing interest at 7% and due on May 29, 2010.

F-17

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

5. OBLIGATION FOR SHARE SETTLEMENT

During the year ended August 31, 2003, the Company issued
  133,333 common shares to be delivered in settlement for proceeds of $100,000
  received in respect of a private placement that was not completed in August
  2000. The private placement was completed through the release of the shares as
  of the year ended August 31, 2009.

6. SHARE CAPITAL

[a] Authorized

The Company is authorized to issue up to 100,000,000 shares of
  common shares, par value $0.001 per share.

[b] Common shares issued

2009

During the year ended August 31, 2009, 500,000 stock options
  were exercised for cash proceeds of $100,000. A total of 133,333 previously
  issued common shares were released from treasury to settle an incomplete private
  placement between the Company and parties involved in the August 2000 private
  placement.

2008

During the year ended August 31, 2008, the Company issued
  482,272 units for net cash proceeds of $263,464. As part of the issuance, the
  Company issued 235,250 warrants at $0.60 expiring November 30, 2009 and 5,886
  warrants at $0.50 expiring January 31, 2010. Also, 672,041 stock options were
  exercised during the year ended August 31, 2008 for cash proceeds of $260,412.

F-18

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Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

6. SHARE CAPITAL (contd.)

[c] Stock options

We have two existing stock option plans (the Plans), namely
  our Amended 1999 Stock Option Plan and our 2006 Stock Option Plan, under which
  up to 3,750,000 and 5,100,000 shares of our common stock, respectively, have
  been reserved for issuance. Of which, 640,375 common shares and 175,959 common
  shares, respectively, remain available for future option issuance. The options
  generally vest over a range of periods from the date of grant, some are
  immediate, and others are 12 or 24 months. Any options that do not vest as the
  result of a grantee leaving the Company are forfeited and the common shares
  underlying them are returned to the reserve. The options generally have a
  contractual term of five years.

Stock-Based Payment Award Activity

A summary of option activity under the Plans as of August 31,
  2009 and 2008, and changes during the years ended are presented below:

|                                                |  |            |   |  |                |   |  | Weighted    |  |  |           | 
|----------------------------------------------- |  | ---------- | - |  | -------------- | - |  | ----------- |  |  | --------- | 
|                                                |  |            |   |  |                |   |  | Average     |  |  | Aggregate | 
|                                                |  |            |   |  | Weighted       |   |  | Remaining   |  |  | Intrinsic | 
|                                                |  |            |   |  | Average        |   |  | Contractual |  |  | Value     | 
|Options                                         |  | Shares     |   |  | Exercise Price |   |  | Term        |  |  | $         | 
|Outstanding at August 31, 2007                  |  | 4,287,000  |   |  | 0.42           |   |  |             |  |  |           | 
|Granted                                         |  | 859,041    |   |  | 0.41           |   |  |             |  |  |           | 
|Exercised                                       |  | (672,041   | ) |  | (0.39          | ) |  |             |  |  |           | 
|Expired                                         |  | (135,000   | ) |  | (0.43          | ) |  |             |  |  |           | 
|Outstanding at August 31, 2008                  |  | 4,339,000  |   |  | 0.48           |   |  | 2.83        |  |  | 179,850   | 
|Granted                                         |  | 1,164,000  |   |  | 0.24           |   |  |             |  |  |           | 
|Exercised                                       |  | (500,000   | ) |  | (0.20          | ) |  |             |  |  |           | 
|Expired                                         |  | (1,064,000 | ) |  | (0.42          | ) |  |             |  |  |           | 
|Outstanding at August 31, 2009                  |  | 3,939,000  |   |  | 0.44           |   |  | 2.07        |  |  | 80,940    | 
|Vested and
      exercisable at August 31, 2009 |  | 3,910,875  |   |  | 0.44           |   |  | 2.06        |  |  | 80,190    | 

The aggregate intrinsic value is calculated as the difference
  between the exercise price of the underlying awards and the quoted price of the
  Companys common shares for the options that were in-the-money at August 31,
  2009.

F-19

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

6. SHARE CAPITAL (contd.)

As FAS123(R) requires that stock-based compensation expense be
  based on awards that are ultimately expected to vest, stock-based compensation
  expense for the year ended August 31, 2009 has considerations for estimated
  forfeitures. When estimating forfeitures, the Company considers voluntary
  termination behavior as well as trends of actual option forfeitures.

During the year ended August 31, 2009, 150,000 options were
  repriced from $0.95 to $0.50 and the unvested options became vested at the date
  of repricing, which resulted in incremental compensation cost of $5,588. Total
  stock-based compensation expense related to employees of $84,670 is reported in
  the statement of operations as follows:

|                                     |  | 2009   |  |  | 2008    | 
|------------------------------------ |  | ------ |  |  | ------- | 
|                                     |  | **$**  |  |  | $       | 
|Stock-based compensation             |  |        |  |  |         | 
|General and administrative           |  | 25,994 |  |  | 47,205  | 
|Sales and marketing                  |  | 28,110 |  |  | 91,285  | 
|Research and development             |  | 30,566 |  |  | 62,668  | 
|Total stock-based
      compensation |  | 84,670 |  |  | 201,158 | 

Valuation Assumptions

The fair value of each option award is estimated on the date of
  grant using the Black-Scholes option-pricing model based on the following
  assumptions:

|                                             | 2009        | 2008       
|-------------------------------------------- | ----------- | -----------
|                                             | $           | $          
|Expected term of stock
      options (years) | 0.5-2.5     | 2.5-5.0    
|Expected volatility                          | 88%-99%     | 85%-92%    
|Risk-free interest rate                      | 0.11%-2.17% | 2.31%-4.51%
|Dividend yields                              |            |           

F-20

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

6. SHARE CAPITAL (contd.)

Expected volatilities are based on historical volatility of the
  Companys stock. The Company uses historical data to estimate option exercise
  and employee termination within the valuation model. The expected term of
  options granted represents the period of time that options granted are expected
  to be outstanding. The risk-free rate for periods within the contractual life of
  the options is based on US Treasury bill rates in effect at the time of
  grant.

