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**UNITED STATESSECURITIES 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, 2003

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

COMMISSION FILE NUMBER000-28259

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.)
|                                                               |                                     
|1055 West Hastings Street, Suite 1040                          |                                     
|Vancouver, British Columbia, Canada                            | V6E 2E9                             
|(Address of principal executive offices)                       | (Zip Code)                          
|                                                               |                                     
|604-609-7736                                                   |                                     
|Issuer's telephone number                                      |                                     

|Securities registered under Section 12(b) of
      the Exchange Act: | NOT APPLIABLE                  
|-------------------------------------------------------------------- | -------------------------------
|                                                                     |                                
|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: $1,133,098

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-2 of the Exchange Act.)$4,620,504 as of October 29, 2003

State the number of shares outstanding of each of the issuer's
  classes of common equity, as of the latest practicable date.33,003,598 Shares of Common Stock as of October 29, 2003

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.                                                                                              | 18   | 
|           |                                                                                                                       |      | 
|Item 3.    | Legal Proceedings.                                                                                                    | 18   | 
|           |                                                                                                                       |      | 
|Item 4.    | Submission Of Matters To A Vote Of Security Holders.                                                                  | 19   | 
|           |                                                                                                                       |      | 
|PART II    |                                                                                                                       |      | 
|           |                                                                                                                       |      | 
|Item 5.    | Market For Common Equity And Related Stockholder Matters.                                                             | 20   | 
|           |                                                                                                                       |      | 
|Item 6.    | Management's Discussion And Analysis Or Plan Of Operation.                                                            | 22   | 
|           |                                                                                                                       |      | 
|Item 7.    | Financial Statements.                                                                                                 | 27   | 
|           |                                                                                                                       |      | 
|Item 8.    | Changes In And Disagreements With Accountants On Accounting
      And Financial Disclosure.                           | 27   | 
|           |                                                                                                                       |      | 
|PART III   |                                                                                                                       |      | 
|           |                                                                                                                       |      | 
|Item 9.    | Directors, Executive Officers, Promoters And Control
      Persons; Compliance With Section 16(A) Of The Exchange Act | 28   | 
|           |                                                                                                                       |      | 
|Item 10.   | Executive Compensation.                                                                                               | 32   | 
|           |                                                                                                                       |      | 
|Item 11.   | Security Ownership Of Certain Beneficial Owners And
      Management.                                                 | 35   | 
|           |                                                                                                                       |      | 
|Item 12.   | Certain Relationships And Related Transactions.                                                                       | 37   | 
|           |                                                                                                                       |      | 
|Item 13.   | Exhibits And Reports On Form 8-K                                                                                      | 39   | 
|           |                                                                                                                       |      | 
|Item 14.   | Controls And Procedures.                                                                                              | 40   | 
|           |                                                                                                                       |      | 
|Signatures | 41                                                                                                                    |     

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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 statement. 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.

ITEM 1.            DESCRIPTION
  OF BUSINESS.

OVERVIEW

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

The company is the developer and marketer of four innovative
  technologies which facilitate the distribution of digital media content. All
  four technologies are commercially mature and ready for market.

| | 1. | Clipstream  is a Java based technology which enables
      content owners to embed live and on demand audio and video into websites
      and emails.                                                                                                                                                                               
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2  | MPE is a system for securely moving digital content from
      one computer to another through the internet. The content is locked to a
      digital fingerprint of the destination computer. Currently, MPE supports
      the distribution of music, but it could be adopted to move video, software,
      research reports, etc.
| | 3. | RadioDestiny Broadcaster is a software program that allows
      users to broadcast live and on demand radio signals from their PC. The signals
      can be received via Clipstream or within the Destiny Media Player
      product.                                                                                              
| | 4. | The Destiny Media Player is a software product that plays
      most popular digital music formats and which receives the live Radio Destiny
      internet radio stations.                                                                                                                                                          

All four technologies are proprietary and were developed by the company.

Clipstream licenses and maintenance currently represents
  approximately 96% of our revenues. The Radio Destiny Broadcaster and Destiny
  Media Player are sold online under the brand name Pirate Radio.

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Pirate Radio represents approximately 2.5% of our revenue.
  MPE represented approximately 1.5% of our revenues.

The consumer market for digital music has not been strong
  as consumers can access free digital music through file sharing services. Subsequent
  to year end in October 2003, the company released an adapted version of MPE
  which facilitates the transfer of music from the recording industry to radio
  stations and trusted users. We expect this new version of MPE to represent a
  more significant portion of our revenue in the future.

Pirate Radio sales are also expected to generate a larger
  percentage of revenue in the new year as the company is pursuing retail distribution
  of the Pirate Radio software.

We are a publicly traded company. Our common stock trades
  on the OTC Bulletin board under the symbol DSNY and on the Berlin
  exchange in Germany under the symbol DME.

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

CORPORATE BACKGROUND

We were 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. (Destiny Software).
  Destiny Software is a British Columbia company that was incorporated in 1992.

Our principal executive office is located at #1040-1055 West
  Hastings Street, Vancouver, British Columbia V6E-2E9. Our telephone number is
  (604) 609-7736 and our facsimile number is (604) 609-0611.

BUSINESS DEVELOMENT

Destiny Media Technologies, Inc. acquired Destiny Software
  Productions, Inc. from Mr. Steven Vestergaard, our president and chief executive
  officer in 1999.

Mr. Vestergaard started the Destiny Software business as a
  private partnership in January 1991. The business was sold to Destiny Software
  in 1992. From 1992 until 1995, Destiny Software was involved solely in the development
  and sale of computer games. Twelve games were developed during this period and
  were marketed under the brand names of outside publishers, including MGM, Sony
  / Psygnosis, QQP and Microleague.

In December 1995, Destiny Softwares first Internet radio
  prototype was developed. This product was released in April 1996 under the brand
  name Radio Destiny Destiny Software found that many users had difficulty downloading
  and installing player and server software. As a consequence of this observation,
  Destiny Software developed an instant audio play technology branded as Clipstream
  that enables web site owners to upload audio and video media content to a standard
  web server using the Clipstream software and to have the media content
  play back on 97% of Internet browsers without requiring any action on the part
  of web visitors.

After Destiny Media Technologies, Inc. acquired Destiny Software
  in 1999, we developed our MPE media distribution software and the Destiny Media
  Player as a mechanism for securely selling and playing

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back digital music and internet radio streams via the Internet.
  However, the advent of free file sharing networks made it difficult for content
  owners to sell music over the Internet. As a result, we were only able to generate
  minimal revenues from these software products using a business model based on
  receiving a portion of music sales.

In the fall of 2001, we determined to refocus our business
  efforts on selling and developing our Clipstream software products. As
  a result of this determination, we stopped supporting the MPEsecurity system,
  the Radio Destiny Broadcaster and the Destiny Media Player. Since this time,
  our revenues have grown on a quarterly basis and we have established strong
  name brand recognition with customers in various market sectors. Most of our
  customers have renewed their annual licenses and increased their investment
  in Clipstream.

The company has grown and is better able to support more than
  one product line. We relaunched the Destiny Media Player and the Radio Destiny
  Broadcaster as the Pirate Radio suite this year. We relaunched MPE subsequent
  to year end. We expect these two products to represent a growing revenue stream
  for the company.

OUR PRODUCTS

Clipstream Suitehttp://www.clipstream.com

We have developed a suite of five distinct software products
  that incorporate our Clipstream technology and are marketed under our
  Clipstream brand name:

1.         Clipstream
  Audio

2.         Clipstream
  Video

3.         Clipstream
  Live

4.         Clipstream
  Audiomail.

5.         Clipstream
  IVR Server

Each of our Clipstream products is fully developed and
  is commercially available through our web site at: http://www.clipstream.com.
  Our Clipstream products have been commercially available commencing in
  1999.

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 97% 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 advertising. Media companies can take video content intended for television
  and repurpose it in web pages and emails.

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

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Because our technology is Java based, 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 Flash, databases as well as 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.

The features and functionality of our Clipstream software products are described below:

|Clipstream Video | Our Clipstream Video product enables
        our customers to deliver streaming of video media via the Internet. This
        product enables web marketers, advertisers and webmasters to deliver compelling
        video media to their viewers without the need for special servers, software
        or programming knowledge. The Clipstream Video product also eliminates
        the requirement of a customer to develop multi-streaming formats to reach
        the customers targeted audience.
|----------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Clipstream Audio | Our Clipstream Audio software
        enables our customers to deliver streaming of audio media via the Internet.
        This product enables web marketers, advertisers and webmasters to deliver
        compelling audio media to their viewers without the need for special servers,
        software or programming knowledge.                                                                                                                                                                         

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|Clipstream Live      | The Clipstream Live system enables
        customers to embed live video into any web delivery method, including
        web pages, e-mails, advertisements and specific web applications. Our
        Clipstream Live software enables a customer to provide quality streaming
        of live video using a digital video camera connected to a personal computer
        with a constant Internet connection. Incoming video is captured by our
        software operating on the server and is converted into a real-time video
        stream that enables live broadcasts.                          
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Clipstream            | Audiomail The Clipstream AudioMail
        system allows customers to create a streaming audio message using their
        telephone and to broadcast this audio message. Once recorded, a customer
        is able to broadcast their audio message using e-mail or can incorporate
        the audio message directly into a web site. Once broadcast, the AudioMail
        message can be played by any Java-enabled e-mail client or web browser.
        The Clipstream AudioMail system is marketed as both a personal and
        an enterprise software solution.                               
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Clipstream IVR Server | The Clipstream IVR Server enables customers
        to record an audio message via telephone and up-load the message to an
        e-mail or to broadcast the message to multiple users via e-mail. The Clipstream
        IVR Server is designed to: (i) record audio messages via a telephone capture
        card using pre-recorded audio prompts; (ii) encode the recorded audio
        in the Clipstream format; (iii) output the Clipstream audio files to a
        specified folder on a network accessible drive; and (iv) instigate an
        application when new audio files have been saved.

