---

|U.S. SECURITIES AND EXCHANGE
      COMMISSION
|---------------------------------------------
|Washington, D.C. 20549                       
|                                             
|FORM 10-KSB                                  

(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, 2007

[ ] 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 800Vancouver, British Columbia, Canada(Address of principal executive offices) | V6C 3P1(Zip Code)
|---------------------------------------------------------------------------------------------------------- | -----------------

604-609-7736Issuer'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 PER
|-------------------------------------------------------------------- | ----------------------------------
|                                                                     | SHARE                             

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 [ ]

Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year:
$875,544

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 sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2of the Exchange Act.)
$21,475,920 as of November 15 ,2007

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date. 49,944,001
Shares of Common Stock as of November 15, 2007

Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]

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|DESTINY MEDIA TECHNOLOGIES INC.
|-------------------------------
|FORM 10-KSB                    
|                               
|INDEX                          

|PAGE
|----

|PART I     |                                                                                                                       |   
|---------- | --------------------------------------------------------------------------------------------------------------------- | --
|Item 1.    | Description Of Business                                                                                               | 3 
|Item 2.    | Description Of Property                                                                                               | 11
|Item 3.    | Legal Proceedings                                                                                                     | 12
|Item 4.    | Submission Of Matters
      To A Vote Of Security Holders                                                             | 12
|           |                                                                                                                       |   
|PART II    |                                                                                                                       |   
|Item 5.    | Market For Common Equity And Related Stockholder
      Matters                                                        | 12
|Item 6.    | Management's Discussion
      And Analysis Or Plan Of Operation                                                       | 13
|Item 7.    | Financial Statements                                                                                                  | 18
|Item 8.    | Changes In And Disagreements
      With Accountants On Accounting And Financial Disclosure                            | 19
|Item 8A    | Controls and Procedures                                                                                               | 19
|Item 8B    | Other Information                                                                                                     | 19
|           |                                                                                                                       |   
|PART III   |                                                                                                                       |   
|Item 9.    | Directors, Executive Officers, Promoters
      And Control Persons; Compliance With Section 16(A) Of The Exchange Act | 19
|Item 10.   | Executive Compensation                                                                                                | 23
|Item 11.   | Security Ownership Of Certain Beneficial
      Owners And Management                                                  | 25
|Item 12.   | Certain Relationships And Related Transactions                                                                        | 27
|Item 13.   | Principal Accountant Fees and Services                                                                                | 28
|Item 14.   | Exhibits And Reports On Form 8-K                                                                                      | 28
|Signatures |                                                                                                                       |   

1

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PART I

FORWARD LOOKING STATEMENTS

The information in this Annual Report on Form 10-KSB 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-KSB are presented
  in United States dollars unless otherwise indicated.

2

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|ITEM 1. | DESCRIPTION OF BUSINESS.
|------- | ------------------------

OVERVIEW AND CORPORATE BACKGROUND

Destiny Media Technologies Inc. (Destiny Media) is a holding
company which owns 100% of the outstanding shares of Destiny Software
Productions Inc. and MPE Distribution, Inc. The Company, Destiny or we
refers to the consolidated activities of all three companies.

Destiny develops software tools and provides services which
enable content owners to distribute their digital media globally using the
internet. All Destiny technologies are developed by internal staff, are
proprietary and are owned by the company.

Content can be accessed in either a transient manner (TV,
radio) or it can be owned locally by the consumer (DVDs, CDs). Destiny
provides media owners both approaches over the internet through two product
lines:

| | A) | Clipstream ® Product Line
| | -- | -------------------------

Clipstream® enables audio or video
content to be streamed so that the audio or video plays instantly and
automatically. This is analogous to TV or radio. Creating streaming video
content with other technologies can be a complicated process and in many 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
Sun Microsystems Java engine. Because Java is included in most operating
systems and browsers, Clipstream® encoded content will play instantly. This
means that a much higher percentage of potential viewers successfully see the
content by using Clipstream® than with other solutions. Clipstream® users are
not required to download third party player software which can create
instabilities and allow unsafe external access to the users computer.

Clipstream® products include:

Cliptream®: embeds high fidelity audio
and video on demand into web pages and emailshttp://www.clipstream.com

Clipstream® Live: embeds live video
stream into web pages and emailshttp://live.clipstream.com

Clipstream® IPTV: users can view TV
and change channels remotelyhttp://live.clipstream.com

Clipstream® Audiomail: converts audio
left on a telephone answering machine into an audio cliphttp://www.audio-mail.com

Clipstream® Survey Solutions: secure
video questionnaires prevent piracy and feature high view rateshttp://www.surveyclip.com

Clipstream® Advertising Solutions: TV
style video commercials and rich media banner ads http://www.clipstreamad.com

Clipstream® Server Solutions: servers
to power hosted siteshttp://www.clipstreamserver.com

Radio Destiny: Software to broadcast
internet radio from a home computerhttp://www.radiodestiny.com

3

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|B) | MPE® Product Line
|-- | -----------------

MPE® enables the secure download of
audio or video to a users computer. Content is protected from unauthorized
distribution through two patent pending technologies. The first recognizes a
user device as being unique, then encrypts the content to lock to that
particular machine. The second patent pending technology embeds a digital trace
or watermark into unlocked content, so that copies can be traced back to the
owner of the original file.

MPE® products include:

Play MPETM: over 1,000 record labels
  use this service to deliver pre-release music and music videos to trusted recipients
  including radio station program directors, music buyers, record label staff
  and the media. Over 60,000 songs have been sent through this system.http://www.plaympe.com

MyPlayMPE: a self service system for
  smaller independents to distribute music and music videos through Play MPETMhttp://www.myplaympe.com

PODDS: a complete software suite to set
up to securely sell music online. Includes encoding modules, accounting modules
and the player software. This software can be utilized in an OEM agreement to
set up third party online music stores. In addition, Destiny has set up its own
store to sell music to commercial users in Canada (DJs, online jukeboxes, etc.)
Destiny has an encoded catalog of 12,000 songs and album artwork under license
from the four major record labels in Canada. http://www.podds.ca

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.

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.

We are a publicly traded company. 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.

4

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BUSINESS DEVELOPMENT

Our current CEO, Steve Vestergaard, started the Destiny
Software business as a private partnership in January 1991. The business was
sold to Destiny Software Productions Inc. the following year. Destiny Software
developed a dozen video games, marketing and branding them through outside
publishing companies. In 1995, Destiny began developing various internet
technologies, releasing the Radio Destiny Internet radio broadcasting software
in May 1996.

Destiny Media Technologies, Inc. acquired Destiny Software
Productions Inc. from Mr. Vestergaard in 1999.

During the year, the Company focused on growing the Play MPETM
  music distribution service, launching the PODDS online music system, launching
  a new version of Clipstream® with much higher quality audio and video and
  securing Clipstream® partnerships in the market research and advertising
  verticals.

Play MPETM is becoming a global standard for music distribution
  by the major record labels, and during the year, the company invested in the
  infrastructure, relationships and the people in order to prepare for the anticipated
  growth in system usage. In March, the company began hiring and has doubled the
  number of staff. Already under commercial contract with Universal Music Group
  and sub-labels of other major labels, we continued to sign additional Play MPETM
  usage contracts, increase record label usage and increase radio adoption across
  formats with great success. Currently, the Company has distributed over 60,000
  songs and has significantly expanded trusted user adoption. Subsequent to year
  end, the Company began touring the country to visit every major market radio
  station in North America. We conducted site visits to encourage radio personnel
  to use the system each day. In addition, the Company launched a comprehensive
  advertising campaign that will continue throughout the first quarter of 2008
  to increase awareness and encourage continued active utilization of the system.
  We had a large advertising presence at the National Association of Broadcasters
  (NAB) show in October and advertisements are appearing in every major industry
  publication conveying the benefits and popularity of the Play MPETM system.
  The company partnered with Greendisk and the CD recycling center to discourage
  use of physical delivery by radio.

Our server systems powering Play MPETM are being modified to be
highly scaleable to accommodate increased usage. Additionally, our programming
team has been developing new server software for all of 2007 and a new encoder
is expected to launch in January 2008. This new encoder will have additional
features which we hope will add further value to our leading position in the
marketplace. The various databases and players will be migrated to the new
system at that time. The company currently has two server locations supporting
up to a gigabit per second of high speed transfer and real time offsite backup.
The new server software will support extremely high availability with the
ability to add European and Asian server locations as demand requires.

In fiscal 2008, the Company plans to invest heavily in
Clipstream® sales and marketing and to launch a number of new Clipstream®
solutions, including a Clipstream® hosted solution and new products for the
advertising industry. The Company will also pursue synergistic opportunities
including selling Clipstream® licenses to the recording industry. One example is
Clipstream® powered audio banners which allow record labels to advertise new
music. When viewers hover their mouse over the banner, CD quality audio streams
instantly. When they move their mouse off the banner, it stops instantly.
Another example would be to host music videos and other video content for the
industry in Clipstream® format.

In August, the company moved into a new head office, with
approximately double the office space.

July 26/2006Clipstream® Audio 3.0 released. Audio is much
higher quality than MP3 at the same bitrate and plays instantly without a
player.

August 1/2006Destiny sales representative John Pillsbury
featured in an article about video in online surveys featured in Quirk's
Marketing Research Review August issue.

August 8/06 http://www.allaccess.com enters into a strategic marketing
  agreement with the Play MPETM system

5

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August 22/06Featured article by Steve Vestergaard where he
talks to the Wireless Innovation Network about Destiny and his thoughts about
wireless technology and potential for Clipstream® on wireless devices.

September 06/06Global Market Insite selects Clipstream®
Video for testing movie trailers online.

September 14/06Destiny launches Canada's first legal online
commercial music service featuring Destinys new PODDS online music store
software suite.

November 8/06Destiny files a provisional patent for
innovative watermarking technology that traces the source of an illegal copy
even if the copy has been compressed or converted to another format.

November 16/06Support is added for distributing music
videos through the Play MPETM system.

November 21/06Brand Health article on video use in market
research singles out the Clipstream® secure video solution for the market
research industry.

Dec 7/06Destiny launches an artist liner service for Play
MPETM. Rather than come into the studio to record promotional recordings for
individual radio stations, artists can call into a system based on Clipstream®
audiomail to have their telephone call recorded and the recording made available
in Play MPETM.

Dec 11/06The Play MPETM system is featured on the cover of
Christian Radio Weekly.

Feb 26/07Destiny closes $2.16 Million private placement.
The main use of proceeds is to hire staff and improve infrastructure to scale
the Play MPETM system.

March 07/07Destiny extends the Play MPETM distribution
agreement with Universal Music Group.

March 16/07Clipstream® Video 3 launches at the Spring Video
on the Net 2007. Supports high fidelity audio and the ability to stream full
screen at thirty frames a second.

March 19/07Destiny sponsors a Wikipedia camp in Chennai
India with the founder of Wikipedia. Clipstream® is used to stream the event
live on the internet.

April 21/07Destiny attends the Gospel Music Association
Convention in Nashville.

April 23/07Destiny launches Play MPETM system in Canada and
announces intent to expand internationally.

May 1/07Clipstream® featured in Ad Age Guide to Online
Video.

May 4/07
  Destiny sues competitor and executives of competitor for defamation for making
  the claim that the Play MPETM system infringes on their patent in Canada.
  Destiny previously sued to have the Federal Court declare that there is no infringement.

6

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May 17/07Destiny exhibits Play MPETM at the 2007 AAA Non
Comm-vention in Louisville, Kentucky.

June 12/07Interviews with Steve Vestergaard to air on the
Biography Channel, Yahoo finance and on US Airways for the month of July.