The weighted-average grant-date fair value of options granted
  during the year ended August 31, 2009 and 2008 was $0.05 and $0.24,
  respectively.

As at August 31, 2009, there was $778 of unrecognized
  stock-based compensation cost related to employee stock options granted under
  the Plans, which is expected to be fully recognized over the next 15months.

[d] Warrants

As at August 31, 2009, the Company has the following common shares
  warrants outstanding:

|               | Number of Common |  | Exercise Price |  |                   | 
|-------------- | ---------------- |  | -------------- |  | ----------------- | 
|               | Shares Issuable  |  | **$**          |  | Date of Expiry    | 
|               |                  |  |                |  |                   | 
|$0.22 Warrants | 950,000          |  | 0.22           |  | August 25, 2011   | 
|$0.40 Warrants | 361,000          |  | 0.40           |  | February 28, 2012 | 
|$0.50Warrants  | 5,886            |  | 0.50           |  | January 31, 2010  | 
|$0.50 Warrants | 5,800,000        |  | 0.50           |  | February 28, 2012 | 
|$0.60 Warrants | 235,250          |  | 0.60           |  | May 31, 2011      | 
|$0.70 Warrants | 500,000          |  | 0.70           |  | April 9, 2012     | 
|               | 7,852,136        |  |                |  |                   | 

F-21

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

6. SHARE CAPITAL (contd.)

A total of 5,400,000 of the $0.50 warrants have a forced
  conversion feature by which the Company can demand exercise of the share
  purchase warrants if the common shares trades at a price equal to or greater
  than $1.25 if certain conditions are met.

All of the $0.60 warrants have a forced conversion feature by
  which the Company can demand exercise of the share purchase warrants if the
  common shares trades at a price equal to or greater than $0.80 if certain
  conditions are met.

7. INCOME TAXES

The Company is subject to United States federal and state
  income taxes at an approximate rate of 34.00% and to Canadian federal and
  British Columbia provincial taxes in Canada at an approximate rate of 25.92% .
  The reconciliation of the provision (recovery) for income taxes at the United
  States federal statutory rate compared to the Companys income tax expense is as
  follows:

|                                            |  | 2009    |   |  | 2008     |  
|------------------------------------------- |  | ------- | - |  | -------- | -
|                                            |  | $       |   |  | $        |  
|                                            |  |         |   |  |          |  
|Tax at U.S. statutory rates                 |  | 55,000  |   |  | (909,000 | )
|                                            |  |         |   |  |          |  
|Permanent differences                       |  | 29,000  |   |  | 82,000   |  
|Effect of lower foreign tax in Canada       |  | (15,000 | ) |  | 109,000  |  
|Other adjustments to valuation allowance    |  | 381,000 |   |  | 718,000  |  
|Recovery
      (provision) for income taxes |  | 450,000 |   |  |         |  

Deferred income taxes reflect the net tax effects of temporary
  differences between the carrying amounts of assets and liabilities for financial
  reporting purposes and the amounts used for income tax purposes. The Company has
  recognized a valuation allowance for those deferred tax assets for which
  realization is not more likely than not to occur.

F-22

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

7. INCOME TAXES (contd.)

Significant components of the Companys deferred tax assets as
  of August 31 are as follows:

|                                     |  | 2009       |   |  | 2008       |  
|------------------------------------ |  | ---------- | - |  | ---------- | -
|                                     |  | $          |   |  | **$**      |  
|                                     |  |            |   |  |            |  
|Deferred tax assets:                 |  |            |   |  |            |  
|Net operating loss carryforwards     |  | 1,954,000  |   |  | 2,073,000  |  
|Excess of book over tax depreciation |  | 82,000     |   |  | 71,000     |  
|Total deferred tax asset             |  | 2,036,000  |   |  | 2,144,000  |  
|Valuation allowance                  |  | (1,586,000 | ) |  | (2,144,000 | )
|Net deferred tax
      asset         |  | 450,000    |   |  |           |  

Net income (loss) by geographic region is as follows:

|              |  | 2009    |   |  | 2008       |  
|------------- |  | ------- | - |  | ---------- | -
|              |  | **$**   |   |  | **$**      |  
|              |  |         |   |  |            |  
|United States |  | (37,578 | ) |  | (742,606   | )
|Canada        |  | 648,409 |   |  | (1,550,572 | )
|              |  | 610,831 |   |  | (2,293,178 | )

If not utilized to reduce future taxable income, the Companys
  net operating loss carryforwards will expire as follows:

|                          |  | Canada    |  |  | United States | 
|------------------------- |  | --------- |  |  | ------------- | 
|                          |  | **$**     |  |  | **$**         | 
|2015                      |  | 119,000   |  |  |              | 
|2019 and
      thereafter |  | 2,434,000 |  |  | 3,783,000     | 
|                          |  | 2,553,000 |  |  | 3,783,000     | 

Pursuant to Section 382 of the Internal Revenue Code, use of
  the Companys net operating loss carryforwards may be limited if the Company
  experiences a cumulative change in ownership of greater than 50% in a moving
  three-year period. Ownership changes could impact the Companys ability to
  utilize net operating losses and credit carryforwards remaining at the ownership
  change date. The limitation will be determined by the fair market value of
  common shares outstanding prior to the ownership change, multiplied by the
  applicable federal rate.