We plan to focus future development of the Clipstream
  products on better supporting alternative ways of accessing the Internet, other
  than personal computers. In particular, Java based telephones will soon have
  enough RAM and CPU to play back versions of Clipstream content..

Radio Destiny Broadcaster and Destiny Media Playerhttp://www.pirateradio.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.

Our Radio Destiny software has been commercially available
  since 1996.

We sell licenses for our Radio Destiny Broadcaster software
  on a commercial basis and a personal use basis. The primary difference between
  the commercial and personal licenses for the Radio Destiny Broadcaster
  is the license limitations placed on consumer broadcasters restricting use to
  noncommercial application.

Our Destiny Media Player software product is a combination MP3/Music
  player and radio receiver that can be installed on a users personal computer.
  This software features a radio mode and an MP3 mode. In the radio mode, a user
  is able to listen to radio broadcasts from any of stations on the RadioDestiny

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Broadcast Network. The Destiny Media Player features
  a live directory of stations with direct e-mail and web links to these broadcasters.
  In the MP3 mode, a user can play MP3 files directly from the users library
  of MP3 files. The Destiny Media Player automatically scans the users
  hard drive for existing music files and creates an MP3 library for access by
  the Destiny Media Player. The Destiny Media Player also features
  a list of MP3 web sites that allows a user to easily click a link to access
  MP3 sources. The Destiny Media Player also supports playback of streaming
  MP3s, .wav and midi files, as well as music CDs. The Destiny Media
  Player is a small, yet powerful, application and can be downloaded from
  the Internet and can be installed by a user within two minutes.

MPE 
  http://www.destinympe.comOur MPE software was developed as a solution to enable artists, media distribution
  companies and other media rights holders to manage and sell audio and video
  media files on the Internet. We developed this software with the objective of
  providing a solution for media rights holders to counter the wide-spread distribution
  of media files on the Internet that occurs without any payment to the media
  rights holder. Our software enables a media rights holders audio or video
  media to be encoded in our proprietary MPE format. The audio or video media
  can then be posted anywhere and partially previewed in full quality. Consumers
  are given the opportunity to preview the media and then complete an electronic
  purchase transaction. The encoded MPE media file can be unlocked by the customer
  once the purchase is complete. The objective of the MPE software is to
  ensure broad distribution of digital files via peer-to-peer systems such as
  Napster while ensuring that the originating artist gets paid. Currently, the
  MPE software is limited to self-extracting music files. We believe this software
  could be modified to support digital distribution of software, movies, electronic
  books and research reports and other digital file types. We currently are not
  offering this consumer version of MPE for sale, but plan to in the future as
  the market for digital music matures.

Subsequent to year end, we adapted MPE for a business to business
  model where we would charge the recording industry a fee for each song they
  sent to radio stations and trusted users (music reviewers, music buyers, branch
  offices, etc.) We created a system that announces the song via a Clipstream
  powered email. Recipients can download the song to an authorized computer and
  burn the song to a CD. The song is watermarked with a fingerprint that identifies
  that recipient. The recording industry receives reports back on which stations
  and recipients downloaded the song. Songs can be locked to a future date, giving
  the recording industry the ability to coordinate a simultaneous launch to radio.

Since the October 10th 2003 launch subsequent to
  year end, 555 stations have been registered and the system has been populated
  by 366 tracks. 877 trusted users have been granted access to the system by the
  recording industry. The five major labels and a number of independents are populating
  the system with tracks. The system is currently being offered on an unpaid basis
  to test its effectiveness.

OUR TARGETED MARKETS

Clipstream

Our targeted market for our Clipstream software products
  are companies that are engaged in the distribution of audio and video streaming
  media via the Internet through any web delivery method, including web pages,
  e-mails, advertisements and specific web applications. We have specifically
  targeted creators of audio and video media, Internet OEMs, web sites and
  web portals, Internet advertisers and distance learning companies.

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We have targeted on-line service providers (OEMs) such
  as greeting card companies and conferencing companies, that want to build incorporate
  our Clipstream technology into their own applications as one of its features.
  In these arrangements, we require that the OEM customer provide a Powered
  by Clipstream logo and a link back to our home web site. In some
  cases, this requirement is waived and we are paid a white label
  fee allowing the acquirer to remove visible Clipstream branding and potentially
  incorporating their own branding.

Common applications for audio on web portal sites include
  site navigation, product descriptions, compliance with laws regarding the blind,
  music previewing and online commentary. Video is often used for product profiles,
  corporate communication, movie trailers and corporate presentations. Because
  our Clipstream software can be tightly integrated into a database driven
  or Flash based application, customers can use our software to create rich interactive
  multimedia presentations on their web sites.

Many larger companies are using our Clipstream products
  for internal websites to communicate with employees on corporate intranets.

We have targeted Internet advertisers who are able to use
  Clipstream to embed advertisements from television directly into web pages
  and inside of e-mails. We believe that the advertising market will become an
  increasingly important target market as audio and video streaming becomes mainstream.
  Because Clipstream starts playing instantly without popping up an external
  window, our Clipstream products are much more appropriate for playing
  advertisements than media player based solutions.

We have had good success in the last year with portals that
  are using our Clipstream software technology to play movie trailers. We
  have developed a send to a friend e-mail format that allows popular
  video advertisements and trailers to be distributed peer to peer.

We have targeted distance learning and corporate training
  as a growing market for our Clipstream products. We believe this market
  segment will become more significant in the coming year.

PirateRadio

Our PirateRadio software bundle is being marketed to
  the home Internet radio enthusiast that is seeking a means to broadcast their
  personal radio broadcasts to the world through the Internet. The purchase process
  has been automated. Purchases are made online via credit card. When the system
  processes the credit card, a digital version of the software is sent to the
  consumer automatically. A CD version is then sent by mail.

We also offer a professional version of the software for commercial
  radio.

We are actively pursuing distribution partnerships to offer
  our consumer version in retail stores.

MPE

We are targeting the five major record labels and the larger
  independent labels. For the recording industry to pay for the software system,
  they will need to see strong adoption from radio, so we will need to target
  radio to create demand.

OUR REVENUE MODEL

Clipstream Products

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We license our Clipstream products to our customers
  and recognize the revenue in accordance with SOP 97-2 as disclosed to the notes
  of our financial statements. In addition, we offer annual maintenance contracts
  whereby service revenues are recognized ratably over the term of the maintenance
  contract. Other service revenue is recognized at the time services are performed
  including all custom development work performed and integrated services performed.
  We also offer white label contracts at premium pricing allowing
  the acquirer to remove visible Clipstream branding and potentially incorporating
  their own branding.

We charge a flat monthly rate to customers who incorporate
  our Clipstream software technology into their e-mail campaigns. The price
  is a flat rate for an unlimited number of impressions or e-mails.

Web advertising requires a fixed set up fee and a license
  per thousand impressions served.

Our Clipstream Livevideo server system is priced based on
  the number of streams.

We charge web site portals an annual license fee that is based
  on the number of clips that are used.

We typically charge corporate intranets that have licensed
  our Clipstream software products a fixed annual fee based on the number
  of employees who will have access to the technology. Usage on the intranet is
  unlimited.

Currently, approximately 96% of our total revenues is derived
  from sales of licenses of our Clipstream software technology. We consciously
  chose to focus on selling our Clipstream software products in January
  2001 and the current sales team is primarily dedicated to generating sales of
  our Clipstream software products.

We offer the software on an annual or unlimited basis. The
  term of the contract is encoded in the code key we sell. The software will automatically
  stop playing at the end of this license period.

Pirate Radio

We are selling the Pirate Radio software suite that
  includes both the Destiny Media Player and a personal RadioDestiny Broadcaster
  license for a one time fee of $39.95 online via our automated e-commerce system.

Our sales representatives are also selling to commercial radio
  stations for a fixed annual fee.

We own the content that is generated in our system. There
  may be an opportunity in the future to sell the content to entertainment portals.
  Our website http://www.stationdirectory.com automatically aggregates
  all currently broadcasting stations on a real time basis.

MPE

We are still building out our revenue model for the business
  to business version of MPE. We expect to charge based on the number of tracks
  and the number of recipients. We expect that some of the larger labels will
  want to negotiate a fixed annual price for unlimited usage.

OUR MARKETING PLAN

We generate the majority of our software sales through our
  employee sales network and our reseller network. We employ sales staff in our
  Vancouver, British Columbia office to market our software products

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to our current customers and to our targeted potential customers.
  In addition, we have established a network of approximately ninety resellers.
  We charge our reseller partners an annual partner fee which buys them varying
  levels of support and service from Destiny Media. In general, a higher level
  of support and a higher partner fee commitment achieves a higher margin for
  the partners. Reseller partners receive a direct commission, which varies and
  is in line with standard software commission rates.

We also market our software products directly from our dedicated
  websites.

Clipstream: http://www.clipstream.com
  Radio Destiny Broadcaster and Destiny Media Player: http://www.pirateradio.com
  MPE: http://www.destinympe.com

We undertake various advertising on the Internet, which include the following:

|1. | We include short advertisements for
        Clipstream on media clips that incorporate our Clipstream
        software.                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                           
|2. | We locate icons on our applets that
        include links to our Clipstream web site when clicked on by a user.                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                           
|3. | We typically require our Clipstream
        customers to add a Clipstream link on their web site or e-mail campaign.
        This ever increasing number of incoming links to the Clipstream
        site increases the rating in the search engines, so that Clipstream
        is more likely to come up first in relevant searches.
|   |                                                                                                                                                                                                                                                                                                                                           
|4. | We advertise through Internet search
        engines where advertisements can be tied to search works relevant to our
        products.                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                           
|5. | We actively create viral send
        to a friend Clipstream clips that are hosted on our server.
        We secure content we expect to be passed along and encode it in our format
        in the form of an email.                                                                                                                  

We generally do not undertake advertising campaigns, other
  than outlined above.

We do attend industry trade shows in specific cases where
  we perceive a marketing opportunity with an adequate return on investment. These
  trade shows are attended by our sales staff. We generally have determined not
  to spend significantly on trade booths in most cases as we believe the return
  on investment isnt sufficiently compelling for our products.