June 21/07Destiny sponsors CASRO (Council of American
Research Organizations) conference.

June 28/07Destiny exhibits and sponsors the 2007 Conclave
radio conference in the Minneapolis Marriott Center.

June 28/07Play MPETM article in Christian Radio Weekly.

August 6/07
  R&R AAA Summit.
  August 23/07
  Destiny moves into larger, two floor head office in anticipation of growth.

7

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OUR PRODUCTS

Clipstream® Suitehttp://www.clipstream.com

Clipstream® enables users to experience internet audio and
video directly inside an email or web page. Competing technologies require users
to download, install and configure a player. Users that havent downloaded the
player cant access the content. Because the Clipstream® player is a Java applet
and because Java is natively supported by most email and web browser clients,
Clipstream® content will play instantly for 98% of the audience. The content
will play directly within an email or web page rather than in a separate window.
This makes Clipstream® uniquely well suited for applications where reach is
important. For example, media companies can take video content intended for
television and repurpose it in web pages and emails, and market research
companies can get a much higher response rate.

Content is converted into the proprietary Clipstream®
compression format using the Clipstream® encoder software which we provide for
free. The content owner purchases a code key from us that enables the content to
play. Code keys are limited to a period of time.

Our software applications will work on most Java based
computers, set top boxes and wireless devices which have enough CPU and memory
to play back the content. In addition, our Clipstream® software enables
streaming media to be delivered to users regardless of the operating system of
the users computer.

Our Clipstream® software products incorporate the following
features that we believe give our products advantages over products offered by
competitors:

| | 1. | Web pages, e-mails, banner advertisements and other
      Internet applications that incorporate our Clipstream® software enable
      users to play the media instantly without the requirement of an additional
      player program.                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 2. | Our customers are able to achieve up to a 90% reduction
      on bandwidth costs for streaming delivered using our products versus
      competing streaming solutions.                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 3. | The Clipstream® software enables streaming through
      firewalls and proxies that may block competing streaming
  solutions.                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 4. | The Clipstream® software is compatible with database
      protocols and non-personal computer devices such as PDAs, wireless and
      set top boxes that support Java.                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 5. | The look and feel can be tightly integrated into a web
      page and most aspects of the engine can be accessed via
  Javascript.                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 6. | Our customers do not require a server to deliver
      pre-recorded media content. Customers can simply use our encoder software
      to convert their media content into our Clipstream® format and upload it
      to their web site with the accompanying applet.                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 7. | We have developed our Clipstream® software to be as
      scaleable as possible. A video or audio clip encoded in Clipstream® is
      treated like any other element in the web page. It can be served by a
      standard HTTP server, cache or proxy and can pass seamlessly through a
      firewall.                               
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 8. | Corporate environments using our Clipstream® software
      have an advantage over player-based solutions as management information
      systems staff do not have to ensure that players are correctly installed
      on each machine in their corporate network in order for users to receive
      audio and video streaming media.
| |    |                                                                                                                                                                                                                                                                                                                                         
| | 9. | Clipstream® content can be locked to a particular
      website, protecting content owners from piracy. Video content can be
      watermarked and screen scraper programs can be
blocked.                                                                                                                                              

8

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Radio Destiny Broadcaster and Destiny Media Playerhttp://www.radiodestiny.comhttp://www.stationdirectory.com

The Radio Destiny Broadcaster software enables customers to
broadcast a professional Internet radio station from the customers personal
computer. The customer may broadcast live or from a playlist created by the
customer. The only hardware required is a personal computer equipped with a
sound card and a reliable Internet connection. When broadcasting in the live
mode, the customer simply puts their audio signal into the input of their sound
card, configures the options and clicks 'start broadcast' on the Radio Destiny
Broadcaster software. When broadcasting in script mode, the customer pre-records
a set of audio files, and then specifies a schedule for play back. The customer
could spend a couple of hours setting up the broadcasting schedule for the week,
then the Radio Destiny Broadcaster software will broadcast the content 24 hours
per day, 7 days per week. When deployed, the customers Internet radio station
is automatically added to the directory of stations at our Radio Destiny web
portal. Listeners can receive a Radio Destiny Internet radio broadcast using our
Destiny Media Player. The Radio Destiny Broadcaster software has been designed
to be consumer friendly and is easy to use.

PlayMPETMhttp://www.plaympe.comhttp://www.myplaympe.com

The Play MPETM system enables a content owner to securely move
electronic files (song, videos etc.) through the Internet to a trusted end
user.

The record label uses our encoder tool to manage lists of
potential recipients. Because sub-labels are often operated to compete with one
another, list security is important, even within the same company. An extensive
system has been built to manage lists and to interact with partner lists.

Music labels can access the original content from CDs, from the
local hard drive or from a LAN based music repository. They check off the
recipients from the list management system and whether the system should send an
email by preview. They set rights for the users, including whether the user has
to play the song on the recipient computer or if it can be exported to a
portable device. They set the times for any previews to go out and when the song
should show up in the system.

When the song is released, it is automatically encoded in a
preview format and a high quality compressed format. The compressed format
retains all of the audio fidelity of the original in a fraction of the file
size. The system achieves this by allocating bits on a variable basis, so that
if a song gets busy, it allocates more bits, but when the song becomes less
complex, fewer bits are required.

The compressed file is then sent to our server with the
attached song data and artwork, where it resides in a database.

If this is the first time a user has been serviced with a song,
the system will automatically send an email invitation with instructions to
download our player software.

Users can configure their experience with the system, including
merging various email accounts into a single ID and setting email preferences.
At the users request, email previews can be restricted to one per day, week or
month in the form of a digest. Otherwise, if a preview is selected by the label,
an email will automatically go out at the specified date and time alerting the
recipient of a new song. This email preview can feature a Clipstream® stream of
the song embedded directly in the email, album cover graphics, promotional
materials and instructions for accessing the song. This combination of our
valuable technologies provides exceptional significant appeal to the use of the
Play MPETM system.

When the recipient launches the player, they are presented with
a list of label logos that have made songs available to them. The order of the
icons is dependent on the order that the user was serviced with new music.

Under each label, they see the tracks that are available for
  them on our server. From this screen, they can listen to a high quality stream,
  look at album graphics and promotional information, provide feedback to the
  label or download the song locally to their machine.

9

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Songs are downloaded in the background using our download
manager and each song is encrypted securely with a key generated based on that
particular authorized computer. If the song is passed on to another computer, it
will not play.

If the user has export rights, they can drag the song into a
playlist which they can burn to CD using our integrated low level CD burning
software or export directly into the standard digital software systems used at
radio stations. As the song is exported, we embed our proprietary digital
watermark into the song.

The watermark is a technology we developed which alters the
music into a subtle way that embeds the ID of the user who created the exported
file. If the song is copied, the labels can tell who made the first copy.

The recipients interaction with the song is monitored,
providing valuable data reporting back to the label.

PODDS Online Music Store Softwarehttp://www.podds.ca

The Company has developed online player software that
facilitates integrated previewing, purchase and playback of music directly from
the player, without using a third party browser. Users can quickly click from
song to song to preview music samples and access information about the songs and
artists, all directly from within the player.

This iTunes style application supports high quality playback
in an encrypted format directly from the player. Alternatively, the user can
export the songs according to content owners permissions into standards based
formats. When this occurs, a digital watermark is incorporated into the song,
identifying the user that made the first unencrypted copy. The software also
supports integrated burning of the song to a CD, in which case the watermark is
embedded into the CD data.

The system consists of a number of software components,
including server software modules, encoder modules, reporting modules and the
player application.

The Company launched an online music service, initially in
Canada, branded as PODDS. This service is licensed through the Audio Video
Licensing Association and the major labels in Canada to sell music to commercial
users. The system has been integrated into a digital jukebox system and music is
currently being sold to remote jukeboxes, DJs and club owners.

OUR BUSINESS OPERATIONS

On August 23, 2007, we moved our head office, and business
operations are carried out in leased premises in Vancouver, British Columbia,
Canada. We lease 10,100 square feet of office space, with the lease expiring in
August of 2010, and we have twenty-four full time employees and one part time
employee. Our employees include our President and Chief Executive Officer, Chief
Financial Officer, our vice-presidents of operations, a legal affairs and HR
director, thirteen sales and support personnel and seven 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 eleven servers at two physical locations.
Servers are highly redundant with RAIDs, custom switches, redundant power
supplies and multiple connections to the internet backbone. The first location
is 1 gigabit per second and the backup facility is 100 megabit per second.

COMPETITION

Our principal competitors in the development and distribution
of streaming media technology are RealNetworks, Adobe and Microsoft. 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 software. This pressure on price could force us to reduce the
price that we are able to charge our customers for our software products.

Internationally, the main competitor for our MPE® preview
  service is physical distribution of music CDs and promotional security free
  digital distribution of MP3s. We are aware of some small competitors in
  the secure digital distribution market outside of the US which have some penetration
  into the US. However, we are not aware of any company, other than ourselves,
  with a distribution agreement with a US major label nor are we aware of any
  competitor with a similar number of songs digitally distributed or with a distribution
  channel comparable in size or usage to ours and across formats in US radio.

10

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There are a number of large competitors for our PODDS online
store, including Pure Tracks and iTunes in Canada. We are not aware of a
significant provider of online music store software.

The factors that impact on our ability to compete in the media
distribution software market include:

| | (i)   | the quality and reliability of our software;                                                                
| | ----- | ------------------------------------------------------------------------------------------------------------
| | (ii)  | the features of our software;                                                                               
| | (iii) | ease of use and interactive user features of our
      software;                                            
| | (iv)  | scalability of our software;                                                                                
| | (v)   | our software pricing and licensing terms;                                                                   
| | (vi)  | the emergence of new and more advanced technologies;
      and                                              
| | (vii) | the compatibility of our software with our customers
      existing network components and software systems

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.

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.

|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
$26,000 Canadian (equal to approximately $24,500 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,
trademarks and other intellectual property associated with its Clipstream® and
MPE® product lines.

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

We have filed for patent protection in the US for the MPE®
  distribution system and for the digital watermark technology. Patent protection
  is currently pending.

11

---

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

|ITEM 3. | **LEGAL PROCEEDINGS.**
|------- | ----------------------

On March 7, 2006 we filed a Statement of Claim in the Federal
  Court of Canada against Musicrypt Inc. to assert that our Play MPETM system
  does not infringe on Canadian Patent No. 2,407,774, owned by Musicrypt, Inc.
  The action commenced by us also seeks a declaration that this patent is invalid.
  On June 7, 2006, Destinys counsel received a statement of defense and
  counterclaim from the defendants. The statement of defense includes a counterclaim,
  requesting specified damages or audited Canadian profits from the Play MPETM
  system if it is offered in Canada. Management believes the counterclaim is without
  merit and does not believe that the outcome of this matter will have an adverse
  impact on its result of operations and financial condition.

On May 3, 2007 the Company filed a statement of claim for
damages from Musicrypt Inc., John Heaven and Clifford Hunt 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, and
unlawful interference with the Companys economic relations. The Company also
requests an injunction from continuing the defamatory actions.

On June 7, 2007 the defendants filed a statement of defense,
denying the allegations set out in the statement of claim dated May 3, 2007, and
counterclaim against the Company and our CEO, Steve Vestergaard, for 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, and unlawful
interference with Musicrypts economic relations. The counterclaim further
requests an injunction continuing the actions instigating the statement of
claim.

|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, 2007.