F-23

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

8. COMMITMENTS

The Company is committed to payments under its premises lease,
  which expires on August 30, 2010 as follows:

|     |  | $       | 
|---- |  | ------- | 
|     |  |         | 
|2010 |  | 304,479 | 
|     |  | 304,479 | 

The Company incurred rent expense of $278,316 during the year
  ended August 31, 2009 compared to $320,176 during the year ended August 31,
  2008.

The Company has entered into sublease agreements (note 9) to
  offset the cost commitments above. All sublease income has been reported in
  other income in the consolidated statements of operations and has not been
  reflected in the amounts disclosed above.

Commencing this year, the Company is committed to make payments
  under its capital leases for 3 years terms as follows:

|                                    |  | $      |  
|----------------------------------- |  | ------ | -
|2010                                |  | 11,410 |  
|2011                                |  | 11,410 |  
|2012                                |  | 3,711  |  
|Total lease payments                |  | 26,531 |  
|Less: Amounts representing interest |  | (3,188 | )
|Balance of obligation               |  | 23,343 |  
|Less: Current portion               |  | (9,356 | )
|Long term portion                   |  | 13,987 |  

9. RELATED PARTY TRANSACTIONS

The Company entered into a sublease agreement with a Director
  effective January 1, 2009 on a month-to-month basis with a two month notice
  period. The term of the sublease calls for committed monthly payments of $1,374
  (CDN$1,500).

The Company entered into a sublease agreement with a Director
  from September 1, 2008 through December 31, 2008 on a month-to-month basis with
  a two month notice period. The term of the sublease called for committed monthly
  payments of $5,495 (CDN$6,000).

F-24

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

9. RELATED PARTY TRANSACTIONS (contd.)

During the year ended August 31, 2009, the Company received various
  loans totaling $201,456 (CDN$230,300) from officers of the Company. Of which,
  $132,775 (CDN$155,300) loans bear interest at 5.5% per annum, are unsecured
  and due on demand; $68,681(CDN$75,000) loans bear interest at 7% and due on
  May 29, 2010. During the year ended August 31, 2009, the Company repaid $177,685
  (CDN$202,300). As at August 31, 2009, the balance of $68,681 (CDN$75,000) is
  due to the Companys Chief Financial Officer bearing interest at 7% per
  annum. The remaining balance is due May 29, 2010.

10. CONTIGENCIES

The Company is involved in three actions with a competitor in
  Canada (Yangaroo Inc. Yangaroo, formerly Musicrypt Inc.) regarding various
  patent claims as described below:

| | a) | On March 7, 2006, the Company filed a statement of claim
      in the Federal Court of Canada against Yangaroo (the Defendant) to
      assert that the Companys technology does not infringe on the stated
      patent owned by the Defendant and to further declare that Defendants
      patent is invalid. On June 7, 2006, the Companys counsel received a
      statement of defense and counterclaim from the Defendant, requesting
      specified damages or audited profits from the Play MPE® system sourced to
      Canada.                                                                                                                                                                                                                                                                                                                   
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | b) | On May 3, 2007, the Company filed a claim in Ontario
      Superior Court against the Defendant (Yangaroo Inc.), Chief Executive
      Officer of the Defendant and Chief Financial Officer of the Defendant
      (collectively the Defendants) in the amount of $25,000,000 caused by the
      Defendants making statements constituting defamation and injurious
      falsehood, making false or misleading statements tending to discredit the
      business, making false or misleading representations contrary to the
      Competition Act of Canada, and unlawful interference with the Companys
      economic relations. On June 7, 2007, the Defendant filed a statement of
      defense and counterclaim against the Company for the same amount and for
      the same causes.                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | c) | On May 12, 2009, the Company was served with a complaint
      in the United States District Court for the Eastern District of Wisconsin
      by the Defendant (the Claimant) in the Canadian litigation above,
      alleging that the Company infringes on its recently issued one method
      claim in United States Patent No. 7,529,712. The Company initially filed a
      motion to dismiss the complaint as not being properly pled due to a issue
      regarding the method claim itself. The Court has ruled that it would be
      premature to issue a dismissal on such grounds until it had considered the
      meaning of the patent claim terms. On September 18, 2009 the Company filed
      an Answer, which included a statement of its defenses. One defense the
      Company has asserted is the patent claim has
      limitations

F-25

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

10. CONTIGENCIES (contd.)

regarding operations on a server and
  because Companys servers are outside the United States, the Claimants U.S.
  patent cannot be asserted against the Company. On October 13, 2009 the U.S.
  District Court issued a scheduling order that limits discovery in the U.S. case
  to the Companys defense of extraterritoriality and that the Court will
  entertain a motion for summary judgment by the Company dismissing the case on
  that basis alone, prior to further discovery, if any. It is managements opinion
  that the Claimant was sufficiently aware of the location of Companys servers
  well prior to the date it brought suit and, given Claimants duty to investigate
  the law regarding extraterritoriality prior to bringing suit, this case is
  improper. As a result, the Company will be seeking legal costs from the
  Claimant, if successful.