We intend to increase our marketing efforts through the current
  fiscal year by increasing the number of our direct sales people and by better
  supporting and training our reseller partners.

We intend to sell Pirate Radio and MPE through partnerships
  with other companies.

OUR BUSINESS OPERATIONS

Our head office and business operations are carried out in
  leased premises in Vancouver, British Columbia, Canada. We lease 5,734 square
  feet of office space and we have eleven full time employees. Our employees include
  our president and chief executive officer, our vice-president of operations,
  our controller, four direct sales employees, two support personnel and two software
  developers. We also employ a book keeper, artists and audio and video talent
  on a part time basis as needed.

We have installed a fiber link to the internet backbone to
  our head office location. This fiber link provides us with the ability to support
  our customers with extremely high bandwidth hosting capabilities.

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COMPETITION

Our two principal competitors in the development and distribution
  of streaming media technology are RealNetworks and Microsoft Corporation. Both
  RealNetworks and Microsoft are substantially larger than we are and have significantly
  greater financial resources available. Both Microsofts and RealNetworks
  have increased their commitment to and presence in the streaming media industry.
  This increased commitment has increased and we anticipate 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.

In addition to Microsoft and RealNetworks, we face increased
  competition from other companies that are developing and marketing streaming
  media product offerings. These competitors include Hello Networks, Eye
  Wonder and Oplayo. As more companies enter the market with products
  and services that compete with the Company's players and tools, the competitive
  landscape could change significantly to the detriment of the Company as consumers
  are faced with a broader array of products with similar functionality.

Our main competition for broadcasting audio over the internet
  is Live 365 Network, Shoutcast and Icecast.

Our main competitor for MPE is Musicrypt.

The factors that impact on our ability to compete in the streaming
  media technology market include:

| | (i)   | the quality and reliability of our
        software;                                                           
| | ----- | ---------------------------------------------------------------------------------------------------------------
| | (ii)  | the features of our software for creating,
        editing and adapting content;                               
| | (iii) | ease of use and interactive user features
        of our software;                                             
| | (iv)  | scalability and cost of our software
        per user;                                                         
| | (v)   | our software pricing and licensing terms;                                                                      
| | (vi)  | the emergence of new and more advanced
        streaming media formats; 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 streaming media software products to compete in the streaming media technology
  market, to maintain our customer base and to increase our customer base. We
  anticipate that consolidation will continue in the streaming media 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 this market segment. We are committed to working toward
  market penetration of our brand, products and services, which, as a strategic
  response to changes in the competitive environment, may require pricing, licensing,
  service or marketing changes intended to extend our current brand and technology.
  Price concessions or the emergence of other pricing or distribution strategies
  by competitors may reduce the prices that we may charge our customers for our
  software products. In addition, many of our current and potential competitors
  have greater name recognition, larger overall installed bases, more employees
  and significantly greater financial, technical, marketing, public relations
  and distribution resources than we do. These competitive factors may have a
  material adverse effect on our business, financial condition and results of
  operations.

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TRADEMARKS AND INTELLECTUAL PROPERTY

We have been granted a trademark for Clipstream in Canada,
  Japan and Europe in connection with our software products. In the UK, we believe
  that an unrelated company called Clipstream Online Video Management (http://clipstream.co.uk/)
  has been infringing on our trademark. In response to a letter sent to them by
  Destiny, they have filed invalidity proceedings in Europe. We believe this proceeding
  will be unsuccessful and trademark protection in the UK will ultimately be granted
  to us. We are discussing a negotiated resolution to this dispute, although there
  is no assurance that a satisfactory settlement will be reached.

We have filed for patent protection in Europe, Asia, the US
  and Canada for the MPE distribution system and for the Clipstream
  audio and video codes. Patent protection is currently pending.

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.

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RISK FACTORS

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

If We Are Unable To Achieve Additional Financing, Then
  Our Financial Condition And Our Ability To Continue Our Business Operations
  Will Be Adversely Affected.

We had a working capital deficit of $428,486 as of August
  31, 2003. In addition, we had accounts payable and accrued liabilities in the
  amount of $543,248 as of August 31, 2003. We had a loss from operations of $94,272
  for the year ended August 31, 2003. As a consequence of these factors, we require
  additional financing in order to maintain our existing business operations.
  We are pursuing additional financing, including equity private placements of
  our common stock. We currently do not have any arrangements for financing in
  place. There is no assurance that we will be able to achieve additional financing
  to fund the operating loss from our business operations and to pay our current
  liabilities. If we do not raise additional capital, then our financial condition
  and our ability to continue operations will be adversely affected. If we are
  successful in completing equity private placements of our common stock, then
  existing shareholders will experience dilution of their interests in Destiny
  Media.

If We Are Unable To Increase Our Revenues, Then Our Business
  And Our Financial Condition Will Suffer.

Our revenues have increased to $1,133,098 for the year ended
  August 31, 2003 from $769,326 for the year ended August 31, 2002. The increase
  in revenue has been the result of an increase in sales of our Clipstream
  software. However, our operating expenses still exceed our revenues. Accordingly,
  our ability to attain profitability and to decrease our dependence on external
  financing is contingent upon our ability to increase our revenues. We are working
  to continue the increase in revenues from sales of our Clipstream software.
  In addition, we are launching our MPE secure media distribution system to the
  market in the second quarter of fiscal 2004. There is no assurance that we will
  be able to continue to increase revenues from our Clipstream software
  and the Pirate Radio software or that the MPE secure media distribution system
  will generate revenues in excess of the expenses attributable to the marketing
  of this product. If we are not successful in increasing revenues, then our ability
  to achieve profitable operations will be adversely affected.

If Revenues From Our Clipstream Software Decline,
  Then Our Financial Condition And Results Of Operations Will Be Adversely Affected.

Substantially all of our revenue is generated from sales of
  our Clipstream streaming media software. The market for streaming media
  software is extremely competitive and includes competitors such as Real Networks
  and Microsoft. Due to this competition, there is a risk that our competitors
  will gain an increased market share or may cause the price that we are able
  to charge for Clipstream software to decrease. Either of these factors
  could cause our revenue to decrease with the result that our financial condition
  and operating results would be adversely affected.

If We Are Not Able To Control Our Operating Expenses, Then
  Our Financial Condition May Be Adversely Affected.

We have been successful in reducing our operating expenses
  to $1,217,790 for the year ended August 31, 2003 from $1,327,463 for the year
  ended August 31, 2002. Our ability to achieve profitability is conditional upon
  our ability to maintain our operating expenses. While we have been successful
  in reducing our operating expenses, there is a risk that we will have to increase
  our operating expenses in

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the future. Factors that could cause our operating expenses
  to increase include our determination to spend more on sales and marketing in
  order to increase product sales or our determination that more research and
  development expenditures are required in order to keep our current software
  products competitive or in order to develop new products for the market. To
  the extent that our operating expenses increase without a corresponding increase
  in revenue, our financial condition would be adversely impacted.

If We Are Not Successful In Legal Proceedings Against Us,
  Then Our Business And Financial Condition Could Be Adversely Affected.

We are currently party to three material legal proceedings,
  as described in Item 3 of Part I under the heading Legal Proceedings.
  A settlement agreement was entered into by the Company and one of the claimants
  during the fiscal year ended August 31, 2003, however, settlement will not be
  concluded until August 2004, at which time a Consent Dismissal Order will be
  entered which will dispose of the action. No amounts have been recorded in our
  financial statements as at August 31, 2003 on the basis that neither of two
  other claims is currently determinable. If we are not successful in these legal
  proceedings and are forced to make payments of damages to the plaintiffs, then
  our business and our financial condition would be adversely affected.

As We Have A History Of Net Losses, There Is No Assurance
  That We Will Attain Profitability.

We have had net losses since our inception in 1998. We have
  an accumulated deficit of $3,669,058. In addition, our loss for the year ended
  August 31, 2003 was $94,272. Our inability to increase our revenues while maintaining
  reduced operating expenses will cause our history of losses to continue.

Our Success Is Dependent, To A Large Degree, Upon The Efforts
  Of Mr. Steve Vestergaard, Our Current Executive Officer.

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

As There Is Substantial Doubt About Our Ability To Continue
  As A Going Concern, An Investment In Our Common Stock Is Risky.

We have disclosed in the notes to our financial statements
  that we have incurred recurring losses from operations and that we have a working
  capital deficiency. Our operations to date have been primarily financed by equity
  transactions. Depending on our ability to grow sales and related cash flows,
  we may need additional capital through public or private financings that may
  not be available on reasonable terms. Accordingly, we will require the continued
  financial support of our shareholders and creditors until we are able to generate
  sufficient cash flows from operations on a sustained basis. There can be no
  assurances that we will be successful. If we are not, we will be required to
  reduce operations or liquidate assets. Our 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 we be
  unable to continue as a going concern. Our auditors have made reference to a
  substantial doubt about our ability to continue as a going concern in their
  audit report on our audited financial statements.

Our Financial Results May Be Adversely Impacted By Currency
  Fluctuations.

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Our revenues are primarily in United States dollars as most
  of our revenues are generated from sales in the United States. Our operating
  expenses are primarily in Canadian dollars due to the fact that our operations
  are located in Vancouver, British Columbia, Canada. An increase in the value
  of the Canadian dollar in relation to the United States dollar could have the
  effect of increasing our loss from operations.

If Our Products Are Defective Or Contain Errors, We May
  Become Subject To Product Liability Claims.

As a result of their complexity, our software products may
  contain undetected errors or failures when first introduced or as new versions
  are released. There can be no assurance that, despite testing we undertake and
  testing and use by current and potential customers, errors will not be found
  in new products after commencement of commercial shipments. The occurrence of
  such errors could result in loss of or delay in market acceptance of our products,
  which could have a material adverse effect on our business, financial condition
  and results of operations. Our products also may be vulnerable to break-ins
  and similar disruptive problems caused by Internet or other users. Such computer
  break-ins and other disruptions would jeopardize the security of information
  stored in and transmitted through the computer systems of our customers, which
  may result in significant liability to us and deter potential customers. The
  sale and support of our products may entail the risk of liability claims. A
  product liability claim brought against us could have a material adverse effect
  on our business, financial condition and results of operations.