PART II

|ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
        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:

QUARTER
    HIGH ($)
    LOW ($)1stQuarter 2006
    $0.35
    $0.102ndQuarter 2006
    $0.35
    $0.123rdQuarter 2006
    $0.39
    $0.214thQuarter 2006
    $0.33
    $0.181stQuarter 2007
    $0.34
    $0.202ndQuarter 2007
    $0.71
    $0.263rdQuarter 2007
    $1.08
    $0.444thQuarter 2007
    $0.70
    $0.35 12


---

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 15, 2007 we had 49,944,001 shares of our common
stock outstanding and there were 1,259 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 our fiscal year ended August 31, 2007, the Company
completed a private placement which consisted of the issuance of 5,400,000
common shares for total gross proceeds of $2,160,000. In respect of fees
associated with the transaction, we issued 20,000 common shares, 361,000
warrants exercisable into common shares at $0.40 expiring February 28, 2012, and
400,000 warrants exercisable into common shares at $0.50 expiring February 28,
2012 as part of the sale. The private placement also included the issuance of
5,400,000 warrants exercisable into common shares at $0.50 expiring February 28,
2012. Also, 604,778 stock options were exercised for cash proceeds of $188,000.
1,975,000 warrants were exercised for cash proceeds of $505,000.

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, 2007.

|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-KSB. 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,
including those set forth under Risk Factors or in other parts of this Annual
Report on Form 10-KSB.

RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31,
2007

Revenue

Our fourth quarter revenue was the highest revenue quarter of
the last four years as overall revenue grew for the third straight quarter on
the strength of our eighth straight quarter of revenue growth in our Play MPETM
system. Revenue associated with our MPE® technology has grown by approximately
101% and now represents approximately 58% of our total revenue. Revenue
associated with our MPE® technology had jumped following the second quarter as
we began to transition our customers to transactional based contracts and
continued to grow through to the end of the fiscal year. Revenue for the fourth
quarter for MPE® exceeded management estimates by more than 5% and exceeded the
third quarter revenue by 22%.

Our revenue model is based on invoicing on a price per send.
  At August 31, 2007, we have delivered more than 60,000 individual songs in more
  than 70,000,000 transactions. 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 their respective 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.

13

---

The MPE® security engine powers two products: the Play MPETM
(www.plaympe.com) media distribution system,
and our online music store software suite (www.podds.ca). Our www.myplaympe.com system was launched immediately
following the year end. MyPlayMPE is a system catered to smaller independent
labels and allows access to our distribution network.

Approximately 39% of our revenues are derived from sales of our
Clipstream® software, and declined from the previous year by 43%. This reflects
a management strategy of focusing sales, marketing and support resources on MPE®
until it generates positive cash flow. Sales and marketing efforts in the second
half of the year have been focused on reaching Clipstream® resellers rather than
selling directly to end users. The Company is targeting resellers in the
advertising and market research space where the advantages of Clipstreams® 98%
user reach and security are important to end customers.

Radio Destiny sales represent 3% of our total revenue.

Our revenues decreased to $875,544 for the year ended August
31, 2007 from $884,082 for the year ended August 31, 2006, representing a
decrease of $8,538 or 1%.

Operating Expenses

As a result of the adopting FAS123(R) on September 1, 2006, the
Company recorded additional non-cash stock compensation expense for options
granted to employees. Total non-cash stock compensation for the period, and
included in our operating expenses, are outlined below:

|                                     |  | August 31 | 
|------------------------------------ |  | --------- | 
|                                     |  | 2007      | 
|                                     |  | $         | 
|General and administrative           |  | 97,100    | 
|Sales and marketing                  |  | 513,182   | 
|Research and development             |  | 159,929   | 
|Total stock-based
      compensation |  | 770,211   | 

|General and administrative |  | August 31, |   |  | August 31, |  |  | **$**   |   |  | %       |  
|-------------------------- |  | ---------- | - |  | ---------- |  |  | ------- | - |  | ------- | -
|                           |  | 2007       |   |  | 2006       |  |  | Change  |   |  | Change  |  
|                           |  |            |   |  |            |  |  |         |   |  |         |  
|Wages and benefits         |  | 332,418    |   |  | 215,241    |  |  | 117,177 |   |  | 54.4%   |  
|Rent                       |  | 27,066     |   |  | 32,023     |  |  | (4,957  | ) |  | (15.5%  | )
|Telecommunications         |  | 13,303     |   |  | 17,809     |  |  | (4,506  | ) |  | (25.3%  | )
|Bad debt                   |  | (361       | ) |  | 11,448     |  |  | (11,809 | ) |  | (103.2% | )
|Office and miscellaneous   |  | 54,274     |   |  | 92,021     |  |  | (37,747 | ) |  | (41.0%  | )
|Professional fees          |  | 244,611    |   |  | 140,495    |  |  | 104,116 |   |  | 74.1%   |  
|                           |  | 671,311    |   |  | 509,037    |  |  | 162,274 |   |  | 31.9%   |  

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

The increase in costs is due in part to the increase in non-cash
  compensation, and the increase in professional fees. These costs mainly increased
  due to a greater volume of legal work associated with securities, litigation,
  contracts, patents and trademarks.

14

---

|Sales and marketing       | August 31, | August 31, | $       | %      
|------------------------- | ---------- | ---------- | ------- | -------
|                          | 2007       | 2006       | Change  | Change 
|                          |            |            |         |        
|Wages and benefits        | 414,584    | 277,336    | 137,248 | 49.5%  
|Rent                      | 31,269     | 32,023     | (754)   | (2.4%) 
|Telecommunications        | 15,368     | 17,809     | (2,441) | (13.7%)
|Meals and entertainment   | 4,391      | -          | 4,391   | -      
|Travel                    | 65,906     | 15,058     | 50,848  | 337.7% 
|Advertising and marketing | 819,840    | 115,040    | 704,800 | 612.7% 
|                          | 1,351,358  | 457,266    | 894,092 | 195.5% 

Sales and Marketing. Sales and marketing expenses consist
primarily of salaries and related personnel costs including overhead, sales
commissions, advertising and promotional fees, and travel costs. The majority of
this increase, approximately $500,000, was due to the increase in non-cash stock
based compensation. Additionally, in the second half of the year, we added
additional staff to further the distribution and acceptance of the Play MPETM
distribution system. As a result, we have had a large increase in the usage of
our system through both increased radio adoption and record label acceptance.
The testimonials of our Play MPETM system can be viewed at http://plaympe.com/v3/company/testimonials.php.

|Research and development | August 31, | August 31, | $       | %     
|------------------------ | ---------- | ---------- | ------- | ------
|                         | 2007       | 2006       | Change  | Change
|                         |            |            |         |       
|Wages and benefits       | 809,022    | 311,651    | 497,371 | 159.6%
|Rent                     | 65,871     | 46,367     | 19,504  | 42.1% 
|Telecommunications       | 32,375     | 25,786     | 6,589   | 25.6% 
|Repairs and maintenance  | 1,773      | 257        | 1,516   | -     
|                         | 909,041    | 384,061    | 524,980 | 136.7%

Research and Development. 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 increase
is due to both increased staff and stock based compensation.

Amortization. Amortization expense arose from fixed assets and
other assets. Amortization increased to $62,902 for the fiscal year ended August
31, 2007 from $54,303 for the fiscal year ended August 31, 2006, an increase of
$8,599 or 15.84% .

Other earnings and expenses

Interest expense decreased to $13,289 for the fiscal year ended
August 31, 2007 from $22,058 for an effective decrease of $8,769.

Gain on disposition of capital asset

The gain on disposition of capital assets is due to the sale
  of our phone system on moving to our expanded location.

15

---

Losses

Our loss from operations increased to $2,119,068 for the year
ended August 31, 2007 from $520,585 for the year ended August 31, 2006,
representing an increase of $1,598,483. Our net loss increased to $2,096,974 for
the year ended August 31, 2007 from $485,335 for the year ended August 31, 2006,
representing an increase of $1,611,639 or 332%. The most significant increase
was due to the adoption of FAS123 and non-cash stock compensation expense.

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $1,215,183 as at August 31, 2007 compared to
cash of $156,337 as at August 31, 2006. We had a working capital surplus of
$1,339,722 as at August 31, 2007 compared to a working capital deficiency of
$59,429 as at August 31, 2006.

Working Capital Surplus

The increase in our working capital surplus is attributed to a
significant increase to cash. We have raised $2,160,000 through private
placement, net of costs of $220,740 and received proceeds of $505,000 on
warrants exercised which led to a significant increase in our cash.

Our accounts payable and accrued liabilities decreased to
$325,442 as at August 31, 2007 from $328,773 at August 31, 2006, representing a
decrease of $3,331 or 1%. Included in our accounts payable and accrued
liabilities balance as at August 31, 2007 is $193,197 of accrued liabilities and
$132,245 trade accounts payable.

Our shareholder loans payable significantly decreased to Nil as
at August 31, 2007 from $17,142 as at August 31, 2006.

Our current deferred revenues decreased to $9,984 as at August
31, 2007 from $10,469 as at August 31, 2006, representing a total decrease of
$485 or 5%.

Cash Flows

Net cash used in operating activities increased to $1,642,770
for the year ended August 31, 2007 compared to $538,213for the year ended August
31, 2006, representing an increase of $1,104,557 or 205%. The increase is due in
part to the timing of receipts and disbursements and in part to increased staff
costs associated with the expansion of the Play MPETM system. The cash used in
operating activities was off-set by net cash provided by financing activities in
the amount of $2,630,996 for the year ended August 31, 2007 compared to $650,247
for the year ended August 31, 2006.

We have financed our operations to date primarily through the
sale of equity securities and borrowings from shareholders. When possible, we
have issued common stock for services and debt settlement. We continued these
financing activities through the year ended August 31, 2007 as our revenues to
date have provided insufficient funding for our working capital requirements.
Accordingly, we anticipate that we will have to continue to rely on funding from
private placements, cash flows and other offerings in order to finance our
future operating costs.

We completed the following issuances of our common stock during
the year ended August 31, 2007 in respect of our financing activities:

| | 1. | We issued 604,778 common shares pursuant to option
      agreements exercised during the year at a weighted average exercise price
      of $0.31 for net proceeds of $188,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 2. | During the year ended August 31, 2007, the Company
      completed a private placement which consisted of the issuance of 5,400,000
      units at $0.40 for net cash proceeds of $1,954,940. Each unit consists of
      one common share and one warrant exercisable into one common share at
      $0.50 expiring February 28, 2012. In connection with the private
      placement, the Company incurred $220,740 of financing and share issue
      costs (of which $15,681 is included in accounts payable at the end of the
      year) and issued as compensation an additional 20,000 common shares,
      361,000 warrants exercisable into common shares at $0.40 expiring February
      28, 2012, and 400,000 warrants exercisable into common shares at $0.50
      expiring February 28, 2012.

16

---

| | 3. | During the year ended August 31, 2007, 1,750,000 $0.25
      warrants were exercised for gross proceeds of $437,500. 225,000 $0.30
      warrants were exercised for gross proceeds of
$67,500.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Going Concern

During the year ended August 31, 2007, the Company was successful
  in raising approximately $2 million in net cash proceeds in an equity private
  placement. Additionally, the Company is aggressively implementing its business
  plan of transitioning new and existing customers (record labels)
  to transactional based contracts through the full commercial deployment of its
  Play MPETM system. Until the end of fiscal year of 2007, the
  Company had been receiving a transaction fee based access fee to utilize the
  Play MPETM system. In most cases, the major record labels were
  sending songs to trusted recipients through our digital system in addition to
  physical delivery of a CD. Usage has grown such that the various record labels
  are able to send the song digitally only and, subsequent to the current period,
  the Company has begun to charge for the service on a transaction fee basis.
  The Company is pursuing similar transaction fee based agreements with other
  large record labels and developing an Indie Uploader system for
  smaller labels. Through the end of the current year, the Company continued to
  utilize cash in operations ($1,642,770 for the year ending August 31, 2007).
  However, management expects revenues, and cashflows, to increase significantly
  into fiscal 2008. Management believes that current cash resources will be sufficient
  through fiscal 2008 irrespective of significant revenue growth associated with
  the Play MPETM system.