The amount of damages awarded to the Company or the
  Defendants/Claimant, if any, cannot be reasonably estimated and no amount has
  been recognized in the financial statements. Management believes it is unlikely
  that the outcome of this matter will have an adverse impact on its result of
  operations and financial condition.

On August 12, 2009 the Company received a statement of claim in
  the Supreme Court of British Columbia from a former employee for wrongful
  dismissal and breach of contract. The claim was for approximately $180,000 CDN
  plus an award of stock options and unspecified damages. The Company believes the
  claim is completely without merit and will vigorously defend its position and
  reputation and filed a response on September 11, 2009. Management believes it is
  unlikely that the outcome of this matter will have an adverse impact on its
  result of operations and financial condition.

F-26

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

11. CONCENTRATIONS AND ECONOMIC DEPENDENCE

The Company operates solely in the digital media software
  segment and all revenue from its products and services are made in this segment.

Revenue from external customers, by product and location of
  customer, is as follows:

|                                                 |  | 2009      |  |  | 2008      | 
|------------------------------------------------ |  | --------- |  |  | --------- | 
|                                                 |  | $         |  |  | $         | 
|                                                 |  |           |  |  |           | 
|MPE®                                             |  |           |  |  |           | 
|                                                 |  |           |  |  |           | 
|North America                                    |  | 1,717,323 |  |  | 1,229,994 | 
|Europe                                           |  | 418,309   |  |  | 19,933    | 
|Australasia                                      |  | 121,836   |  |  |          | 
|Total MPE® Revenue                               |  | 2,257,468 |  |  | 1,249,927 | 
|                                                 |  |           |  |  |           | 
|Clipstream ® & Radio Destiny                     |  |           |  |  |           | 
|                                                 |  |           |  |  |           | 
|North America                                    |  | 298,921   |  |  | 309,751   | 
|Outside of North America                         |  | 4,058     |  |  | 19,210    | 
|Total
      Clipstream ® & Radio Destiny Revenue |  | 302,979   |  |  | 328,961   | 
|                                                 |  |           |  |  |           | 
|Total Revenue                                    |  | 2,560,447 |  |  | 1,578,888 | 

During the year ended August 31, 2009, two customers
  represented 44% of the total revenue balance [2008 - one customer represented
  46%].

As at August 31, 2009, three customers represented $295,162
  (59%) of the trade receivables balance [2008  two customers represented 35%].

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

F-27

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2009 and 2008

12. FAIR VALUE MEASURES

SFAS 157 requires an entity to maximize the use of observable
  inputs and minimize the use of unobservable inputs when measuring fair value.
  SFAS 157 establishes a fair value hierarchy based on the level of independent,
  objective evidence surrounding the inputs used to measure fair value. A
  financial instruments categorization within the fair value hierarchy is based
  upon the lowest level of input that is significant to the fair value
  measurement. SFAS 157 prioritizes the inputs into three levels that may be used
  to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are
  quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are
  inputs other than quoted prices that are observable for the asset or liability
  such as quoted prices for similar assets or liabilities in active markets;
  quoted prices for identical assets or liabilities in markets with insufficient
  volume or infrequent transactions (less active markets); or model-derived
  valuations in which significant inputs are observable or can be derived
  principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are
  unobservable inputs to the valuation methodology that are significant to the
  measurement of the fair value of the assets or liabilities.

Our financial instruments consist principally of cash, accounts
  receivable, accounts payable and capital lease obligations. We believe that the
  recorded values of our financial instruments approximate their current fair
  values because of their nature and respective maturity dates or durations.

13. SUBSEQUENT EVENTS

In accordance with SFAS No. 165 Subsequent Events, the
  Company evaluated subsequent events through November 27, 2009, the date of
  issuance of the audited financial statements. During this period the Company did
  not have any material recognizable subsequent events.

F-28

---

ITEM 8.             
  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM
8A.            CONTROLS
AND PROCEDURES.

Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of
the Company are responsible for evaluating the effectiveness of the Companys
disclosure controls and procedures and have concluded, based on our evaluation,
that they are effective as at August 31, 2009 to ensure that information
required to be disclosed in reports filed or submitted under Canadian and United
States securities legislation is recorded, processed, summarized and reported
within the same period specified in those rules and regulations.

Internal Controls Over Financial Reporting

The Chief Executive Officer and the Chief Financial Officer of
the Company are responsible for designing internal controls over financial
reporting, or causing them to be designed under their supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.

Using the framework provided by the Committee of Sponsoring
Organizations (COSO), the Company conducted an evaluation of the effectiveness
of the internal controls over financial reporting as at August 31, 2009 and
concluded that there are material weaknesses in internal controls over financial
reporting, which are as follows:

- Due to the limited number of staff resources, the Company believes there
  are instances where a lack of segregation of duties exist to provide effective
  controls;
- Our audit committee does not have a financial expert and is not
  independent; and
- Due to the limited number of staff resources, the Company may not have the
  necessary in- house knowledge to address complex accounting and tax issues
  that may arise.

As a result of these weaknesses, the Companys internal
controls over financial reporting are not effective. The weaknesses and their
related risks are not uncommon in a company the size of Destiny Media because of
limitations in size and number of staff. The Company believes it has taken
initial steps to mitigate these risks by consulting outside advisors and
involving the Audit Committee and Board of Directors in reviews and
consultations where necessary. However, these weaknesses in internal controls
over financial reporting could result in a more than remote likelihood that a
material misstatement would not be prevented or detected. The Company believes
that it must take additional steps to further mitigate these risks by consulting
outside advisors on a more regular and timely basis.