Our Ability to Manage Growth.

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

Risk of System Failure and/or Security Risks.

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

Lack of Established Market for Products and Services; Dependence
  on Internet and Intranets as Mediums of Commerce and Communications.

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

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

Product Delays and Errors.

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

Online Commerce Security Risks.

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

International Operations.

We market and sell our products in the United States, Canada,
  Europe, Asia, South America, Africa and Australia. As such, we are subject to
  the normal risks of doing business abroad. Risks include unexpected changes
  in regulatory requirements, export and import restrictions, tariffs and trade
  barriers, difficulties in staffing and managing foreign operations, longer payment
  cycles, problems in collecting accounts receivable, potential adverse tax consequences,
  exchange rate fluctuations, increased risks of piracy, limits on the our ability
  to enforce our intellectual property rights, discontinuity of our infrastructures,
  limitations on fund transfers and other legal and political risks. Such limitations
  and interruptions could have a material adverse effect on our business. We do
  not currently hedge our foreign currency exposures.

Dividend Policy.

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

The Lack of Assurance That We Will Be Able to Meet Our
  Future Capital Requirements.

We currently have limited sources of operating cash flows
  to fund future projects or corporate overhead. We have limited financial resources,
  and there is no assurance that additional funding will be available. Our ability
  to continue to operate will be dependent upon our ability to raise significant
  additional funds in the future.

As Shares of Our Common Stock are Classified as Penny Stock,
  Investors May Have Difficulty Selling Their Shares.

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

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

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

ITEM 2.            DESCRIPTION
  OF PROPERTY.

Our head office is located in leased premises at Suite 1040,
  1055 West Hastings Street, Vancouver, British Columbia, Canada V6E 2E9. Our
  principal business operations are carried out from head office. Our leased premises
  consist of approximately 5,734 square feet. We pay rent of approximately $8,575
  Canadian (equal to approximately $6,190 US) per month. The current lease expires
  February 27, 2004 and we anticipate renegotiating extended favorable terms.
  We consider our leased premises adequate for our current business purposes.

ITEM 3.            LEGAL
  PROCEEDINGS.

Destiny Software Productions Inc, our wholly-owned subsidiary,
  has commenced legal proceedings against Impatica.com Inc. as defendant in the
  Supreme Court of British Columbia, Canada for payment of approximately $512,500
  in unpaid technology licensing fees. During November, 2000 we agreed to license
  our Clipstream and Videoclipstream technology to Impatica in return
  for a $675,000 license fee. The agreement called for payment of that fee in
  three installments against delivery of the technology in three phases. The technology
  was delivered and we received the first two payments totaling $162,500, but
  Impatica has defaulted in paying the last $62,500 in cash and delivering the
  200,000 Impatica shares which were to make up the balance of the purchase price.
  It is our position that Impatica has repudiated the licensing agreement and
  that the unpaid license fees totaling $512,500 are a debt owing by Impatica
  to Destiny. The outstanding balance has not been booked as revenue or elsewhere
  in our financial statements. The Writ of Summons was filed in the BC Supreme
  Court on June 6, 2001. The S.C.B.C. Registry No. is S013166. The defendant has
  denied liability to Destiny Software on the basis that the license agreement
  was not formalized and that funds were advanced on an alleged good faith
  agreement. The defendant has filed a counter-claim against Destiny Software
  seeking return of the

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$162,500 advanced to us on the alleged good faith
  agreement based on the defendants allegation that the technology did not
  perform as represented.

On April 4, 2002, Sanderson Business Resources Ltd., a private
  company owned and operated by a Mr. Alf Sanderson, our former chief financial
  officer, filed a claim against us and Destiny Software Productions alleging
  breach of an engagement agreement. The plaintiff is seeking judgment for the
  sum of CDN $23,701.62 for outstanding invoices that are alleged to be owing
  pursuant to the engagement agreement. In addition, the plaintiff is claiming
  judgment for the sum of CDN $300,000 pursuant to a term of the engagement agreement
  that allegedly obligated us to pay a fee CDN $300,000 if the plaintiff secured
  an equity placement of CDN $1,500,000. The plaintiff is also seeking an order
  that we issue to the plaintiff 120,000 fully vested stock options exercisable
  at the price of $0.25, plus general and special damages. We have filed a statement
  of defence denying liability in this proceeding. We maintain that no equity
  private placement was ever secured by the plaintiff that would require us to
  pay any amount to the plaintiff. We have also filed a counterclaim against Sanderson
  Business Resources and Mr. Alf Sanderson, the principal of Sanderson Business
  Resources and our former chief financial officer. We claim that Mr. Sanderson
  and Sanderson Business Resources breached their contractual and fiduciary duties
  to us, which breaches included misappropriation of funds and corporate assets,
  and are liable to us for damages. Our policy is to provide for costs related
  to contingencies when a loss is probable and the amount reasonably determinable.
  It is the opinion of management, based in part on advice of legal counsel, that
  the ultimate resolution of this contingency will not have a material adverse
  affect on our financial condition. The writ of summons was filed in the British
  Columbia Supreme Court on April 4, 2002. The S.C.B.C Registry No. is S021906.

On April 22, 2002, David Lawrence, our former chief executive
  officer, filed a claim against us and Destiny Software Productions for breach
  of an employment contract and for negligent misrepresentations in connection
  with investments made by Mr. Lawrence in our common stock. Mr. Lawrence is claiming
  wrongful dismissal without just cause and without reasonable notice, contrary
  to the terms of the management agreement between us and Mr. Lawrence. Mr. Lawrence
  is also claiming damages arising from alleged negligent misrepresentations in
  connection investments in the total amount of $185,000 made by Mr. Lawrence
  completed by private placements in our common stock. In addition to damages
  for wrongful dismissal and damages for negligent misrepresentation, Mr. Lawrence
  is claiming CDN $61,269.19 for unpaid salary and expenses,$16,299.83 for expenses,
  interest pursuant to the Court Order Interest Act, R.S.B.C. 1996, c.76 and costs.
  We have filed a statement of defence in this legal proceeding. We claim that
  Mr. Lawrence breached his contractual duties and fiduciary duties to us as an
  officer and as a consequence he was dismissed for cause. We have also denied
  that any misrepresentations were made by us to Mr. Lawrence. We have also filed
  a counterclaim against Mr. Lawrence for damages arising by reason of Mr. Lawrences
  breaches of his fiduciary and contractual duties to us. The Writ of Summons
  was filed in the BC Supreme Court on April 22, 2002. The S.C.B.C. Registry No.
  is S022205. A settlement agreement was entered into by the parties on July 11,
  2003, however, the settlement will not conclude until August 2004, at which
  time a Consent Dismissal Order will be entered which will dispose of the action.
  The Company has agreed to pay the former officer $CDN 50,000 for unpaid salary
  and expenses. This amount has already been accrued in the accounts payable and
  accrued liabilities balance as at August 31, 2003. In addition, the officer
  has agreed to return to the Company 250,000 common shares received as part of
  the compensation package.

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, 2003.

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PART II

ITEM 5.            MARKET
  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

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 trades for our shares for each quarter of actual trading were:

|QUARTER                   | HIGH ($) | LOW ($)
|------------------------- | -------- | -------
|3rdQuarter 2000           | $1.56    | $0.59  
|4thQuarter 2000           | $0.62    | $0.14  
|1stQuarter 2001           | $0.62    | $0.14  
|2ndQuarter 2001           | $0.31    | $0.10  
|3rdQuarter 2001           | $0.17    | $0.07  
|4thQuarter 2001           | $0.19    | $0.07  
|1stQuarter 2002           | $0.26    | $0.11  
|2ndQuarter 2002           | $0.19    | $0.12  
|3rdQuarter 2002           | $0.18    | $0.08  
|4thQuarter 2002           | $0.14    | $0.07  
|1stQuarter 2003           | $0.14    | $0.08  
|2ndQuarter 2003           | $0.11    | $0.06  
|3rdQuarter 2003           | $0.11    | $0.06  
|4thQuarter 2003 (to date) | $0.22    | $0.06  

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 October 29, 2003, we had 33,003,598 shares of our common
  stock outstanding and there were 111 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, 2003, we completed
  the sales of the following securities that were not registered pursuant to the
  Securities Act of 1933 (the Securities Act):

On July 17, 2002, we completed an offering of 500,000 shares
  of our common stock at a price of $0.10 per share to one non-U.S. purchaser
  for total proceeds of $50,000. We completed the offering pursuant

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to Rule 903 of Regulation S of the Securities Act. A finders
  fee of $5,000 was paid by us. The certificates representing the shares were
  endorsed with a legend confirming their restrictive status pursuant to the Securities
  Act. The certificates representing these shares were issued subsequent to August
  31, 2002 and accordingly the investment was recorded on our statement of stockholders
  equity for the fiscal year ended August 31, 2003.

On September 23, 2002, we completed an offering of 50,000
  shares of our common stock at a price of $0.10 per share to one non-U.S. purchaser
  for total proceeds of $5,000. We completed the offering pursuant to Rule 903
  of Regulation S of the Securities Act. The certificates representing the shares
  were endorsed with a legend confirming their restrictive status pursuant to
  the Securities Act.

On September 23, 2002, we issued 25,000 shares of our common
  stock to Mr. John Gammack, one of our consultants. These shares were issued
  to Mr. Gammack based on a deemed price of $0.14 per share as payment to Mr.
  Gammack to settle outstanding accounts payable for services provided during
  the year. The shares were issued pursuant to Section 4(2) of the Securities
  Act. The certificates representing the shares were endorsed with a legend confirming
  their restricted status pursuant to the Securities Act.

On October 10, 2002, we issued 150,000 shares of our common
  stock to Mr. Yoshitaro Kumagai, one of our directors. These shares were issued
  to Mr. Kumagai based on a deemed price of $0.10 per share as payment to Mr.
  Kumagai to settle outstanding accounts payable for services provided during
  the year. The shares were issued pursuant to Section 4(2) of the Securities
  Act. The certificates representing the shares were endorsed with a legend confirming
  their restricted status pursuant to the Securities Act.