There are no assurances that the Company will be successful in
achieving these goals. In view of these conditions, the ability of the Company
to continue as a going concern is not certain. These financial statements do not
give effect to any adjustments which would be necessary should the Company be
unable to continue as a going concern and therefore be required to realize its
assets and discharge its liabilities in other than the normal course of business
and at amounts different from those reflected in the accompanying financial
statements.

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. To-date, evidence of fair value for each element has
      not been available on sales arrangements. Changes in our business priorities
      or model in the future could

17

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RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006 the FASB issued Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, (FIN 48). FIN 48 creates a single
model to address uncertainty in income tax positions. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold a
tax position is required to meet before being recognized in the financial
statements. It also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition and, clearly scopes income taxes out of FASB Statement
No. 5, Accounting for Contingencies. FIN 48 applies to all tax positions
related to income taxes subject to FASB Statement No. 109, Accounting for
Income Taxes. This includes tax positions considered to be routine as well as
those with a high degree of uncertainty. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Differences between the amounts recognized in
the statements of financial position prior to the adoption of FIN 48 and the
amounts recognized after adoption should be accounted for as a cumulative-effect
adjustment recorded to the beginning balance of retained earnings. The
cumulative effect adjustment would not apply to those items that would not have
been recognized in earnings, such as the effect of adopting FIN 48 on tax
positions related to business combinations. The Company will adopt FIN 48
effective September 1, 2007 and does not expect the adoption to have a material
impact on the Companys financial statements.

In September 2006, FASB issued SFAS 157 Fair Value
Measurements. This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,
the Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. However, for some entities,
the application of this Statement will change current practice. This Statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company
will adopt SFAS 157 effective September 1, 2008 and does not expect the adoption
to have a material impact on the Companys financial statements.

In February 2007, the Financial Accounting Standards Board
issued 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 No. 159) which permits entities to choose to measure
many financial instruments and certain other items at fair value. This statement
is effective for fiscal periods beginning after November 15, 2007. The Company
will adopt SFAS 157 effective September 1, 2008 and does not expect the adoption
to have a material impact on the Companys financial statements.

|ITEM 7. | FINANCIAL STATEMENTS.
|------- | ---------------------

Index to Audited Consolidated Financial Statements for the Year
Ended August 31, 2007:

|1. | Report of Independent Registered Public Accounting
      Firm;                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                             
|2. | Consolidated Balance Sheets as at August 31, 2007 and
      2006;                                                                           
|   |                                                                                                                                             
|3. | Consolidated Statement of Operations for the Years ended
      August 31, 2007 and 2006;                                                    
|   |                                                                                                                                             
|4. | Consolidated Statement of Stockholders' Equity
      (Deficiency) and Comprehensive Loss for the years ended August 31, 2007
      and 2006;
|   |                                                                                                                                             
|5. | Consolidated Statement of Cash Flows for the Years ended
      August 31, 2007 and 2006;                                                    
|   |                                                                                                                                             
|6. | Notes to Consolidated Financial
  Statements.                                                                                               

18

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|Consolidated Financial Statements   
|------------------------------------
|                                    
|Destiny Media Technologies Inc.     
|August 31, 2007 and 2006            
|(Expressed in United States dollars)

F-1

---

|REPORT OF INDEPENDENT REGISTERED
|--------------------------------
|PUBLIC ACCOUNTING FIRM          

To the Board of Directors and Shareholders ofDestiny Media Technologies Inc.

We have audited the accompanying consolidated balance sheets
  of Destiny Media Technologies Inc. as of August 31, 2007 and 2006 and
  the related consolidated statements of operations, stockholders equity
  and cash flows for the years then ended. These financial statements are the
  responsibility of the Companys management. Our responsibility is to express
  an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. We were not engaged
  to perform an audit of the Companys internal control over financial reporting.
  Our audits include 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 the
  Companys internal control over financial reporting. Accordingly, we express
  no such opinion. An audit also includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements, assessing
  the accounting principles used and significant estimates made by management,
  and evaluating the overall financial statement presentation. We believe that
  our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
  fairly, in all material respects, the consolidated financial position of Destiny
  Media Technologies Inc. at August 31, 2007 and 2006 and the consolidated results
  of its operations and its cash flows for the years then ended, in conformity
  with U.S. generally accepted accounting principles.

As discussed in Note 2 to the financial statements, the Companys
  recurring net losses from operations and stockholders deficiency raise
  substantial doubt about its ability to continue as a going concern. Managements
  plans in regard to these matters are also described in Note 2. The 2007 financial
  statements do not include any adjustments that might result from the outcome
  of this uncertainty.

|Vancouver, Canada, |                      
|------------------ | ---------------------
|November 5, 2007.  | Chartered Accountants

F-2

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Destiny Media Technologies Inc.

CONSOLIDATED BALANCE SHEETS[See Note 2 - Going Concern Uncertainty]

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

|                                                          |  | 2007       |   |  | 2006       |  
|--------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                          |  | $          |   |  | $          |  
|                                                          |  |            |   |  |            |  
|ASSETS                                                    |  |            |   |  |            |  
|Current                                                   |  |            |   |  |            |  
|Cash                                                      |  | 1,215,183  |   |  | 156,337    |  
|Accounts and other receivables, net of allowance for      |  |            |   |  |            |  
|doubtful accounts of $5,221 [2006
      - $8,615]         |  | 265,849    |   |  | 130,537    |  
|Inventory                                                 |  |           |   |  | 1,059      |  
|Prepaid expenses                                          |  | 194,116    |   |  | 9,022      |  
|Total current assets                                      |  | 1,675,148  |   |  | 296,955    |  
|Software development costs, net of accumulated            |  |            |   |  |            |  
|amortization of $92,788 [2006 - $61,859]                  |  |           |   |  | 30,929     |  
|Property and equipment, net of accumulated                |  |            |   |  |            |  
|amortization
      of $264,061 [2006 - $256,958] [note 4] |  | 111,907    |   |  | 60,973     |  
|Total assets                                              |  | 1,787,055  |   |  | 388,857    |  
|                                                          |  |            |   |  |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                      |  |            |   |  |            |  
|Current                                                   |  |            |   |  |            |  
|Accounts payable                                          |  | 132,245    |   |  | 180,308    |  
|Accrued liabilities                                       |  | 193,197    |   |  | 148,465    |  
|Shareholder loans payable [note 5]                        |  |           |   |  | 17,142     |  
|Deferred revenue                                          |  | 9,984      |   |  | 10,469     |  
|Total current liabilities                                 |  | 335,426    |   |  | 356,384    |  
|Deferred leasehold inducements, net of accumulated        |  |            |   |  |            |  
|amortization of $80,698 [2005 - $46,730]                  |  |           |   |  | 33,968     |  
|Obligation for share
      settlement [note 6]            |  | 100,000    |   |  | 100,000    |  
|Total liabilities                                         |  | 435,426    |   |  | 490,352    |  
|                                                          |  |            |   |  |            |  
|Commitments and contingencies [notes 9 and
      10]      |  |            |   |  |            |  
|Stockholders equity[note 7]                              |  |            |   |  |            |  
|Common stock, par value $0.001                            |  |            |   |  |            |  
|Authorized: 100,000,000 shares                            |  |            |   |  |            |  
|Issued and outstanding: 49,936,001
      shares           |  |            |   |  |            |  
|August 31, 2006 - 41,936,223
      shares]                |  | 49,938     |   |  | 41,938     |  
|Issued and held for settlement:
      133,333 shares      |  |            |   |  |            |  
|Additional paid-capital                                   |  | 8,484,231  |   |  | 5,089,760  |  
|Deficit                                                   |  | (7,218,267 | ) |  | (5,121,293 | )
|Accumulated other
      comprehensive loss                |  | 35,727     |   |  | (111,900   | )
|Total stockholders equity                                |  | 1,351,629  |   |  | (101,495   | )
|Total liabilities
      and stockholders deficiency      |  | 1,787,055  |   |  | 388,857    |  

See accompanying notes

F-3

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

|                                             |  | 2007       |   |  | 2006       |  
|-------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                             |  | $          |   |  | $          |  
|                                             |  |            |   |  |            |  
|Revenue[note 12]                             |  | 875,544    |   |  | 884,082    |  
|                                             |  |            |   |  |            |  
|Operating expenses                           |  |            |   |  |            |  
|General and administrative                   |  | 671,311    |   |  | 509,037    |  
|Sales and marketing                          |  | 1,351,358  |   |  | 457,266    |  
|Research and development                     |  | 909,041    |   |  | 384,061    |  
|Amortization                                 |  | 62,902     |   |  | 54,303     |  
|                                             |  | 2,994,612  |   |  | 1,404,667  |  
|Loss from operations                         |  | (2,119,068 | ) |  | (520,585   | )
|Other earnings (expenses)                    |  |            |   |  |            |  
|Gain on settlement of accounts payable       |  |           |   |  | 57,308     |  
|Gain on disposition of capital assets        |  | 892        |   |  |            |  
|Interest income                              |  | 34,491     |   |  |            |  
|Interest and other
      expense             |  | (13,289    | ) |  | (22,058    | )
|Net loss                                     |  | (2,096,974 | ) |  | (485,335   | )
|                                             |  |            |   |  |            |  
|Net loss per common share, basic and diluted |  | (0.04      | ) |  | (0.01      | )
|                                             |  |            |   |  |            |  
|Weighted average common shares outstanding,  |  |            |   |  |            |  
|basic
      and diluted                      |  | 45,761,879 |   |  | 38,991,059 |  