This annual report does not include an attestation report of
the Companys independent registered public accounting firm regarding internal
control over financial reporting. Managements report was not subject to
attestation by the Companys independent registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
managements report in this annual report.

Changes in Internal Control Over Financial Reporting

During the period covered by this annual report, there have
been no changes in the Companys internal controls over financial reporting that
occurred that have materially affected, or are reasonably likely to materially
affect, the Companys internal controls over financial reporting.

ITEM
8B.            OTHER
IFORMATION.

None.

PART III

|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS ANDCONTROLPERSONS;COMPLIANCE WITH SECTION 16(A) OF THE
      EXCHANGE ACT.
|------- | -------------------------------------------------------------------------------------------------------------------

The following table sets forth the names, positions and ages of
our executive officers and directors. All our directors serve until the next
annual meeting of shareholders or until their successors are elected and
qualify. The Board of Directors elects officers and their terms of office are,
except to the extent governed by employment contract, at the discretion of the
Board of Directors.

23

---

Name
      Position Held with theCompany
      Age
      Date First Electedor AppointedSteven
      Vestergaard(1)
    Chief Executive Officer and Director
    43
    January 1999Frederick Vandenberg
    Chief Financial Officer andCorporate
      Secretary
    41
    July 2007Edward
      Kolic(1)
    Director
    48
    February 1999Lawrence J. Langs
    Director
    48
    November 2000Yoshitaro Kumagai
    Director
    63
    August 2001Wayne
      Koshman(1)
    Director
    47
    May
      2002


(1) Members of our Audit Committee

Set forth below is a brief description of the background and
business experience of each of our executive officers and directors for the past
five years:

Steven Vestergaard.Mr. Vestergaard is our President,
Chief Executive Officer and the Chairman of our Board of Directors. Mr.
Vestergaard's responsibilities include strategic planning and coordinating
strategic planning, marketing and product development. Mr. Vestergaard has a
B.Sc. from UBC. He founded Tronic Software in 1981 and Destiny Software in 1991,
both as video game development companies. In 1995, Destiny changed focus to
internet technologies, going public in 1999 with streaming video and media
security technology.

Fred Vandenberg, B. Comm. MBA, CAMr. Vandenberg is our
Chief Financial Officer. Mr. Vandenberg's core responsibilities include leading
the accounting, treasury, strategic planning, financial controls and financial
reporting functions of the Company. Mr. Vandenberg has over 16 years of public
accounting experience in tax advisory services, mergers and acquisitions, and
financial reporting. Mr. Vandenberg completed the Canadian Institute of
Chartered Accountant's "In-depth" taxation program while with Ernst & Young
in 1998. Mr. Vandenberg holds a Bachelor of Commerce degree and a Master of
Business Administration (Finance) from McMaster University and a Chartered
Accountant designation.

Edward Kolic. Mr. Kolic has been involved in the Company
since February 1999 in executive capacities including Chief Operating Officer,
Corporate Secretary and Director. He served as Destiny's chief operating officer
from February 1999 to October 2001 during which time he was responsible for our
overall product strategy and development of our core technologies. Mr. Kolic was
the president of WonderFall Productions Inc., a computer game development
company founded by Mr. Kolic, which Destiny purchased in June 1999. Prior to
founding Wonderfall Productions, he was as a principal partner and
vice-president of marketing for Jacqueline Conoir Designs. From 1988 until 1995,
Mr. Kolic was partner and president of Target Canada Production Ltd., a company
engaged in the production of documentary television, educational and information
programming for the Canadian Educational Television Networks, large screen
interactive presentation media and a range of communication programs for
corporate, government and institutional clients. Ed is currently the founder of
Eighth Avenue Development group, which undertakes development projects in the
luxury home market, multi-family residential and land development.

Lawrence J. Langs. Mr. Langs has been an intellectual
property, entertainment and corporate lawyer; an investment banker in Wall
Street and a technology and international entrepreneur. He has managed over 200
M&A deals as a New York investment banker, intellectual property and
corporate lawyer, technology consultant, board member, and principal. As a
senior executive with profit and loss responsibility and extensive experience in
building small to mid-size public and private companies and segments of Fortune
500 companies in consulting, media, and digital media industries, he headed
M&A, strategy, corporate finance, legal strategies, and business development
projects and teams. Larry was EVP at ACD Systems, EVP at Musician.com for Guitar
Center, SVP of business development at MP3.com, and VP of business development
for Sybase New Media, Investment Banker for JPMorgan/Chase/Chemical Bank in New
York, and Senior Consultant for Arthur D. Little in Boston. Mr. Langs has also
been active as a lawyer in emerging digital media and finance with Feldman &
Weinstein in New York and MediaLawyer.com in Los Angeles.

Yoshitaro Kumagai. Since 1981, Mr. Kumagai has held
positions with Singer, the Imaging Division of Mead Corporation, and IDEC
Corporation, where he was responsible for Japanese and US sales and operations.
Subsequently, he served as President of DPA Technology and as Chairman and CEO
of Vivitar Corporation, a major distributor of various camera and

24

---

computer peripheral devices. His most recent position was as
SVP/Business Development for Reactrix, a company developing an early stage media
platform enabling real-time interaction between humans and video advertising
displays. Yoshi holds a BS in Mechanical Engineering from Hosei University and a
BS in Information Systems and Mathematics from Georgia State University.

Wayne Koshman. Mr. Koshman has 15+ years of international
business development experience in China, Japan and Central Asia. Broad capital
market background both in private and public financings. Founded a number of
public and private energy and mining enterprises including Pure Silver Mining,
Dynasty Gold, Georgia Ventures, Terrawest Energy and Voyageur Oil and Gas Corp.
Bachelor of Commerce degree from University of Calgary.