On November 20, 2002, we issued 161,300 shares of our common
  stock to Mr. Edward Kolic, one of our directors. These shares were issued to
  Mr. Kolic based on a deemed price of $0.10 per share as payment to Mr. Kolic
  to settle outstanding accounts payable for services provided during the year.
  The shares were issued pursuant to Section 4(2) of the Securities Act. The certificates
  representing the shares were endorsed with a legend confirming their restricted
  status pursuant to the Securities Act.

On November 29, 2002, we entered into private placement agreements
  with four non-U.S. purchasers for the purchase of 2,000,000 units at a price
  of $0.10 per unit for total gross proceeds of $200,000. Each unit consisted
  of one share of our common stock and one share purchase warrant. Each share
  purchase warrant entitles the holder to purchase one additional share of our
  common stock at a price of $0.20 per share for a one year period from closing
  of the private placement. We completed the offering pursuant to Rule 903 of
  Regulation S of the Securities Act. A finders fee of $16,000 was paid
  by us. The certificates representing the shares were endorsed with a legend
  confirming their restrictive status pursuant to the Securities Act.

On December 9, 2002, we entered into private placement agreements
  with two non-U.S. purchasers for the purchase of 1,000,000 common shares at
  a price of $0.10 per common share for total gross proceeds of $100,000. We completed
  the offering pursuant to Rule 903 of Regulation S of the Securities Act. A finders
  fee of $5,000 was paid by us. The certificates representing the shares were
  endorsed with a legend confirming their restrictive status pursuant to the Securities
  Act.

On May 14, 2003, we completed the issuance of 133,333 shares
  of our common stock in the name of one non-U.S. purchaser. The shares are to
  be delivered to the investor in settlement for proceeds of $100,000 that we
  received in respect of a private placement that did not complete in August 2000.
  As the private placement did not complete the funds held for share settlement
  are reclassified as a long term liability until settlement results between the
  company and the investor involved in the August 2000 private placement. The
  shares are to the investor pursuant to Rule 903 of Regulation S of the Securities
  Act. The certificates representing the shares were endorsed with a legend confirming
  their restrictive status pursuant to the Securities Act.

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ITEM 6.            MANAGEMENT'S
  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion of our financial condition and our
  subsidiaries and our results of operations 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

Revenue

Approximately 96% of our revenues continue to be derived from
  sales of our Clipstream software, with the balance being comprised of
  sales of our MPE secure distribution system and sales of our PirateRadio software.
  Four sales of our Clipstream software, our revenues are primarily attributable
  to revenues from license fees. Revenues associated with maintenance agreements
  for our Clipstream software, which include updates, upgrades, support
  and training services, accounted for approximately 20% of Clipstream revenues.

Our revenues increased to $1,133,098 for the year ended August
  31, 2003 from $769,326 for the year ended August 31, 2002, representing an increase
  of $363,772 or 47%. The increase in our revenues is primarily attributable to
  substantial increases in the sales of our Clipstream java-based audio
  and video streaming software products. This increase in revenues was broadly
  spread across revenues from advertising, white labels and OEMs, partner
  fees, corporate intranets, portals and other licensing opportunities. We believe
  the increase in sales of our Clipstream software products is the result
  of our assembly of a core sales group in fiscal 2002 combined with by the market
  acceptance of our Clipstream software products. We believe that market
  acceptance has been the result of consumer recognition of the Clipstream
  brand as an affordable solution and viable alternative to the products being
  offered by our competitors.

Our revenues for the year ended August 31, 2003 included $190,014
  of deferred revenues under software sales completed in prior periods. Accordingly,
  revenues from sales of new software products were $949,075 or 83% for the fiscal
  year ended August 31, 2003, compared to $781,107 or 102% for the fiscal year
  ended August 31, 2002. These deferred revenues represent revenues associated
  with maintenance obligations performed during the year under software sales
  completed in prior periods.

We also experienced increased revenues in fiscal 2003 from
  customers who renewed Clipstream licenses originally purchased in fiscal
  2002 are renewing their agreements. We believe that we will continue to have
  a high level with opportunities for recurring service revenues which may include
  video encoding services, custom development, custom skinning, development of
  email campaigns and hosting.

We plan to focus our sales and marketing efforts on our Clipstream
  software products during 2004. Our plan is to continue to work closely with
  both current customers and potential customers with the objective of raising
  market awareness of our products and ensuring greater consumer adoption of our
  products with resulting higher revenues. We also anticipate that we will continue
  earning revenues from the PirateRadio software suite and our MPE secure
  distribution system during fiscal 2004.

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Operating Expenses

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. General
  and administrative costs decreased to $370,189 for the year ended August 31,
  2003 from $456,827 for the year ended August 31, 2002, a decrease of $86,638
  or 19%. The decrease is primarily due the concerted efforts of our management
  to reduce all unnecessary expenditures. We have encouraged all departments to
  scrutinize expenditures and pursue favorable arrangements with key suppliers
  where possible.

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. Sales and marketing
  costs were $432,109 for the year ended August 31, 2003 from $525,125 for the
  year ended August 31, 2002, representing a decrease of $93,016 or 18%. The decrease
  resulted from a reduction in advertising and promotion costs as well as a reduction
  in all overhead costs incurred by the sales and marketing department. Also,
  we were able to reduce our travel costs and associated expenses including meals
  and entertainment as we elected to not attend various tradeshows and instead
  focus our efforts on direct contact with key personnel of potentially strategic
  customers. Sales and marketing expenses may increase for 2004 due to our continued
  focus on marketing the Clipstream software products, the PirateRadio
  software suite and our launch of the our MPE secure distribution system.

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. Research and development
  costs increased to $367,598 for the year ended August 31, 2003 from $244,074
  for the year ended August 31, 2002, representing an increase of $123,524 or
  51%. The increase is due primarily to a one time charge incurred for consultant
  agreements entered into during the first quarter offset by slight decreases
  to overhead costs. We have seen our products enjoy mainstream acceptance amongst
  the early adopters of technology and have committed ourselves to increasing
  our market position through focused efforts in sales and marketing. We anticipate
  maintaining research and development expenses at current levels through fiscal
  2004.

Depreciation and amortization. Depreciation and amortization
  expenses arose from fixed assets and other assets. Depreciation and amortization
  decreased to $47,894 for the fiscal year ended August 31, 2003 from $101,437
  for the fiscal year ended August 31, 2002, a decrease of $53,543 or 53%. The
  decrease in depreciation and amortization is due to the lower average net book
  value of equipment and the write down of intellectual property and goodwill
  in fiscal 2002.

Other earnings and expenses

Interest expense increased to $18,013 for the fiscal year
  ended August 31, 2003 from $4,152 for an effective increase of $13,861. The
  increase is primarily attributable to the increased number of financial transactions
  being processed as well as interest charges levied against the Company for certain
  aged payables. Interest and other income increased to $8,433 for the 12 months
  ended August 31, 2003 from $4,446 for August 31, 2002 representing an increase
  of $3,987. The change over prior year is due to the Company earning rental income
  on excess space sublet during the year. No rental income was recorded in fiscal
  2002.

Losses

Our loss from operations decreased to $84,692 for the year
  ended August 31, 2003 from $558,137 for the year ended August 31, 2002, representing
  a decrease of $473,445 or 85%. Our loss decreased to $94,272 for the year ended
  August 31, 2003 from $377,688 for the year ended August 31, 2002,

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representing a decrease of $283,416 or 75%. The decreases
  to our loss from operations and loss for the year are the result of our increased
  revenues and decreased operating costs.

For our fiscal year ending August 31, 2004, our management
  plans on concentrating its efforts in the following areas in order to achieve
  profitability:

|1. | Continuing to increase sales of the Clipstream
        technology by undertaking marketing the Clipstream java
        based streaming solution. Development has been completed and we are now
        embarking on a marketing and sales program to fully exploit and maximize
        revenue from this product. Our sales group includes both inside and outside
        sales and a network of ninety resellers in eleven countries. License agreements
        and partnership opportunities will be sought with larger content providers,
        aggregators and resellers.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2. | Maintaining tight control over expenses as the company
        expands its operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3. | Further development and continued marketing of MPE.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

We will have to raise additional funds to complete our business
  plan due to our significant working capital deficit. Our goal is to obtain these
  funds through an optimal mix of internal and external financing opportunities
  including cash flows from operations, strategic partnerships and equity financings.
  There is no assurance that we will achieve the required financing.

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $6,123 as at August 31, 2003 compared to cash
  of $20,997 as at August 31, 2002. We had a working capital deficiency of $428,486
  as at August 31, 2003 compared to a working capital deficiency of $879,171 as
  at August 31, 2002. We had a shareholders deficiency of $445,744 as at
  August 31, 2003 compared to a shareholders deficiency of $696,202 as at
  August 31, 2002.

Working Capital Deficiency

The increase in our working capital deficiency is directly
  attributable to increases in accounts payable and accrued liabilities, demand
  loans and the current portion of deferred revenues. These increases have been
  offset by the extinguishment of the current portion of long-term debt.

Our accounts payable and accrued liabilities increased to
  $543,281 as at August 31, 2003 from $516,710 at August 31, 2002, representing
  an increase of $26,571 or 5%. The increase in our accounts payable and accrued
  liabilities reflects our current inability to finance our operations from current
  product revenues. Included in our accounts payable and accrued liabilities balance
  as at August 31, 2003 is $137,300 of disputed amounts arising from the cancellation
  of various agreements. We are currently considering all options available to
  extinguish these liabilities.

Our loans payable decreased to $10,825 as at August 31, 2003
  from $192,291 as at August 31, 2002. These loans are from one of our shareholders
  and are unsecured and non-interest bearing. The reduction was primarily due
  to the conversion of $184,000 of the loans into equity at a price based on the
  market value of our common stock.