See accompanying notes

F-4

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS EQUITY

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

|                                               |              |            |         |  |        |       |  |            |  |  |          |               |  |            |               |  | Accumulated |   |  |            |  
|---------------------------------------------- | ------------ | ---------- | ------- |  | ------ | ----- |  | ---------- |  |  | -------- | ------------- |  | ---------- | ------------- |  | ----------- | - |  | ---------- | -
|                                               |              |            |         |  |        |       |  | Additional |  |  |          |               |  |            |               |  | other       |   |  | Total      |  
|                                               | Common stock |            | paid-in |  |        | Stock |  |            |  |  |          | comprehensive |  |            | stockholders | 
|                                               |              | Shares     |         |  | Amount |       |  | capital    |  |  | issuable |               |  | Deficit    |               |  | loss        |   |  | equity     |  
|                                               |              | #          |         |  | $      |       |  | $          |  |  | $        |               |  | $          |               |  | $           |   |  | $          |  
|                                               |              |            |         |  |        |       |  |            |  |  |          |               |  |            |               |  |             |   |  |            |  
|Balance, August 31, 2005                       |              | 36,434,223 |         |  | 36,436 |       |  | 4,022,123  |  |  |         |               |  | (4,635,958 | )             |  | (114,240    | ) |  | (691,639   | )
|Net loss                                       |              |           |         |  |       |       |  |           |  |  |         |               |  | (485,335   | )             |  |            |   |  | (485,335   | )
|Foreign currency translation loss              |              |           |         |  |       |       |  |           |  |  |         |               |  |           |               |  | 2,340       |   |  | 2,340      |  
|Comprehensive loss                             |              |           |         |  |       |       |  |           |  |  |         |               |  |           |               |  |            |   |  | (482,995   | )
|Common stock issued on options exercised       |              | 1,742,000  |         |  | 1,742  |       |  | 315,808    |  |  |         |               |  |           |               |  |            |   |  | 317,550    |  
|Common stock issued for services rendered      |              | 120,000    |         |  | 120    |       |  | 23,880     |  |  |         |               |  |           |               |  |            |   |  | 24,000     |  
|Common stock issued on extinguishment of loans |              | 1,500,000  |         |  | 1,500  |       |  | 298,500    |  |  |         |               |  |           |               |  |            |   |  | 300,000    |  
|Common stock issued through private placement  |              | 2,140,000  |         |  | 2,140  |       |  | 392,860    |  |  |         |               |  |           |               |  |            |   |  | 395,000    |  
|Stock based compensation - non-employees       |              |           |         |  |       |       |  | 36,589     |  |  |         |               |  |           |               |  |            |   |  | 36,589     |  
|Balance, August
      31, 2006                 |              | 41,936,223 |         |  | 41,938 |       |  | 5,089,760  |  |  |         |               |  | (5,121,293 | )             |  | (111,900    | ) |  | (101,495   | )
|Net loss                                       |              |           |         |  |       |       |  |           |  |  |         |               |  | (2,096,974 | )             |  |            |   |  | (2,096,974 | )
|Foreign currency translation loss              |              |           |         |  |       |       |  |           |  |  |         |               |  |           |               |  | 147,627     |   |  | 147,627    |  
|Comprehensive loss                             |              |           |         |  |       |       |  |           |  |  |         |               |  |           |               |  |            |   |  | (1,949,347 | )
|Common stock issued on options exercised       |              | 604,778    |         |  | 605    |       |  | 187,395    |  |  |         |               |  |           |               |  |            |   |  | 188,000    |  
|Common stock issued on warrants exercised      |              | 1,975,000  |         |  | 1,975  |       |  | 503,025    |  |  |         |               |  |           |               |  |            |   |  | 505,000    |  
|Common stock issued through private placement  |              | 5,420,000  |         |  | 5,420  |       |  | 1,933,840  |  |  |         |               |  |           |               |  |            |   |  | 1,939,260  |  
|Stock based compensation                       |              |           |         |  |       |       |  | 770,211    |  |  |         |               |  |           |               |  |            |   |  | 770,211    |  
|Balance, August
      31, 2007                 |              | 49,936,001 |         |  | 49,938 |       |  | 8,484,231  |  |  |         |               |  | (7,218,267 | )             |  | 35,727      |   |  | 1,351,629  |  

See accompanying notes

F-5

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

|                                                     |  | 2007       |   |  | 2006     |  
|---------------------------------------------------- |  | ---------- | - |  | -------- | -
|                                                     |  | $          |   |  | $        |  
|                                                     |  |            |   |  |          |  
|OPERATING ACTIVITIES                                 |  |            |   |  |          |  
|Net loss                                             |  | (2,096,974 | ) |  | (485,335 | )
|Items not involving cash:                            |  |            |   |  |          |  
|Amortization                                         |  | 62,902     |   |  | 54,303   |  
|Amortization of deferred lease benefit               |  | (33,576    | ) |  | (27,868  | )
|Common stock issued for services
      rendered      |  |           |   |  | 24,000   |  
|Stock-based compensation                             |  | 770,211    |   |  | 36,589   |  
|Changes in non-cash working capital:                 |  |            |   |  |          |  
|Accounts and other receivables                       |  | (122,488   | ) |  | (77,897  | )
|Inventory                                            |  | 1,047      |   |  | 1,302    |  
|Prepaid expenses                                     |  | (174,736   | ) |  | (6,298   | )
|Accounts payable and accrued liabilities             |  | (48,254    | ) |  | (33,653  | )
|Deferred
      revenue                               |  | (902       | ) |  | (23,356  | )
|Net cash used in operating activities                |  | (1,642,770 | ) |  | (538,213 | )
|                                                     |  |            |   |  |          |  
|INVESTING ACTIVITIES                                 |  |            |   |  |          |  
|Purchase of equipment                                |  | (77,849    | ) |  | (14,859  | )
|Net cash used in investing activities                |  | (77,849    | ) |  | (14,859  | )
|                                                     |  |            |   |  |          |  
|FINANCING ACTIVITIES                                 |  |            |   |  |          |  
|Repayments on shareholder loans payable              |  | (16,944    | ) |  | (62,303  | )
|Proceeds from exercise of stock options              |  | 188,000    |   |  | 317,550  |  
|Proceeds from exercise of warrants                   |  | 505,000    |   |  |         |  
|Proceeds from issuance of common stock               |  | 1,954,940  |   |  | 395,000  |  
|Net cash provided
      by financing activities      |  | 2,630,996  |   |  | 650,247  |  
|                                                     |  |            |   |  |          |  
|Effect of foreign exchange rate changes on cash      |  | 148,469    |   |  | 28,586   |  
|                                                     |  |            |   |  |          |  
|Net increase in cash                                 |  | 1,058,846  |   |  | 125,761  |  
|Cash, beginning of year                              |  | 156,337    |   |  | 30,576   |  
|Cash, end of year                                    |  | 1,215,183  |   |  | 156,337  |  
|                                                     |  |            |   |  |          |  
|Supplementary disclosure                             |  |            |   |  |          |  
|Cash paid for interest                               |  | 677        |   |  | 7,070    |  
|Common stock issued
      on extinguishment of loans |  | 300,000    |   |  | 300,000  |  

See accompanying notes

F-6

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|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. | GOING CONCERN UNCERTAINTY
|-- | -------------------------

The financial statements have been prepared by management in
  accordance with United States generally accepted accounting principles on a
  going concern basis, which contemplates the realization of assets and the discharge
  of liabilities in the normal course of business for the foreseeable future.

During the year ended August 31, 2007, the Company was successful
  in raising $2 million in net cash proceeds in an equity private placement. Additionally,
  the Company is aggressively implementing its business plan of transitioning
  new and existing customers (record labels) to transactional based
  contracts through the full commercial deployment of its Play MPE
  system. The Company is pursuing transaction fee based agreements with other
  large record labels and has developed an Indie Uploader system for
  smaller labels available on www.myplaympe.com. Through the end of the current
  year, the Company continued to utilize cash in operations ($1,642,770 for the
  year ending August 31, 2007). However, management expects revenues, and cashflows,
  to increase significantly into fiscal 2008. Management believes that current
  cash resources will be sufficient through fiscal 2008 irrespective of significant
  revenue growth associated with the Play MPE system.

There are no assurances that the Company will be successful in
  achieving these goals. In view of these conditions, the ability of the Company
  to continue as a going concern is not certain. These financial statements do
  not give effect to any adjustments which would be necessary should the Company
  be unable to continue as a going concern and therefore be required to realize
  its assets and discharge its liabilities in other than the normal course of
  business and at amounts different from those reflected in the accompanying financial
  statements.

F-7

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|3. | SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------

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

Principles of consolidation

The accompanying consolidated financial statements include the
  accounts of the Company, 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 conformity with United
  States generally accepted accounting principles requires management to make
  estimates and assumptions that affect the amounts reported in the financial
  statements and accompanying notes. Actual results could differ from these estimates.

Revenue recognition

The Company recognizes revenue when there is persuasive evidence
  of an arrangement, delivery has occurred, the fee is fixed or determinable,
  collectibility 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 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.

License revenue is recognized when there is persuasive evidence
  of an arrangement and delivery to the customer has occurred, provided the arrangement
  does not require significant customization of the software, the fee is fixed
  and determinable, and collectibility 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.

F-8

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd.)
|-- | -----------------------------------------

The Company recognizes product revenue upon transfer of title,
  which occurs on shipment of product, 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 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.

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 amount ultimately realized from trade accounts receivable may differ
  from the amount estimated in the financial statements based on collection experience.

Inventory

Inventory is carried at the lower of cost, determined on a weighted
  average basis, and net realizable value.

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.

F-9

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd.)
|-- | -----------------------------------------

Property and equipment

Property and equipment are stated at cost. Depreciation is taken
  over the estimated useful life of the asset which 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
  into U.S. dollars at the rate of exchange in effect at the balance sheet date
  and revenue and expense items are translated at the average rates for the period.
  Unrealized gains and losses resulting from the translation of the financial
  statements are deferred and accumulated in a separate component of stockholders
  deficiency as a foreign currency translation loss in accumulated other comprehensive
  loss.

Advertising

Advertising costs are expensed as incurred and totaled $188,474
  and $67,564 during the years ended August 31, 2007 and 2006, 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 enacted tax rates that will be in effect for the year
  in which the differences are expected to reverse.

Capital stock issued for consideration other than cash

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

F-10

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd.)
|-- | -----------------------------------------

Stock based compensation

The Company accounts for stock-based employee compensation arrangements
  in accordance with Statement of Financial Accounting Standards No. 123 Accounting
  for Stock-Based Compensation (FAS 123), as amended by Statement
  of Financial Accounting Standards No. 148 Accounting for Stock-Based Compensation-Transition
  and Disclosure- an amendment of FASB Statement No. 123 (FAS 148).
  The Company adopted FAS 123R on September 1, 2006. As permitted by FAS 123,
  the Company currently accounts for share-based payments to employees using APB
  25s intrinsic value method. The Company uses the Black-Scholes option
  pricing model to determine the fair value of stock options granted.

Had the Company adopted FAS 123R in prior periods, the impact
  of that standard would have approximated the impact of FAS 123 as described
  in the disclosure of pro-forma net loss and loss per share in note 7[d] to these
  consolidated financial statements.

Deferred leasehold inducements

The Company has recorded leasehold improvements and deferred
  lease inducements, representing the value of a leasehold improvement allowance
  received and the value of six months free rent provided by the Companys
  landlord. The leasehold improvements and the inducement are amortized on a straight-line
  basis over the contractual lease term.

Earnings per share

Basic earnings per share is computed by dividing net earnings
  available to common stockholders by the weighted average number of common shares
  outstanding for the period. Diluted earnings per share reflects the dilutive
  potential of outstanding securities using the treasury stock method.

Comprehensive loss

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

F-11

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd.)
|-- | -----------------------------------------

Recent accounting pronouncements

In July 2006 the FASB issued Financial Interpretation No. 48,
  Accounting for Uncertainty in Income Taxes, (FIN 48). FIN 48 creates a single
  model to address uncertainty in income tax positions. FIN 48 clarifies the accounting
  for income taxes by prescribing the minimum recognition threshold a tax position
  is required to meet before being recognized in the financial statements. It
  also provides guidance on derecognition, measurement, classification, interest
  and penalties, accounting in interim periods, disclosure and transition and,
  clearly scopes income taxes out of FASB Statement No. 5, Accounting for
  Contingencies. FIN 48 applies to all tax positions related to income taxes
  subject to FASB Statement No. 109, Accounting for Income Taxes.
  This includes tax positions considered to be routine as well as
  those with a high degree of uncertainty. FIN 48 is effective for fiscal years
  beginning after December 15, 2006. Differences between the amounts recognized
  in the statements of financial position prior to the adoption of FIN 48 and
  the amounts recognized after adoption should be accounted for as a cumulative-effect
  adjustment recorded to the beginning balance of retained earnings. The cumulative
  effect adjustment would not apply to those items that would not have been recognized
  in earnings, such as the effect of adopting FIN 48 on tax positions related
  to business combinations. The Company will adopt FIN 48 effective September
  1, 2007 and does not expect the adoption to have a material impact on the Companys
  financial statements.