ELECTION OF DIRECTORS AND OFFICERS

Our directors are elected by our shareholders at our annual
general meetings. Each director holds office until our next annual general
meeting or until the director resigns or is removed in accordance with our
bylaws. We do not have a classified Board of Directors.

Our officers serve at the discretion of our Board of Directors.

COMPENSATION OF DIRECTORS

Our directors are reimbursed for reasonable out-of-pocket
expenses in connection with attendance at Board of Director and committee
meetings. In addition, our directors are eligible for grants of options to
purchase shares of our common stock at the discretion of our Board of Directors.

AUDIT COMMITTEE

Our audit committee consists of Mr. Steven Vestergaard, our
Chief Executive Officer, Mr. Edward Kolic, and Mr. Wayne Koshman, two of which
are independent. We currently do not have a financial expert on the audit
committee.

FAMILY RELATIONSHIPS

There are no family relationships among our officers and
directors.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Exchange Act requires our executive
officers and directors, and persons who beneficially own more than ten percent
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file. Based on its review of the copies
of such forms received by us, we believe that during the fiscal year ended
August 31, 2009 all such filing requirements applicable to our officers and
directors were complied with.

CODE OF ETHICS

The Companys code of ethics is available on our website at
http://www.dsny.com/investor/

ITEM
10.            EXECUTIVE
COMPENSATION.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth certain compensation information
as to Mr. Steven Vestergaard, our Chief Executive Officer and Mr. Vandenberg,
our Chief Financial Officer. No person other than Mr. Vestergaard acted as our
Chief Executive Officer during our last fiscal year ended August 31, 2009. No
other compensation was paid to Mr. Vestergaard other than the compensation set
forth below.

25

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SUMMARY COMPENSATION TABLEANNUAL
        COMPENSATION
      LONG
        TERM COMPENSATION(3)AWARDS
      PAYOUTSName
      Title
      Year
      Salary
      Bonus
      Other Annual 
        Compensation
      Restricted 
        Stock Awarded
      Options/ 
        SARs * (#)
      LTIP payouts 
        ($)
      All Other 
        Compen- 
        sationSteven Vestergaard(1), (2)
      Director 
        President 
        CEO
      2009 
        2008 
        2007
      $131,587 
        $153,954 
        $113,666
      0 
        $38,489 
        0
      0 
        0 
        0
      0 
        0 
        0
      0 
        0 
        300,000
      0 
        0 
        0
      0 
        0 
        0Frederick
      Vandenberg(4)
      CFO & 
        Corporate 
        Secretary
      2009 
        2008 
        2007
      $106,118 
        $124,157 
        $27,869
      0 
        $31,039 
        0
      0 
        0 
        0
      0 
        0 
        0
      150,000 
        0 
        0
      0 
        0
      0 
        0


Notes to Summary Compensation Table:

|(1) | All salaries paid to Mr. Vestergaard are paid in Canadian
      dollars.                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                   
|(2) | Compensation is stated in United States dollars and is
      based on an exchange rate of $0.8489 US dollars for each $1.00 Canadian
      dollar.
|    |                                                                                                                                                   
|(3) | The value of benefits that do not exceed 10% of total
      annual salary are not reported herein.                                                
|    |                                                                                                                                                   
|(4) | All salaries paid to Mr. Vandenberg are paid in Canadian
      dollars.                                                                           

STOCK OPTION GRANTS

150,000 options were granted to Mr. Vandenberg during our most
recent fiscal year ending August 31, 2009.

EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

None

LONG-TERM INCENTIVE PLANS

We do not have any long-term incentive plans other than the
registered stock option plans.

26

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EMPLOYMENT CONTRACTS AND CHANGE  IN CONTROL ARRANGEMENTS

We are not party to any written employment agreement or change
in control arrangements with Mr. Vestergaard. We do not have any agreements with
Mr. Vestergaard regarding the payments of bonus or other performance incentives.
Mr. Vestergaard is eligible to receive stock options as and when approved by our
Board of Directors.

We are not party to any written employment agreement or change
in control arrangements with Mr. Vandenberg. We do not have any agreements with
Mr. Vandenberg regarding the payments of bonus or other performance incentives.
Mr. Vandenberg is eligible to receive stock options as and when approved by our
Board of Directors.

27

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ITEM
11.            SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially as of November 26,
2009 by: (i) each person (including any group) known to us to own more than five
percent (5%) of any class of our voting securities, (ii) each of our directors
and each of our named executive officers, and (iii) officers and directors as a
group. Unless otherwise indicated, the shareholders listed possess sole voting
and investment power with respect to the shares shown.