Our current deferred revenues decreased to $64,013 as at August
  31, 2003 from $229,469 as at August 31, 2002, representing a decrease of $165,456
  or 72%. The decrease in deferred revenue is attributable to a change in our
  business practice. We have changed our business practices to separately sell
  our license agreements and maintenance agreements when our sales of our software
  products are completed, as a result, sales of our maintenance agreements which
  were previously sold as part of the

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initial sale of the license, have decreased because most customers
  are not purchasing the maintenance agreements. We anticipate that our deferred
  revenues will continue to decrease based on this business practice. We recognize
  deferred revenue in compliance with Statement of Position No. 97-2 Software
  Revenue Recognition, as referred to in the notes to our audited financial
  statements and as discussed below under the heading Critical Accounting
  Policies. Deferred revenues reflect cash received in advance of meeting
  the revenue recognition criteria as described in the notes to the financial
  statements. Deferred revenues result if we complete sales of our software products
  when significant post-delivery obligations exist. In this case, revenue is deferred
  until we complete the post-delivery obligations. Cash that we receive in advance
  of meeting the revenue recognition criteria is recorded as a deferred revenue
  liability.

Cash Flows

Net cash used in operating activities decreased to $112,270
  for the year ended August 31, 2003 compared to $218,272, representing a decrease
  of $106,002 or 49%. The cash used in operating activities was off-set by net
  cash provided by financing activities in the amount of $117,312 for the year
  ended August 31, 2003 compared to $245,241 for the year ended August 31, 2002.

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, 2003 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 relied on issuances of our common stock in order to pay
  a portion of the consulting fees payable to our directors and consultants during
  the year ended August 31, 2003. We have completed these share issuances due
  to the insufficiency of our cash flows from revenues and financing activities
  to pay for all of our operating costs. These share issuances included the following:

|1. | We issued 1,100,000 common shares to consultants
        for services rendered during the fiscal year ended August 31, 2003. Market
        value of the shares issued for services rendered totaled $141,121.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                               
|2. | We issued 311,300 common shares to certain of our
        directors in settlement of $31,130 of outstanding accounts payable and
        accrued liabilities.                                                 
|   |                                                                                                                                                                                                               
|3. | We issued 25,000 common shares having a market value
        of $3,500 to settle outstanding accounts payable to one of our consultants.                                                                      

In addition, we completed the following issuances of our common
  stock during the year ended August 31, 2003 in respect of our financing activities:

|1. | We issued 500,000 common shares for proceeds of $50,000
        received prior to August 31, 2002.                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                      
|2. | We issued 1,050,000 common shares on a private placement
        at $0.10 per share for proceeds of $105,000. In connection with this offering
        the Company paid an agents fee of $5,000.                                                                                                    
|   |                                                                                                                                                                                                                                                                                                      
|3. | We issued 2,000,000 units at a price of $0.10 per
        unit pursuant to a subscription agreement for proceeds of $200,000. Subscription
        proceeds of $184,000 were collected prior to August 31, 2002. In connection
        with this offering the Company paid an agents fee of $16,000.

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Going Concern

We have incurred recurring losses from operations and we have
  a working capital deficiency. We have disclosed in the notes to our financial
  statements that we have incurred recurring losses from operations and that we
  have a working capital deficiency. Our operations to date have been primarily
  financed by equity transactions. Depending on our ability to grow sales and
  related cash flows, we may need additional capital through public or private
  financings that may not be available on reasonable terms. Accordingly, we will
  require the continued financial support of our shareholders and creditors until
  we are able to generate sufficient cash flows from operations on a sustained
  basis. There can be no assurances that we will be successful. If we are not,
  we will be required to reduce operations or liquidate assets. Our 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 we be unable to continue as a going concern. Our auditors have referred
  to the substantial doubt about our ability to continue as a going concern in
  their audit report on our financial statements included with this Annual Report
  on Form 10-KSB.

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 materially impact
      our reported revenue and cash flow. Although such changes are not currently
      contemplated, they could be required in response to industry or customer
      developments.

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ITEM 7.            FINANCIAL
  STATEMENTS.

Index to Audited Consolidated Financial Statements for the Year Ended August
  31, 2003:

|1. | Auditors Report;                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                
|2. | Consolidated Balance Sheets as at August 31, 2003
        and 2002;                                                            
|   |                                                                                                                                
|3. | Consolidated Statement of Operations for the Years
        ended August 31, 2003 and 2002;                                     
|   |                                                                                                                                
|4. | Consolidated Statement of Stockholders Deficiency
        and Comprehensive Loss for the Years ended August 31, 2003 and 2002;
|   |                                                                                                                                
|5. | Consolidated Statement of Cash Flows for the Years
        ended August 31, 2003 and 2002;                                     
|   |                                                                                                                                
|6. | Notes to Consolidated Financial Statements.                                                                                    

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

Not applicable.

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PART III

ITEM 9.            DIRECTORS,
  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;COMPLIANCE WITH SECTION
  16(A) OF THE EXCHANGE ACT.

Our executive officers and directors and their respective ages as of October 29, 2003 are as follows:

DIRECTORS:

|Name of Director   | Age | 
|------------------ | --- | 
|                   |     | 
|Steven Vestergaard | 37  | 
|                   |     | 
|Edward Kolic       | 42  | 
|                   |     | 
|Lawrence J. Langs  | 42  | 
|                   |     | 
|Yoshitaro Kumagai  | 57  | 
|                   |     | 
|Wayne Koshman      | 41  | 

EXECUTIVE OFFICERS:

|Name of Officer    | Age | Office Held                                                   
|------------------ | --- | --------------------------------------------------------------
|                   |     |                                                               
|Steven Vestergaard | 37  | President, Chief Executive Officer and Chief Financial Officer
|                   |     |                                                               
|Edward Kolic       | 42  | Secretary                                                     

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 chief financial 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 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. In addition, Destiny Software completed work under
  contract for innovative computer software projects, including the development
  of the prototype for the first Internet casino and a high performance HTTP server/
  client test software suite for use in the development of a proprietary web page
  caching machine. 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

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Baccalaureate Degree and a Bachelor of Science Degree in Computer
  Science from the University of British Columbia.

Edward Kolic. Mr. Edward Kolic has been one of our
  directors since February 1999 and is our secretary. 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 has served as our secretary since February 1999. 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.

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

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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.

SIGNIFICANT EMPLOYEES

We have the following employees who we expect to make a significant
  contribution to our business:

John Gammack.Mr. Gammack is our vice-president of
  operations. Mr. Gammack previously worked for us as a consultant and was appointed
  as vice-president of operations in August of 2002. Mr. Gammack was born and
  educated in the United Kingdom having graduated from West Nottinghamshire College
  H.N.C. in Mechanical Engineering. He served as an Officer in the British RAF
  for 3 years. Thereafter he moved to Canada and held positions with Financial
  Trusco, Morgan Leasing and Amdica Technology Inc. where he provided the BC Provincial
  government with computer technology solutions. From January 1996 to April 1998,
  he worked as Western Regional Sales Manager for Dynatek Automation Systems and
  in May 1998 he started D-com Solutions Ltd., a computer storage device provider.
  In May of 2000 he started GIS Technologies Inc., a smart card technology company.
  Mr. Gammacks core responsibilities include overseeing sales, operations
  and assisting with external financing activities.

Jeff Redmond, CA. Mr. Redmond, who joined us in March
  2002, is our controller and reports to Mr. Vestergaard, our chief financial
  officer. Mr. Jeff Redmond has eight years experience working with hi-tech companies
  at various stages of development. From September 1998 to March 2002, he worked
  with KPMG LLP as an auditor focusing on publicly listed companies (SEC/TSE)
  involved in unique transactional work. His core responsibilities include all
  accounting, treasury, strategic planning, financial controls and financial reporting
  functions of the Company. Mr. Redmond holds a professional designation with
  the Institute of Chartered Accountants of British Columbia (Canada) and a Bachelor
  of Arts from the University of Western Ontario.

ELECTION OF DIRECTORS AND OFFICERS

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

Our officers serve at the discretion of our board of directors.

AUDIT COMMITTEE

Our audit committee consists of Mr. Steven Vestergaard, our
  chief executive officer, Mr. Edward Kolic, our secretary and Mr. Wayne Koshman,
  one of our directors. We anticipate modifying our audit committee during the
  current fiscal year in order to ensure that all members of our audit committee
  are independent members of our board of directors. In addition, we currently
  do not have a financial expert on the audit committee.

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COMPENSATION OF DIRECTORS

We do not compensate our directors for acting on our board
  of directors. Our directors are reimbursed for reasonable out-of-pocket expenses
  in connection with attendance at board of director and committee meetings. In
  addition, our directors are eligible for grants of options to purchase shares
  of our common stock at the discretion of our board of directors.

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

|Section 16(a) of the Exchange Act requires
        our executive officers and directors, and persons who beneficially own
        more than ten percent of our equity securities, to file reports of ownership
        and changes in ownership with the Securities and Exchange Commission.
        Officers, directors and greater than ten percent shareholders are required
        by SEC regulation to furnish us with copies of all Section 16(a) forms
        they file. Based on its review of the copies of such forms received by
        us, we believe that during the fiscal year ended August 31, 2003 all such
        filing requirements applicable to our officers and directors were complied
        with.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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. David Lawrence,
  our former chief executive officer, for our fiscal years ended August 31, 2003,
  2002 and 2001. Mr. Vestergaard and Mr. Lawrence are our sole named executive
  officer. None of our executive officers earned more than $100,000 during
  our last fiscal year ended August 31, 2003. No person other than Mr. Vestergaard
  acted as our chief executive officer during our last fiscal year ended August
  31, 2003. No other compensation was paid to Mr. Vestergaard or Mr. Lawrence
  other than the compensation set forth below.

|SUMMARYCOMPENSATION TABLE  
|---------------------------
|                           
|Name                       
|Restricted Stock Awarded   
|Steven Vestergaard (1), (3)
|David Lawrence (2), (3)    

Notes to Summary Compensation Table:

|(1) | All salaries paid to Mr. Vestergaard are paid in Canadian
      dollars.                                                                                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                  
|(2) | Mr. Lawrence was our chief executive
        officer from January 2001 to February 2002. Amounts paid to Mr. Lawrence
        were paid in Canadian dollars. We are currently involved with legal proceedings
        with Mr. Lawrence. See Item 3 of Part I of this Annual Report on Form
        10-KSB under the heading Legal Proceedings.
|    |                                                                                                                                                                                                                                                                                                                                                  
|(3) | Compensation is stated in United States
        dollars and is based on an exchange rate of $0.7635 US dollars for each
        $1.00 Canadian dollar as of October 29, 2003.                                                                                                                                                                    

STOCK OPTION GRANTS

We did not grant any stock options to Mr. Vestergaard, our
  sole named executive officers, during our most recent fiscal year ended August
  31, 2003.