In September 2006, FASB issued SFAS 157 Fair Value Measurements.
  This Statement defines fair value, establishes a framework for measuring fair
  value in generally accepted accounting principles (GAAP), and expands disclosures
  about fair value measurements. This Statement applies under other accounting
  pronouncements that require or permit fair value measurements, the Board having
  previously concluded in those accounting pronouncements that fair value is the
  relevant measurement attribute. Accordingly, this Statement does not require
  any new fair value measurements. However, for some entities, the application
  of this Statement will change current practice. This Statement is effective
  for financial statements issued for fiscal years beginning after November 15,
  2007, and interim periods within those fiscal years. The Company will adopt
  SFAS 157 effective September 1, 2008 and does not expect the adoption to have
  a material impact on the Companys financial statements.

In February 2007, the Financial Accounting Standards Board issued
  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 No. 159) which permits entities
  to choose to measure many financial instruments and certain other items at fair
  value. This statement is effective for fiscal periods beginning after November
  15, 2007. The Company will adopt SFAS 157 effective September 1, 2008 and does
  not expect the adoption to have a material impact on the Companys financial
  statements.

F-12

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|4. | PROPERTY AND EQUIPMENT
|-- | ----------------------

|                       |  |         |  |  | Accumulated  |  |  | Net book | 
|---------------------- |  | ------- |  |  | ------------ |  |  | -------- | 
|                       |  | Cost    |  |  | amortization |  |  | value    | 
|                       |  | $       |  |  | $            |  |  | $        | 
|                       |  |         |  |  |              |  |  |          | 
|2007                   |  |         |  |  |              |  |  |          | 
|Furniture and fixtures |  | 91,709  |  |  | 63,354       |  |  | 28,355   | 
|Computer hardware      |  | 250,966 |  |  | 177,808      |  |  | 73,158   | 
|Computer software      |  | 27,637  |  |  | 22,899       |  |  | 4,738    | 
|Leasehold improvements |  | 5,656   |  |  |             |  |  | 5,656    | 
|                       |  | 375,968 |  |  | 264,061      |  |  | 111,907  | 
|                       |  |         |  |  |              |  |  |          | 
|2006                   |  |         |  |  |              |  |  |          | 
|Furniture and fixtures |  | 72,892  |  |  | 57,576       |  |  | 15,316   | 
|Computer hardware      |  | 186,936 |  |  | 149,846      |  |  | 37,090   | 
|Computer software      |  | 21,269  |  |  | 21,269       |  |  |         | 
|Leasehold improvements |  | 36,834  |  |  | 28,267       |  |  | 8,567    | 
|                       |  | 317,931 |  |  | 256,958      |  |  | 60,973   | 

|5. | SHAREHOLDER LOANS PAYABLE
|-- | -------------------------

|                                               |  | 2007 |  |  | 2006   | 
|---------------------------------------------- |  | ---- |  |  | ------ | 
|                                               |  | $    |  |  | $      | 
|                                               |  |      |  |  |        | 
|Loans payable, due to shareholders, unsecured, |  |      |  |  |        | 
|due on demand, non-interest bearing            |  |     |  |  | 17,142 | 
|                                               |  |     |  |  | 17,142 | 

|6. | OBLIGATION FOR SHARE SETTLEMENT
|-- | -------------------------------

During the fiscal 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
  of 2000. As the private placement was not completed and although management
  expects that the amount ultimately will be settled through the release of the
  shares, the obligation for share settlement is recorded as a liability until
  a settlement is finalized between the Company and parties involved in the August
  2000 private placement.

F-13

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|7. | SHARE CAPITAL
|-- | -------------

|[a] | Authorized
|--- | ----------

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

|[b] | Common stock issued
|--- | -------------------

2007

During the year ended August 31, 2007, the Company completed
  a private placement which consisted of the issuance of 5,400,000 units at $0.40
  for net cash proceeds of $1,954,940. Each unit consists of one common share
  and one warrant exercisable into one common share at $0.50 expiring February
  28, 2012. In connection with the private placement, the Company incurred $220,740
  of financing and share issue costs (of which $15,681 is included in accounts
  payable at the end of the year) and issued as compensation an additional 20,000
  common shares, 361,000 warrants exercisable into common shares at $0.40 expiring
  February 28, 2012, and 400,000 warrants exercisable into common shares at $0.50
  expiring February 28, 2012.

During the year ended August 31, 2007, 604,778 stock options
  were exercised during the year ended August 31, 2007 for cash proceeds of $188,000,
  1,750,000 $0.25 warrants were exercised for gross proceeds of $437,500 and 225,000
  $0.30 warrants were exercised for gross proceeds of $67,500.

2006

|[i]   | Common stock issued on options exercised:                                                                                                                                                                                                                           
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                     
|      | During the year ended August 31, 2006, 1,742,000 stock
        options were exercised for cash proceeds of $317,550.                                                                                                                                                
|      |                                                                                                                                                                                                                                                                     
|[ii]  | Common stock issued for services rendered:                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                     
|      | During the year ended August 31, 2006, the Company issued
        120,000 common shares to a third party for consulting services. The common
        shares issued have been valued at their market value of $24,000 on the
        date the services were provided.
|      |                                                                                                                                                                                                                                                                     
|[iii] | Common stock issued on extinguishment of loans:                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                     
|      | During the year ended August 31, 2006, the Company issued
        1,350,000 common shares in settlement of a shareholder loan with a fair
        market value of $270,000. In a separate transaction                                                               

F-14

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|7. | SHARE CAPITAL (contd.)
|-- | -----------------------

the Company issued 150,000 common shares
  in settlement of an advance from our marketing representative with a fair market
  value of $30,000.

|[iv] | Common stock issued through private placement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | During the year ended August 31, 2006, the Company completed
        a series of private placements, which consisted of the issuance of 2,140,000
        common shares for net cash proceeds of $395,000. The private placement
        included a finders fee of 140,000 of the 2,140,000 common shares and $5,000
        of the gross proceeds of $400,000. The private placement also included
        the issuance of 1,750,000 warrants exercisable into common shares at $0.25
        expiring August 24, 2007 and 250,000 warrants exercisable into common
        shares at $0.30 expiring February 28, 2008.

|[c] | Stock options
|--- | -------------

The Company had previously reserved a total of 8,850,000 common
  shares for issuance under its existing stock option plans, of which, 1,035,597
  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,
  2007, and changes during the twelve-month period ended is presented below:

|                                     |  |           |  |  |                |  |  | Weighted    |  |  |           | 
|------------------------------------ |  | --------- |  |  | -------------- |  |  | ----------- |  |  | --------- | 
|                                     |  |           |  |  |                |  |  | Average     |  |  |           | 
|                                     |  |           |  |  | Weighted       |  |  | Remaining   |  |  | Intrinsic | 
|                                     |  |           |  |  | Average        |  |  | Contractual |  |  | Value     | 
|Options                              |  | Shares    |  |  | Exercise Price |  |  | Term        |  |  | $         | 
|Outstanding at August 31, 2006       |  | 2,129,000 |  |  | 0.39           |  |  |             |  |  |           | 
|Granted                              |  | 2,912,778 |  |  | 0.51           |  |  |             |  |  |           | 
|Exercised                            |  | (604,778) |  |  | (0.31)         |  |  |             |  |  |           | 
|Expired                              |  | (150,000) |  |  | 0.25           |  |  |             |  |  |           | 
|Outstanding at August 31, 2007       |  | 4,287,000 |  |  | 0.42           |  |  | 3.64        |  |  | 796,210   | 
|Vested or expected to vest at        |  |           |  |  |                |  |  |             |  |  |           | 
|August 31, 2007                      |  | 4,287,000 |  |  | 0.42           |  |  | 3.64        |  |  | 796,210   | 
|Exercisable at August
      31, 2007 |  | 3,788,459 |  |  | 0.44           |  |  | 3.59        |  |  | 758,564   | 

F-15

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|7. | SHARE CAPITAL (contd.)
|-- | -----------------------

The aggregate intrinsic value is calculated as the difference
  between the exercise price of the underlying awards and the quoted price of
  the Companys common stock for the options that were in-the-money at August
  31, 2007.

Impact of Adoption of FAS 123(R)

At August 31, 2007, the Company has two stock-based employee
  compensation plans. Prior to September 1, 2006, the Company accounted for the
  plan under the recognition and measurement provisions of APB Opinion No.25,
  Accounting for Stock Issued to Employees, and related Interpretations,
  as permitted by FASB Statement No 123, Accounting for Stock-Based Compensation.
  No stock-based employee compensation cost was recognized in the Consolidated
  Statements of Operations for the year ended August 31, 2006, as all options
  granted under the plan had an exercise price equal to, or greater than, the
  market value of the underlying common stock on the date of grant. Effective
  September 1, 2006, the Company adopted the fair value recognition provisions
  of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition
  method. Under that transition method, compensation cost recognized in the year
  ended August 31, 2007 includes: (a) compensation cost for all share-based payments
  granted prior to, but not yet vested as of September 1, 2006, based on the grant
  date fair value estimated in accordance with the original provisions of Statement
  123, and (b) compensation cost for all share-based payments granted, modified
  or cancelled, subsequent to September 1, 2006. Results for prior periods have
  not been restated.

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, 2007 has considerations for estimated
  forfeitures. When estimating forfeitures, the Company considers voluntary termination
  behavior as well as trends of actual option forfeitures.

As a result of adopting Statement 123(R) on September 1, 2006,
  the Companys net loss for the year ended August 31, 2007, is $328,155
  higher than if it had continued to account for stock-based compensation under
  Opinion 25.

Total stock-based compensation for the year ended August 31,
  2007 includes stock-based compensation expense related to employees of $328,155
  and stock-based-compensation expense related to consultants of $442,056 reported
  in the statement of operations as follows:

F-16

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|7. | SHARE CAPITAL (contd.)
|-- | -----------------------

|                                     |  | 2007    |  |  | 2006   | 
|------------------------------------ |  | ------- |  |  | ------ | 
|                                     |  | $       |  |  | $      | 
|Stock-based compensation:            |  |         |  |  |        | 
|General and administrative           |  | 97,100  |  |  | 13,793 | 
|Sales and marketing                  |  | 513,182 |  |  | 12,390 | 
|Research and development             |  | 159,929 |  |  | 10,406 | 
|Total stock-based
      compensation |  | 770,211 |  |  | 36,589 | 

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:

|                                       | 2007          | 2006     
|-------------------------------------- | ------------- | ---------
|                                       | $             | $        
|Expected term of stock options (years) | 2.5-5.0 years | 2.5 years
|Expected volatility                    | 85%-94%       | 99%      
|Risk-free interest rate                | 3.9%-5.04%    | 4.85%    
|Dividend yields                        |              |         

The weighted-average grant-date fair value of options granted
  during the year ended August 31, 2007 and 2006 was $0.22 and $0.22, respectively.

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.

Pro forma Information for Periods Prior to the Adoption of
  FAS 123(R)

Prior to the adoption of FAS No. 123(R), the Company provided
  the disclosures required under FAS No. 123, as amended by FAS No. 148, Accounting
  for Stock-Based Compensation Transition and Disclosures. Employee
  stock-based compensation expense recognized under FAS 123(R) was not reflected
  in the results of operations for the year ended August 31, 2006 for employee
  stock option awards as all options were granted with an exercise price equal
  to, or

F-17

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|7. | SHARE CAPITAL (contd.)
|-- | -----------------------

greater than, the market value of the underlying common stock
  on the date of grant. Previously reported amounts have not been restated. The
  pro forma information for the year ended August 31, 2006 is as follows:

|                                                              |   | 2006     |  
|------------------------------------------------------------- | - | -------- | -
|                                                              | $ |          |  
|                                                              |   |          |  
|Net loss as reported                                          |   | (485,335 | )
|Add: Stock-based employee compensation                        |   |          |  
|expense included in reported net loss                         |   |         |  
|Deduct: Total stock-based employee compensation
      expense |   |          |  
|determined
      under fair value based method for all awards |   | (65,998  | )
|Pro forma net loss                                            |   | (551,333 | )
|Loss per share                                                |   |          |  
|Basic and diluted  as reported                               |   | (0.01    | )
|Basic and diluted  pro forma                                 |   | (0.01    | )

|[d] | Warrants
|--- | --------

As at August 31, 2007, the Company has the following common stock
  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   | 
|$0.50 Warrants |  | 5,800,000        |  |  | 0.50           |  |  | February 28, 2012   | 
|$0.70 Warrants |  | 500,000          |  |  | 0.70           |  |  | April
      9, 2012 | 
|               |  | 7,611,000        |  |  |                |  |  |                     | 

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 stock trades at a price equal to or greater than $1.25 if certain conditions
  are met.