Title of class
      Name and address 
        of beneficial owner
      Number of Shares of 
        Common Stock
      Percentage of Common 
        Stock(1)DIRECTORS AND OFFICERS:Common Stock
      Steven Vestergaard 
        President, Chief Executive Officer 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      11,086,355(7)
      21.3%Common Stock
      Frederick Vandenberg 
        Chief Financial Officer and 
        Corporate Secretary 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      895,000(2)
      1.7%Common Stock
      Edward Kolic 
        Director 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      461,300 (3)
      0.9%Common Stock
      Lawrence J. Langs 
        Director 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      300,000 (4)
      0.6%Common Stock
      Yoshitaro Kumagai 
        Director 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      400,000 (5)
      0.8%Common Stock
      Wayne Koshman 
        Director 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      355,000 (6)
      0.6%Common Stock
      All Officers and Directors as a 
        Group (6 persons)
      13,497,655
      25.9%5% SHAREHOLDERSCommon Stock
      Sabre
        Value Fund LP
      4,578,700(8)
      8.8%Common Stock
      Proximity Capital LLC
      3,165,000(9)
      6.1%


|(1) | Under Rule 13d-3 of the Securities Exchange Act of 1934,
      a beneficial owner of a security includes any person who, directly or
      indirectly, through any contract, arrangement, understanding,
      relationship, or otherwise has or shares: (i) voting power, which includes
      the power to vote, or to direct the voting of shares; and (ii) investment
      power, which includes the power to dispose or direct the disposition of
      shares. Certain shares may be deemed to be beneficially owned by more than
      one person (if, for example, persons share the power to vote or the power
      to dispose of the shares). In addition, shares are deemed to be
      beneficially owned by a person if the person has the right to acquire the
      shares (for example, upon exercise of an option) within 60 days of the
      date as of which the
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

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|    | information is provided. In computing the percentage
      ownership of any person, the amount of shares outstanding is deemed to
      include the amount of shares beneficially owned by such person (and only
      such person) by reason of these acquisition rights. As a result, the
      percentage of outstanding shares of any person as shown in this table does
      not necessarily reflect the persons actual ownership or voting power with
      respect to the number of shares of common stock actually outstanding on
      November 26, 2009. As of November 26, 2009, there were 52,059,647 shares
      of our common stock issued and outstanding.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | Consists of 407,500 shares held by Mr. Vandenberg and
      450,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Vandenberg within 60 days of November 26, 2009 and
      37,500 shares that are immediately acquirable upon the exercise of
      warrants held by Mr. Vandenberg within 60 days of November 26,
  2009.                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | Consists of 161,300 shares held by Mr. Kolic and 300,000
      shares that are immediately acquirable upon the exercise of stock options
      held by Mr. Kolic within within 60 days of November 26, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | Consists of 300,000 shares that are immediately
      acquirable upon the exercise of stock options held by Mr. Langs within 60
      days of November 26, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(5) | Consists of 100,000 shares held by Mr. Kumagai and
      300,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Kumagai within 60 days of November 26, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(6) | Consists of 205,000 shares held by Mr. Koshman and
      150,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Koshman within 60 days of November 26, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(7) | Consists of 10,786,355 shares held by Mr. Vestergaard and
      300,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Vestergaard within 60 days of November 26,
  2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(8) | Consists of 3,578,700 shares and 1,500,000 shares that
      are immediately acquirable upon the exercise of warrants within 60 days of
      November 26, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(9) | Consists of 1,665,000 shares and 1,500,000 shares that
      are immediately acquirable upon the exercise of warrants within 60 days of
      November 26, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

29

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EQUITY COMPENSATION PLAN INFORMATION

We have two equity compensation plans, namely our Amended 1999
Stock Option Plan and our Amended 2006 Stock Option Plan, under which up to
3,750,000 and 5,100,000 shares of our common stock, respectively, have been
authorized for issuance to our officers, directors, employees and consultants.
Our plans have been approved by the Companys stockholders. The following
summary information is presented for our plans on an aggregate basis as of
August 31, 2009.

|                                                           | Number of Securities to be
      Issued Upon Exercise of Outstanding Options, Warrants and
      Rights | Weighted-Average Exercise
      Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available
      for Future Issuance Under Equity Compensation Plans (Excluding
      Securities Reflected in column (a))
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Plan Category                                              | (a)                                                                                                     | (b)                                                                               | (c)                                                                                                                                                    
|Equity Compensation Plans Approved By Security Holders     | 3,939,000 Shares of Common Stock                                                                        | $0.44 per Share                                                                   | 816,334 Shares of Common Stock                                                                                                                         
|Equity Compensation Plans Not Approved By Security Holders | Not Applicable                                                                                          | Not Applicable                                                                    | Not Applicable                                                                                                                                         

ITEM
12.            CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

Except as described under Item 11 and under the title of
executive compensation, and under note 5 of the financial statements, none of
the following persons has any direct or indirect material interest in any
transaction to which we were or are a party during the past two years, or in any
proposed transaction to which the Company proposes to be a party:

|(A) | any director or officer;                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                       
|(B) | any proposed nominee for election as a
director;                                                                                                                                                      
|    |                                                                                                                                                                                                       
|(C) | any person who beneficially owns, directly or indirectly,
      shares carrying more than 5% of the voting rights attached to our common
      stock; or                                              
|    |                                                                                                                                                                                                       
|(D) | any relative or spouse of any of the foregoing persons,
      or any relative of such spouse, who has the same house as such person or
      who is a director or officer of any parent or
subsidiary.

30

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SHARE  ISSUANCES

None

ITEM
13.            EXHIBITS
AND REPORTS ON FORM 8-K.

(a)Exhibits

|EXHIBIT
      NUMBER |  | DESCRIPTION                                                                                                                                                         
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     |  |                                                                                                                                                                     
|31.1                 |  | Certification
        of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002(1)                                               
|                     |  |                                                                                                                                                                     
|31.2                 |  | Certification
        of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002(1)                                               
|                     |  |                                                                                                                                                                     
|32.1                 |  | Certification
        of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
|                     |  |                                                                                                                                                                     
|32.2                 |  | Certification
        of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
|                     |  |                                                                                                                                                                     
|23.1                 |  | Consent
        of Independent Registered Public Accounting Firm(1)                                                                                                 

(1)        Filed as an exhibit
  to this Annual Report on Form 10-K

(b)Reports on Form 8-K.