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EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

Mr. Vestergaard, our sole named executive officer, did not
  exercise any stock options during our most recent fiscal year ended August 31,
  2003. The following is a summary of the share purchase options exercised by
  our named executive officers during the financial year ended August 31, 2003
  and the year end values of outstanding options held by our named executive officers:

|AGGREGATED OPTION/SAR EXERCISES DURING THE
      LASTFINANCIAL YEAR END AND FINANCIAL YEAR-END OPTION/SAR VALUES
|----------------------------------------------------------------------------------------------------------------
|Name (#)                                                                                                        
|Steven Vestergaard President CEO and
      CFO Director                                                         
|David Lawrence Former Chief Executive
      Officer                                                             

LONG-TERM INCENTIVE PLANS

We do not have any long-term incentive plans.

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OUTSTANDING STOCK OPTIONS

The following table shows the issued and outstanding stock
  options held by our officers and directors. No person known by us to beneficially
  own more than 5% of our common stock as of October 29, 2003 holds any stock
  options.

|OUTSTANDING STOCK OPTIONS                                                            
|-------------------------------------------------------------------------------------
|Name                                                                                 
|Steven Vestergaard Chief Executive Officer and Chief Financial
      Officer Director
|Edward Kolic Secretary Director                                                      
|Wayne Koshman
      Director                                                         
|Yoshitaro Kumagai Director                                                           
|Lawrence J. Langs Director                                                           

COMPENSATION ARRANGEMENTS

We currently pay to Mr. Vestergaard a salary of $96,315 Canadian
  (equal to approximately $73,537 US) per year. 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.

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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 October 29,
  2003 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
      and Chief Financial Officer | 8,790,030(2)                     | 26.3%                        
|Common Stock            | Edward Kolic Secretary Director                                                        | 782,310(3)                       | 3.0%                         
|Common Stock            | Lawrence J. Langs Director                                                             | 150,000(4)                       | 0.5%                         
|Common Stock            | Yoshitaro Kumagai Director                                                             | 400,000(5)                       | 1.2%                         
|Common Stock            | Wayne Koshman Director                                                                 | 107,917(6)                       | 0.3%                         
|Common Stock            | All Officers and Directors as a Group (5 persons)                                      | 10,280,257                       | 30.8%                        
|5% SHAREHOLDERS        
|Not applicable          | Not applicable                                                                         | Not applicable                   | Not applicable               

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

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|    | 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 not necessarily
        reflect the persons actual ownership or voting power with respect
        to the number of shares of common stock actually outstanding on October
        29, 2003. As of October 29, 2003, there were 33,003,598 shares of our
        common stock issued and outstanding.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) | Consists of 8,405,030 shares held by
        Mr. Vestergaard and 375,000 shares that are immediately acquirable upon
        the exercise of stock options held by Mr. Vestergaard within 60 days of
        October 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(3) | Consists of 632,310 shares held by Mr.
        Kolic and 150,000 shares that are immediately acquirable upon the exercise
        of stock options held by Mr. Kolic within 60 days of October 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(4) | Consists of 150,000 shares that are
        immediately acquirable upon the exercise of stock options held by Mr.
        Langs within 60 days of October 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(5) | Consists of 250,000 shares held by Mr.
        Kumagai and 150,000 shares that are immediately acquirable upon the exercise
        of stock options held by Mr. Kumagai within 60 days of October 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(6) | Consists of 107,917 shares that are
        immediately acquirable upon the exercise of stock options held by Mr.
        Koshman within 60 days of October 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

CHANGE IN CONTROL

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

EQUITY COMPENSATION PLAN INFORMATION

We have one equity compensation plan, namely our 1999 Stock
  Option Plan, under which up to 3,750,000 shares of our common stock have been
  authorized for issuance to our officers, directors, employees and consultants.
  Our 1999 Stock Option Plan has been approved by the Companys stockholders.
  The following summary information is presented for our 1999 Stock Option Plan
  on an aggregate basis as of August 31, 2003.

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|                                                                 | 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     | 2,105,500 Shares of Common Stock                                                                  | $0.52 per Share                                                                   | 1,644,500 Shares of Common Stock                                                                                                                       
|Equity Compensation Plans Not Approved By
      Security Holders | Not Applicable                                                                                    | Not Applicable                                                                    | Not Applicable                                                                                                                                         

ITEM 12.            CERTAIN
  RELATIONSHIPS AND RELATED TRANSACTIONS.

Except as described below, 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.

ACQUISITIONS OF BUSINESS ASSETS

On October 20, 1999, we completed the purchase of Destiny
  Software, a private corporation wholly owned by Steven Vestergaard, the current
  president of the Company. The purchase price was 1,800,000 shares of restricted
  common stock.

In June 1999, we purchased all of the issued and outstanding
  shares of Wonderfall Productions Inc., a British Columbia company, from Mr.
  Ed Kolic, one of our directors, in consideration of the purchase price of $20,000.
  Wonderfall Productions had a history in computer games production and marketing
  and at the time of acquisition, had two games that had not been commercially
  released. The rationale for the

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acquisition of WonderFall Productions was so that we could
  exploit the potential of these games and gain access to Mr. Kolic's marketing
  skills.

SHARE ISSUANCES

We have issued the following shares of our common stock to
  our officers and directors:

|1. | On October 10, 2002, we issued 150,000 shares of
        our common stock to Mr. Yoshitaro Kumagai, a member of the Board of Directors,
        as payment to Mr. Yoshitaro Kumagai in settlement of outstanding accounts
        payable for consulting services previously rendered. The deemed price
        of $0.10 per share was based on the market price for our common stock
        as of October 10, 2002.                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2. | On November 20, 2002, we issued 161,300 shares of
        our common stock to Mr. Edward Kolic, a director and our former chief
        operating officer, as payment to Mr. Kolic of accrued but unpaid consulting
        fees in the amount of $16,130. This consulting fee was accrued in our
        fiscal year ended August 31, 2002. The deemed price of $0.10 per share
        was based on the market price for our common stock as of November 20,
        2002.

These shares issuances are discussed under Item 5 of Part
  II of this Annual Report on Form 10-KSB under the heading Recent Sales
  of Unregistered Securities.

MANAGEMENT AGREEMENTS

We entered into a management agreement with Mr. David Lawrence,
  our former chief executive officer, dated May 1, 2001. We are currently in legal
  proceedings relating to this management agreement and other matters. See Item
  3 of Part I of this Annual Report on Form 10-KSB under the heading Legal
  Proceedings.

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

(a) 	Exhibits

|EXHIBIT NUMBER | DESCRIPTION                                                                                                                                                                              
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                          
|31.1           | Certification of Chief Executive Officer
      and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (1)                                           
|               |                                                                                                                                                                                          
|32.1           | Certification of Chief Executive Officer and 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) Filed as an exhibit to
  this Annual Report on Form 10-KSB

(b)       Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of our fiscal year ended August 31, 2003.

The following reports on Form 8-K have been filed since August 31, 2003.

|Date of Form 8-K | Date of Filing with the SEC | Description of the Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---------------- | --------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|October 31, 2003 | November 5, 2003            | Disclosure that the Company
        has dismissed KPMG LLP (the "Former Accountant") as the principal independent
        accountant of the Company effective October 31, 2003. The Company has
        engaged Grant Thornton LLP, as its principal independent accountant effective
        October 31, 2003. The decision to change principal independent accountants
        has been approved by the Companys audit committee and its board
        of directors

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ITEM 14.            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 and Chief Financial Officer, Mr. Steven Vestergaard. 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 significant changes in our internal
  controls or in other factors that could significantly 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 to be disclosed
  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.

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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 and Chief Financial Officer
|                                 | Director                                           
|                                 | Date:           November
      26, 2003            

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

|By: | /s/ Steven Vestergaard                                         | 
|--- | -------------------------------------------------------------- | 
|    | Steven Vestergaard, President                                  | 
|    | Chief Executive Officer and Chief Financial Officer            | 
|    | (Principal Executive Officer)                                  | 
|    | (Principal Financial Officer and Principal Accounting Officer) | 
|    | Director                                                       | 
|    | Date:           November
      26, 2003                        | 
|    |                                                                | 
|    |                                                                | 
|By: | /s/ Edward Kolic                                               | 
|    | Edward Kolic                                                   | 
|    | Director                                                       | 
|    | Date:           November
      26, 2003                        | 
|    |                                                                | 
|    |                                                                | 
|By: | /s/ Wayne Koshman                                              | 
|    | Wayne Koshman                                                  | 
|    | Director                                                       | 
|    | Date:           November
      26, 2003                        | 

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| | Consolidated Financial Statements
        (Expressed in United States dollars)
      DESTINY MEDIA TECHNOLOGIES INC.
      Years ended August 31, 2003 and 2002
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



F-1

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Grant Thornton LLP 
  Chartered Accountants

MANAGEMENT CONSULTANTS

Independent Auditors' Report

The Shareholders 
  Destiny Media Technologies Inc.

We have audited the consolidated balance sheet of Destiny
  Media Technologies Inc. as of August 31, 2003 the consolidated statement of
  operations, stockholders deficiency and comprehensive loss and cash flows
  for the year then ended. These consolidated financial statements are the responsibility
  of the Company's management. Our responsibility is to express an opinion on
  these consolidated financial statements based on our audits.