During the year ended August 31, 2007, 1,750,000 $0.25 warrants
  were exercised for gross proceeds of $437,500. 225,000 $0.30 warrants were exercised
  for gross proceeds of $67,500. Another 25,000 $0.30 warrants expired.

F-18

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|7. | SHARE CAPITAL (contd.)
|-- | -----------------------

The $0.40 and $0.50 share purchase warrants were issued in connection
  with the private placement transaction described in Note 7[b].

On September 11, 2006, the Company entered into an agreement
  with Bryant Park Capital to act as an exclusive financial advisor to provide
  strategic assistance and maximize shareholder value. As part of the agreement,
  the Company has issued 950,000 warrants with a strike price of $0.22. On April
  9, 2007, the Company modified and expanded its agreement with Bryant Park Capital
  to include additional services not previously contemplated in the original agreement.
  As compensation, the company paid Bryant Park Capital $7,500 per month to the
  end of August 2007 and issued an additional 500,000 warrants exercisable into
  common shares at a price of $0.70. The warrants vest monthly over the six months
  following the signing of the agreement.

The fair value of 950,000 $0.22 warrants and 416,667 $0.70 warrants,
  which vested during the year ended August 31, 2007, was measured using the Black-Scholes
  option-pricing model and amounted to $366,110. This amount was expensed to sales
  and marketing in the statement of operations.

|8. | INCOME TAXES
|-- | ------------

The Company is subject to United States federal and state income
  taxes at an approximate rate of 39.63% and to Canadian federal and British Columbia
  provincial taxes in Canada. 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:

|                                         |  | 2007     |   |  | 2006     |  
|---------------------------------------- |  | -------- | - |  | -------- | -
|                                         |  | $        |   |  | $        |  
|                                         |  |          |   |  |          |  
|Tax recovery at U.S. statutory rates     |  | (833,000 | ) |  | (170,000 | )
|                                         |  |          |   |  |          |  
|Permanent differences                    |  | 375,000  |   |  | 38,000   |  
|Effect of lower foreign tax              |  | 50,000   |   |  |         |  
|Other adjustments to valuation allowance |  | 408,000  |   |  | 132,000  |  
|Income tax expense
      (recovery)      |  |         |   |  |         |  

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.

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

F-19

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|8. | INCOME TAXES (contd.)
|-- | ----------------------

|                                           |  | 2007       |   |  | 2006       |  
|------------------------------------------ |  | ---------- | - |  | ---------- | -
|                                           |  | $          |   |  | $          |  
|                                           |  |            |   |  |            |  
|Deferred tax assets:                       |  |            |   |  |            |  
|Net operating loss carryforwards           |  | 1,732,000  |   |  | 1,654,000  |  
|Excess of book over
      tax depreciation |  | 70,000     |   |  | 52,000     |  
|Total deferred tax asset                   |  | 1,802,000  |   |  | 1,706,000  |  
|Valuation allowance                        |  | (1,802,000 | ) |  | (1,706,000 | )
|Net deferred tax asset                     |  |           |   |  |           |  

The reconciliation of (losses) earnings from operations by geographic
  region is as follows:

|              |  | 2007       |   |  | 2006     |  
|------------- |  | ---------- | - |  | -------- | -
|              |  | $          |   |  | $        |  
|              |  |            |   |  |          |  
|United States |  | (1,129,942 | ) |  | (255,065 | )
|Canada        |  | (967,032   | ) |  | (230,270 | )
|              |  | (2,096,974 | ) |  | (485,335 | )

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

|                    |  | Canada    |  |  | United States | 
|------------------- |  | --------- |  |  | ------------- | 
|                    |  | $         |  |  | $             | 
|                    |  |           |  |  |               | 
|2008                |  | 940,000   |  |  |              | 
|2009                |  | 109,000   |  |  |              | 
|2019 and thereafter |  | 1,343,000 |  |  | 2,455,000     | 
|                    |  | 2,392,000 |  |  | 2,455,000     | 

Pursuant to Section 382 of the Internal Revenue Code, use of
  the Companys net operating loss carry forwards 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 carry forwards remaining at the ownership
  change date. The limitation will be determined by the fair market value of common
  stock outstanding prior to the ownership change, multiplied by the applicable
  federal rate.

F-20

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|9. | COMMITMENTS
|-- | -----------

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

|     | $      
|---- | -------
|     |        
|2008 | 245,146
|2009 | 245,146
|2010 | 245,146
|     | 735,438

The company has entered into sublease agreements to offset the
  cost commitments above which have not been reflected in the above amounts.

|10. | CONTINGENCIES
|--- | -------------

On March 7, 2006 the Company filed a statement of claim in the
  Federal Court of Canada against Yangaroo Inc. (formerly Musicrypt Inc.) (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. This statement of claim was initiated
  by the Company as a result of the Defendants statements to the contrary.
  On June 7, 2006, the Companys counsel received a statement of defense
  and counterclaim from the defendant, requesting specified damages or audited
  Canadian profits from the Play MPE system if it is offered in Canada.

On January 11, 2007 the Federal Court of Canada issued a bifurcation
  order of the issues included in the action. Accordingly, only the issues of
  infringement and validity of the patent raised in the claim will be addressed
  in the current proceeding. The remaining issues including the counterclaim for
  specified damages will be subject of a separate determination to be conducted
  after the trial if it then appears that such issues need to be decided.

On May 3, 2007 the Company filed a statement of claim in Ontario
  Superior Court for damages against the defendant (Yangaroo Inc.), and executives
  of the Defendant, John Heaven and Clifford Hunt (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. The statement further requests an injunction from continuing
  the actions instigating the statement of claim.

F-21

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|10. | CONTINGENCIES (contd.)
|--- | -----------------------

On June 7, 2007 the defendant filed a statement of defense, denying
  the allegations set out in the statement of claim dated May 3, 2007, and counterclaim
  against the Company and our CEO, Steve Vestergaard, also in the amount of $25,000,000,
  for 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, and unlawful
  interference with the defendants economic relations. The Company further
  requests an injunction from continuing the defamatory actions.

No amount has been recognized as a receivable for damages as
  outlined in the statement of claim. The amount of damages awarded, if any, in
  relation to either counterclaim cannot be reasonably estimated and no amount
  has been recognized. Management does not believe that the outcome of this matter
  will have an adverse impact on its result of operations and financial condition.

|11. | FINANCIAL INSTRUMENTS
|--- | ---------------------

Fair value disclosures

The carrying value of cash, accounts receivable, accounts payable
  and accrued liabilities approximate their fair values due to the relatively
  short periods to maturity of the instruments.

Foreign currency risk

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.

|12. | SEGMENTED INFORMATION
|--- | ---------------------

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 location of customer, is
  as follows:

F-22

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2007

|12. | SEGMENTED INFORMATION (contd.)
|--- | -------------------------------

|                   |  | 2007    |  |  | 2006    | 
|------------------ |  | ------- |  |  | ------- | 
|                   |  | $       |  |  | $       | 
|                   |  |         |  |  |         | 
|MPE®               |  |         |  |  |         | 
|                   |  |         |  |  |         | 
|United States      |  | 442,053 |  |  | 238,487 | 
|Canada             |  | 64,603  |  |  | 12,654  | 
|Total MPE® Revenue |  | 506,656 |  |  | 251,141 | 

Clipstream ® & Pirate Radio

|United States                                   |  | 311,862 |  |  | 424,107 | 
|----------------------------------------------- |  | ------- |  |  | ------- | 
|Canada                                          |  | 34,355  |  |  | 56,296  | 
|Other                                           |  | 22,671  |  |  | 152,538 | 
|Total Clipstream ®
      & Pirate Radio Revenue |  | 368,888 |  |  | 632,941 | 
|                                                |  |         |  |  |         | 
|Total Revenue                                   |  | 875,544 |  |  | 884,082 | 

During the year ended August 31, 2007, one customer represented
  31% of the total revenue balance [2006 - one customer represented 18%].

As at August 31, 2007, one customer represents 62% of the trade
  receivables balance of $147,656 [2006  three customers represented 45%].

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

F-23

---

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

Not applicable.

|ITEM 8A. | CONTROLS AND PROCEDURES.
|-------- | ------------------------

As required by Rule 13a-15 under the Securities Exchange Act of
1934 (the Exchange Act), we carried out an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures within the 90
days prior to the filing date of this report. This evaluation was carried out
under the supervision and with the participation of our Chief Executive Officer,
Mr. Steven Vestergaard, and our Chief Financial Officer, Mr. Frederick
Vandenberg. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in timely alerting management to material information relating to us
required to be included in our periodic SEC filings. There have been no material
changes in our internal controls or in other factors that could materially
affect internal controls subsequent to the date we carried out our
evaluation.

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

|ITEM 8B. | OTHER INFORMATION.
|-------- | ------------------

None.

PART III

|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS,
        PROMOTERS AND CONTROL PERSONS; 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.

Name
      Position Held with the Company
      Age
      Date First Elected or AppointedSteven Vestergaard(1)
      Chief Executive Officer and Director
      41
      January 1999Frederick Vandenberg
      Chief Financial Officer and Corporate
        Secretary
      39
      July 2007Edward Kolic(1)
      Director
      46
      February 1999Lawrence J. Langs
      Director
      46
      November 2000Yoshitaro Kumagai
      Director
      61
      August 2001Wayne Koshman(1)
      Director
      45
      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 is one of our directors. Mr. Vestergaard has been
  our Chief Executive Officer from May 1999, when we began negotiations to purchase
  our operating subsidiary, Destiny Software, from Mr. Vestergaard, to January
  2001 and then again from February 2002 to present. Mr. Vestergaards responsibilities
  include overall management of our business and coordinating strategy, planning,
  and product development. Mr. Vestergaard started Destiny Software as a private
  company owned by Mr. Vestergaard in 1991 and

19

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developed its business through to 1999 when it was acquired by
us. At Destiny Software, Mr. Vestergaard was responsible for overall business
management and supervision of the development of computer games. During this
period, Destiny Software was successful in the production of a dozen successful
video games, including Blood Bowl, Creepers and Dark Seed II, for major
publishers, including Microleague, Sony and MGM. Mr. Vestergaard has been
involved in the software development industry since 1982 when he founded a
private company called Tronic Software. Tronic Software was a developer of
computer games which were sold by mail order. In 1990 he became employed as a
software engineer by Distinctive Software Inc., a company that later changed its
name to Electronic Arts Canada, where he was involved in developing game
products. Mr. Vestergaard holds an International Baccalaureate Degree and a
Bachelor of Science Degree in Computer Science from the University of British
Columbia.