On April 2, 2009 we filed form 8-K for changes in registrants
certifying accountant. Manning Elliott LLP, Chartered Accountants ("Manning
Elliott") is retained as the sole principal independent registered accountant
for the Company effectively March 27, 2009.

ITEM
14.            PRINCIPAL
ACCOUTANT FEES AND SERVICES

Audit Fees

Our former independent registered public accounting firm, Ernst
& Young LLP, and our current sole principle independent registered
accountant Manning Elliott LLP , provided audit and other services during the
year ended August 31, 2009 as follows:

Ernst & Young LLP

|                   |   | 2009   |  |   | 2008   | 
|------------------ | - | ------ |  | - | ------ | 
|                   |   |        |  |   |        | 
|Audit Fees         | $ | 18,394 |  | $ | 76,500 | 
|                   |   |        |  |   |        | 
|Audit Related Fees |   | -      |  |   | -      | 
|                   |   |        |  |   |        | 
|Tax Fees           |   | -      |  |   | -      | 
|                   |   |        |  |   |        | 
|All Other Fees     |   | -      |  |   | -      | 

31

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|                    |   |        |  |   |        | 
|------------------- | - | ------ |  | - | ------ | 
|Total Fees          | $ | 18,394 |  | $ | 76,500 | 
|                    |   |        |  |   |        | 
|Manning Elliott LLP |   |        |  |   |        | 
|                    |   | 2009   |  |   | 2008   | 
|                    |   |        |  |   |        | 
|Audit Fees          | $ | 36,505 |  |   | -      | 
|                    |   |        |  |   |        | 
|Audit Related Fees  |   | -      |  |   | -      | 
|                    |   |        |  |   |        | 
|Tax Fees            |   | -      |  |   | -      | 
|                    |   |        |  |   |        | 
|All Other Fees      |   | -      |  |   | -      | 
|                    |   |        |  |   |        | 
|Total Fees          | $ | 36,505 |  |   | -      | 

Audit Fees. This category includes
the fees for the audit of our consolidated financial statements and the
quarterly reviews of interim financial statements. This category also includes
advice on audit and accounting matters that arose during or as a result of the
audit or the review of interim financial statements and services in connection
with SEC filings.

Audit Related Fees. There were no
audited related fees paid to Ernst & Young LLP and Manning Elliott LLP
..

Tax Fees. This category includes the
fees for professional services rendered for tax compliance, tax advice and tax
planning. There were no tax fees paid to Ernst &Young LLP and Manning
Elliott LLP.

All Other Fees. There were no other
fees paid to Ernst & Young LLP and Manning Elliott LLP.

Effective May 6, 2003, the Securities and Exchange Commission
adopted rules that require that before Manning Elliott LLP is engaged by the
Company or its subsidiaries to render any auditing or permitted non-audit
related service, the engagement be:

- approved by the Company's audit
committee; or - entered into pursuant to pre-approval policies and
procedures established by the audit committee, provided the policies and
procedures are detailed as to the particular service, the audit committee is
informed of each service, and such policies and procedures do not include
delegation of the audit committee's responsibilities to management.

The audit committee requires advance approval of all audit,
audit-related, tax, and other services performed by the independent auditor.
Unless the specific service has been previously pre-approved with respect to
that year, the audit committee must approve the permitted service before the
independent auditor is engaged to perform it. The audit committee has delegated
to the chair of the audit committee authority to approve permitted services
provided that the chair reports any decisions to the committee at its next
scheduled meeting.

The audit committee has considered the nature and amount of the
fees billed by Ernst & Young LLP and Manning Elliott LLP, and believes that
the provision of the services for activities unrelated to the audit is
compatible with maintaining Ernst & Young LLP's and Manning Elliott LLPs
independence.

32

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

DESTINY MEDIA TECHNOLOGIES, INC.

|By: | /s/ Steven Vestergaard                              | 
|--- | --------------------------------------------------- | 
|    | Steven Vestergaard, President                       | 
|    | Chief Executive Officer                             | 
|    | Director                                            | 
|    | Date:        
      November 30, 2009               | 
|    |                                                     | 
|    | /s/ Frederick Vandenberg                            | 
|    | Frederick Vandenberg, Chief
      Financial Officer | 
|    | Date:         
      November 30, 2009              | 

In accordance with the Securities Exchange Act, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

|By: | /s/ Steven Vestergaard                                               | 
|--- | -------------------------------------------------------------------- | 
|    | Steven Vestergaard, President                                        | 
|    | Chief Executive Officer                                              | 
|    | (Principal Executive Officer)                                        | 
|    | Director                                                             | 
|    | Date: November 30, 2009                                              | 
|    |                                                                      | 
|By: | /s/ Frederick Vandenberg                                             | 
|    | Frederick Vandenberg, Chief
      Financial Officer                  | 
|    | (Principal Financial Officer and
      Principal Accounting Officer) | 
|    | Date: November 30, 2009                                              | 
|    |                                                                      | 
|    |                                                                      | 
|By: | /s/ Edward Kolic                                                     | 
|    | Edward Kolic                                                         | 
|    | Director                                                             | 
|    | Date: November 30, 2009                                              | 
|    |                                                                      | 
|    |                                                                      | 
|    |                                                                      | 
|By: | /s/ Wayne Koshman                                                    | 
|    | Wayne Koshman                                                        | 
|    | Director                                                             | 
|    | Date: November 30, 2009                                              | 

33

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