Fred Vandenberg, B. Comm. MBA, CAMr. Vandenberg is our
Chief Financial Officer and Corporate Secretary. Mr. Vandenbergs core
responsibilities include leading the accounting, treasury, strategic planning,
financial controls and financial reporting functions of our company. With over
14 years of public accounting experience, Mr. Vandenberg brings a wealth of
experience in tax, financial reporting and mergers and acquisitions. Mr.
Vandenberg completed the Canadian Institute of Chartered Accountants 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. Edward Kolic has been one of our
directors since February 1999. Mr. Kolic served as our 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
currently consults to senior management of companies developing Internet media
technologies and distributing digital content. Mr. Kolic served as our secretary
from February 1999 to July 2007. From 1997 until June of 1999, Mr. Kolic was the
president of WonderFall Productions Inc., a computer game development company
built by Mr. Kolic and which we purchased in June 1999. From 1993 until 1997,
Mr. Kolic was a partner in a private company called Jacqueline Conoir Designs
Ltd. which is a fashion design house. At Jacqueline Conoir Designs Ltd., Mr.
Kolic was general manager and vice-president of marketing and developed all of
the marketing, communications and image strategies for the company. From 1988
until 1995, Mr. Kolic was employed as the president of Target Canada Production
Ltd., a company engaged in the development and distribution of educational video
resources to the North American schools market. His experience includes the
production of documentary television, educational and information programming
for the Canadian Educational Television Networks, large screen interactive
presentation media for international conferences and a range of communication
programs for corporate, government and institutional clients.

Lawrence J. Langs. Mr. Langs has been one of our
directors since November 2000. Mr. Langs most recently worked as vice-president
of business development at MP3.com. Prior to MP3.com, Mr. Langs had a variety of
experience as a technology and entertainment lawyer and a senior management
consultant as well as a technology advocate. Mr. Langs worked with his
associates at Interactive Media Consulting as legal and business counsel
exclusively to clients in the interactive media industry since 1991. Projects
undertaken by Mr. Langs included joint ventures, mergers and acquisitions,
corporate structuring, intellectual property, licensing and royalties, venture
funding and finance. From 1995 to 1996, Mr. Langs was acting business
development manager for the New Media Division of Sybase, where he was involved
with strategic interactive television initiatives and with developing and
executing strategic relationships with Internet companies. Prior experience also
includes several years as an Investment Banker for Chemical Bank in New York,
and as a Senior Strategic Consultant for Arthur D. Little in Boston. Mr. Langs
holds a Juris Doctorate from Boston University School of Law, and a Master's
Degree in Finance and Management of Technology from the Sloan School of
Management at M.I.T. Mr. Langs is a member of the New York Bar.

Yoshitaro Kumagai. Mr. Kumagai was appointed as one of
  our directors in August of 2001. Mr. Kumagai is a highly respected executive
  in the high-technology industry with over twenty years of experience in the
  electronics and consumer fields. Mr. Kumagai is currently the interim chief
  executive officer of Display Research Laboratories, a company involved in the
  development of organic flat panel display technologies. Mr. Kumagai was the
  interim chief executive officer and president of Onna.com, a company engaged
  in the development of a Japanese portal web site targeted at Japanese women,
  from 1999 to 2001 when the business was acquired in an acquisition. Mr. Kumagai
  was the chairman and chief executive officer of Vivitar Corporation from 1997
  to 1999. Vivitar is a global consumer electronics corporation. Mr. Kumagai was
  responsible for the management of global operations throughout the United States,
  Europe and Asia. Mr. Kumagai was an advisor and a corporate director of Plaza
  Create Ltd., a Japanese company engaged in franchising an innovative photograph
  processing store chain, from 1995 to 1999. Mr. Kumagai has also held key management
  positions in the following companies: IDEC Corporation (from 1991 to 1993),
  the Mead Corporation (from 1984 to 1991) and the Singer Company (from 1981 to
  1986). Mr. Kumagai holds a bachelor of science degree from Georgia State University
  and a BSME from Hosei University in Tokyo, Japan.

20

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Wayne Koshman. Mr. Koshman was appointed as one of our
  directors on May 29, 2002. Mr. Koshman has been a director and the chief executive
  officer of Terrawest Management Inc., a company engaged in mining and exploration
  in China, from June 2002 to present. Mr. Koshman was the director of GIS Technologies,
  a company engaged in the development of smartcard technology, from November
  2000 to March 2002. Mr. Koshman was a project consultant for Zaatec Technologies
  Inc., a Japanese hard disk technology firm, from March 1999 to April 2000. Mr.
  Koshman was the head of corporate development for international sales for Moduline
  Industries Ltd., a subsidiary of Champion Industries, a large home manufacturer,
  from March 1998 to June 1999. Mr. Koshman was the international sales manager
  for Asia for Nortec Design group from November 1996 to February 1998. Mr. Koshman
  is a founder of Skytech Bio Conversion Inc., a biotechnology company working
  with the National Research Council of Canada and the University of British Columbia
  on phase one trials of microbial technology for treating organic solids.

21

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ELECTION OF DIRECTORS AND OFFICERS

Our directors are elected by our shareholders at our annual
general meetings. Each director holds office until our next general meeting or
until the director resigns or is removed in accordance with our bylaws. We do
not have a classified 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 committee meetings. In
addition, our directors are eligible for grants of options to purchase shares of
our common 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 Koshman. 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 than ten percent of our
equity securities, to file reports of ownership and changes in ownership with
the Securities Exchange Commission. Officers, directors and greater than ten
percent shareholders are required by SEC regulation furnish us with copies of
all Section 16(a) forms they file. Based on its review of the copies of such
forms received we believe that during the fiscal year ended August 31, 2007 all
such filing requirements applicable to our officers directors were complied
with.

CODE OF ETHICS

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

22

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|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, 2007. No
other compensation was paid to Mr. Vestergaard other than the compensation set
forth below.

SUMMARY COMPENSATION TABLEANNUAL COMPENSATION
      LONG TERM COMPENSATION(3)Name
      Title
      Year
      Salary
      Bonus
      Other Annual Compensation
      AWARDS
      PAYOUTSRestricted
        Stock Awarded
      Options/
        SARs * (#)
      LTIP payouts
          ($)
      All Other 
        Compen-
        sationSteven Vestergaard (1), (2)
      Director President CEO, CFO
      2007   2006   2005
      $113,666
        $83,848
        $78,508
      0
        0
        0
      0
        0
        0
      0
        0
        0
      300,000
        0
        0
      0
        0
        0
      0
        0
        0Frederick Vandenberg (4)
      CFO & Corporate Secretary
      2007
      $27,869
      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 $0.8918 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. Mr. Vandenberg became an employee of the Company on June 1, 2007
      and assumed the position of Chief Financial Officer effective July 16,
      2007. All shares owned by Mr. Vandenberg upon joining the Company were
      acquired in purchases by Mr. Vandenberg in fair market value transactions
      prior to joining the company as an employee.

STOCK OPTION GRANTS

300,000 options were granted to Mr. Vestergaard, our named
executive officer, during our most recent fiscal year ending August 31, 2007.

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.

23

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EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS

We are not party to any written employment agreement 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 aware of any arrangement that might result in a
change in control in the future.

We are not party to any written employment agreement 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.

We are not aware of any arrangement that might result in a change
  in control in the future.

24

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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 15,
2007 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
      10,454,655
      20.9%Common Stock
      Frederick Vandenberg 
          Chief Financial Officer and Corporate Secretary 
          c/o 800-570 Granville St. 
          Vancouver, BC, V6C 3P1
      615,000(2)
      1.2%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)
      0.7%Common Stock
      All Officers and Directors as a Group
          (5 persons)
      12,585,955
      25.2%5% SHAREHOLDERSCommon Stock
      Sabre Value Fund LP
      2,612,700
      5.2%


|(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 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
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

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|    | 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 15, 2007. As of November 15, 2007, there were
      49,936,223 shares of our common stock issued and outstanding.                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(2) | Consists of 277,500 shares held by Mr. Vandenberg and
      300,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Vandenberg within 60 days of November 15, 2007 and
      37,500 shares that are immediately acquirable upon the exercise of
      warrants held by Mr. Vandenberg within 60 days of November 15,
  2007.
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(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 60 days of November 15, 2007.                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(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 15, 2007.                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(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 15, 2007.                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                         
|(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 15,
  2007.                                                                                                                                                             

26

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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, 2007.

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
    4,287,000 Shares of
      Common Stock
    $0.42 per Share
    1,035,597 Shares of
      Common StockEquity 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, 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.

27

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SHARE ISSUANCES

During the year ended August 31, 2007 we issued 50,000 shares
to our CFO, Frederick Vandenberg, pursuant to a warrant agreement for proceeds
of $15,000, and 55,000 shares pursuant to an option agreement for gross proceeds
of $13,750.

|ITEM 13. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Audit Fees

Our independent registered public accounting firm, Ernst &
Young LLP, provided audit and other services during the years ended August 31,
2007 and 2006 as follows:

2007
    
    
    2006Audit Fees
    
    $
    63,500
    
    $
    55,500Audit Related Fees
    
    
    -
    
    
    -Tax Fees
    
    
    -
    
    
    -All Other Fees
    
    
    14,000
    
    
    -Total Fees
    
    $
    77,500
    
    $
    55,500


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.

Tax Fees. This category
includes the fees for professional services rendered for tax compliance, tax
advice and tax planning.

All Other Fees. Those were the
fees in connection with SB-2 and S-8 SEC filings paid to Ernst & Young
LLP.

Effective May 6, 2003, the Securities and Exchange Commission
adopted rules that require that before Ernst & Young 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 believes that the provision of the
services for activities unrelated to the audit is compatible with maintaining
Ernst & Young LLP's independence.

|ITEM 14. | EXHIBITS AND REPORTS ON FORM 8-K.
|-------- | ---------------------------------

|(a) | Exhibits
|--- | --------

28

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|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-KSB

|(b) | Reports on Form 8-K.
|--- | --------------------

During the year we filed Form 8-K.

On March 1, 2007 we announced the Unregistered Sales of Equity
Securities which is outlined in Note 7 (b) to the year ended August 31, 2007
financial statements.

On March 8, 2007 we filed Form 8-K outlining a letter agreement
with Universal Music Group (UMG). The Company is UMG's primary method for
online distribution of promotional music, video and other content and will be
the only company-wide method for such distribution in the United States. The
term of the letter agreement is a period of 13 months, commencing on March 1,
2007, and ending on March 31, 2008.

On July 19, 2007, we filed Form 8-K outlining Mr. Steven Vestergaard
  resigned as the Chief Financial Officer of the company and Mr. Frederick Vandenberg
  was appointed as the Chief Financial Officer of the company effective July 16,
  2007. Mr. Vestergaard will remain as Chief Executive Officer.

29

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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 29, 2007                      
|    |                                              
|    | */s/ Frederick Vandenberg*                   
|    | Frederick Vandenberg, Chief Financial Officer
|    | Date: November 29, 2007                      

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: | *Steven Vestergaard*                                          
|--- | --------------------------------------------------------------
|    | Steven Vestergaard, President                                 
|    | Chief Executive Officer                                       
|    | (Principal Executive Officer)                                 
|    | Director                                                      
|    | Date: November 29, 2007                                       
|    |                                                               
|By: | *Frederick Vandenberg*                                        
|    | Frederick Vandenberg, Chief Financial Officer                 
|    | (Principal Financial Officer and Principal Accounting Officer)
|    | Date: November 29, 2007                                       
|    |                                                               
|By: | *Edward Kolic*                                                
|    | Edward Kolic                                                  
|    | Director                                                      
|    | Date: November 29, 2007                                       
|    |                                                               
|By: | */s/ Wayne Koshman*                                           
|    | Wayne Koshman                                                 
|    | Director                                                      
|    | Date: November 29, 2007                                       

30

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