We conducted our audit in accordance with auditing standards
  generally accepted in the United States of America. Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audit provides
  a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Destiny Media Technologies Inc. as of August 31, 2003 and the results of its
  operations and its cash flows for the year then ended in conformity with accounting
  principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been
  prepared assuming that the Company will continue as a going concern. As discussed
  in note 2 to the financial statements, the Company has incurred recurring losses
  from operations and has a working capital deficiency that 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 financial statements
  do not include any adjustments that might result from the outcome of this uncertainty.

|                  | GRANT THORNTON LLP 
|----------------- | ---------------------
|                  |                      
|Vancouver, Canada |                      
|October 17, 2003  | Chartered Accountants

F-2

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INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders 
  Destiny Media Technologies Inc.

We have audited the consolidated balance sheet of Destiny
  Media Technologies Inc. as of August 31, 2002 and the consolidated statements
  of operations, stockholders deficiency and comprehensive loss and cash
  flows for the year then ended. These consolidated financial statements are the
  responsibility of the Company's management. Our responsibility is to express
  an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards
  generally accepted in the United States of America. Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audit provides
  a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Destiny Media Technologies Inc. as of August 31, 2002 and the results of its
  operations and its cash flows for the year then ended in conformity with accounting
  principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been
  prepared assuming that the Company will continue as a going concern. As discussed
  in note 2 to the financial statements, the Company has incurred recurring losses
  from operations and has a working capital deficiency that 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 financial statements
  do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in note 3(n) to the financial statements, the
  Company changed its method of accounting for losses on the extinguishment of
  debt.

signed KPMGLLP

Chartered Accountants

Vancouver, Canada 
  October 11, 2002

F-3

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DESTINY MEDIA TECHNOLOGIES INC. 
  Consolidated Balance Sheets
  (Expressed in United States dollars)

August 31, 2003 and 2002

|                                                                          |   | 2003       |   |   | 2002       |  
|------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                          |   |            |   |   |            |  
|Assets                                                                    |   |            |   |   |            |  
|                                                                          |   |            |   |   |            |  
|Current assets:                                                           |   |            |   |   |            |  
|Cash                                                                      | $ | 6,123      |   | $ | 20,997     |  
|Short-term
      investments                                              |   | 8,091      |   |   | 7,016      |  
|Accounts receivable,
      net of allowance for doubtful accounts of      |   |            |   |   |            |  
|$12,241
      (2002 - $19,626)                                            |   | 169,402    |   |   | 74,824     |  
|Inventory                                                                 |   | 4,305      |   |   | -          |  
|Prepaid
      expenses                                                    |   | 1,712      |   |   | 56,497     |  
|Total current assets                                                      |   | 189,633    |   |   | 159,334    |  
|                                                                          |   |            |   |   |            |  
|Other assets, net of accumulated amortization of $44,665 (2002 - $19,717) |   | 28,009     |   |   | 34,595     |  
|                                                                          |   |            |   |   |            |  
|Note receivable, net of provision of $99,946 (2002 - $nil) (note 6)       |   | -          |   |   | 99,946     |  
|                                                                          |   |            |   |   |            |  
|Equipment (note
      7)                                                  |   | 54,733     |   |   | 72,986     |  
|                                                                          |   |            |   |   |            |  
|Total assets                                                              | $ | 272,375    |   | $ | 366,861    |  
|                                                                          |   |            |   |   |            |  
|                                                                          |   |            |   |   |            |  
|Liabilities and Stockholders Deficiency                                  |   |            |   |   |            |  
|                                                                          |   |            |   |   |            |  
|Current liabilities                                                       |   |            |   |   |            |  
|Accounts payable
      and accrued liabilities (note 8)                   | $ | 543,281    |   | $ | 516,710    |  
|Related
      party payable                                               |   | -          |   |   | 35         |  
|Loans payable (note
      9)                                              |   | 10,825     |   |   | 192,291    |  
|Deferred
      revenue                                                    |   | 64,013     |   |   | 229,469    |  
|Total current liabilities                                                 |   | 618,119    |   |   | 938,505    |  
|                                                                          |   |            |   |   |            |  
|Deferred revenue                                                          |   | -          |   |   | 24,558     |  
|                                                                          |   |            |   |   |            |  
|Obligation for share settlement (note 10)                                 |   | 100,000    |   |   | 100,000    |  
|                                                                          |   |            |   |   |            |  
|Stockholders deficiency:                                                 |   |            |   |   |            |  
|Common
      stock, par value $0.001                                      |   |            |   |   |            |  
|Authorized:
      100,000,000 shares                                      |   |            |   |   |            |  
|Issued
      and outstanding:33,003,598 shares (2002  28,730,903)        |   | 33,005     |   |   | 28,382     |  
|Issued
      and held for settlement: 133,333 shares                      |   |            |   |   |            |  
|Common
      stock issuable                                               |   | -          |   |   | 50,000     |  
|Additional paid-in
      capital                                          |   | 3,246,079  |   |   | 2,828,580  |  
|Deferred
      stock compensation                                         |   | (865       | ) |   | (18,093    | )
|Deficit                                                                   |   | (3,669,058 | ) |   | (3,574,786 | )
|Accumulated
      other comprehensive loss                                |   | (54,905    | ) |   | (10,285    | )
|Total
      stockholders deficiency                                      |   | (445,744   | ) |   | (696,202   | )
|                                                                          |   |            |   |   |            |  
|Total liabilities
      and stockholders deficiency                      | $ | 272,375    |   | $ | 366,861    |  

Continuing operations (note 2) 
  Commitments and contingencies (notes 13 and 14)

See accompanying notes to consolidated financial statements.

F-4

---

DESTINY MEDIA TECHNOLOGIES INC. 
  Consolidated Statements of Operations
  (Expressed in United States dollars)

Years ended August 31, 2003 and 2002

|                                                      |   | 2003       |   |   | 2002       |  
|----------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                      |   |            |   |   |            |  
|Revenue                                               | $ | 1,133,098  |   | $ | 769,326    |  
|                                                      |   |            |   |   |            |  
|Operating expenses:                                   |   |            |   |   |            |  
|General and administrative                            |   | 370,189    |   |   | 456,827    |  
|Sales and marketing                                   |   | 432,109    |   |   | 525,125    |  
|Research and development                              |   | 367,598    |   |   | 244,074    |  
|Depreciation
      and amortization                   |   | 47,894     |   |   | 101,437    |  
|                                                      |   | 1,217,790  |   |   | 1,327,463  |  
|                                                      |   |            |   |   |            |  
|Loss from operations                                  |   | (84,692    | ) |   | (558,137   | )
|                                                      |   |            |   |   |            |  
|Interest expense                                      |   | (18,013    | ) |   | (4,152     | )
|Interest and other income                             |   | 8,433      |   |   | 4,446      |  
|Loss on debt settlement                               |   | -          |   |   | (2,800     | )
|Gain on sale
      of subsidiary (note 5)             |   | -          |   |   | 182,955    |  
|                                                      |   |            |   |   |            |  
|Loss for the
      year                               | $ | (94,272    | ) | $ | (377,688   | )
|                                                      |   |            |   |   |            |  
|Loss per common
      share, basic and diluted        |   | (0.00      | ) |   | (0.01      | )
|                                                      |   |            |   |   |            |  
|Weighted average common shares outstanding, basic and |   |            |   |   |            |  
|diluted                                               |   | 32,148,984 |   |   | 28,087,085 |  

See accompanying notes to consolidated financial statements.

F-5

---

DESTINY MEDIA TECHNOLOGIES INC. 
  Consolidated Statements of Stockholders Deficiency and Comprehensive Loss
  
  (Expressed in United States dollars)

|                                                   |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   | Total         |  
|-------------------------------------------------- | ------------------ | - | - | ------- | - | - | ---------- | - | - | -------- | - | - | ------------ | - | - | ----------- | - | - | ---------- | - | - | ------------- | -
|                                                   |                    |   |   |         |   |   | Additional |   |   |          |   |   | Deferred     |   |   |             |   |   | Cumulative |   |   | stockholders |  
|                                                   | Common
      stock |   |   | paid-in |   |   | Shares     |   |   | stock    |   |   |              |   |   | translation |   |   | equity     |  
|                                                   | Shares             |   |   | Amount  |   |   | capital    |   |   | issuable |   |   | compensation |   |   | Deficit     |   |   | adjustment |   |   | (deficiency)  |  
|                                                   |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|Balance, August 31, 2001                           | 27,177,358         |   |   | 26,928  |   |   | 2,648,018  |   |   | 54,372   |   |   | (44,931      | ) |   | (3,197,098  | ) |   | (13,806    | ) |   | (526,517      | )
|                                                   |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|Loss for the year                                  | -                  |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | (377,688    | ) |   | -          |   |   | -             |  
|Cumulative translation adjustment                  | -                  |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | -           |   |   | 3,521      |   |   | -             |  
|Comprehensive loss                                 |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   | (374,164      | )
|Common stock issued for services rendered          | 488,605            |   |   | 489     |   |   | 58,883     |   |   | (44,372  | ) |   | -            |   |   | -           |   |   | -          |   |   | 15,000        |  
|Common stock issued for debt arising in            |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|prior year                                         | 624,940            |   |   | 625     |   |   | 68,118     |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 68,743        |  
|Common stock issued for debt arising in            |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|current year                                       | 140,000            |   |   | 140     |   |   | 16,660     |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 16,800        |  
|Common stock issued for services to be             |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|rendered                                           | 250,000            |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | -             |  
|Cancellation of common stock issued for            |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|services to be rendered                            | (150,000           | ) |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | -             |  
|Common stock issued for cash on private            |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|placement                                          | 200,000            |   |   | 200     |   |   | 18,800     |   |   | (10,000  | ) |   | -            |   |   | -           |   |   | -          |   |   | 9,000         |  
|Common stock issuable for cash on private          |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|placement                                          | -                  |   |   | -       |   |   | (5,000     | ) |   | 50,000   |   |   | -            |   |   | -           |   |   | -          |   |   | 45,000        |  
|Deferred stock compensation                        | -                  |   |   | -       |   |   | 10,450     |   |   | -        |   |   | (10,450      | ) |   | -           |   |   | -          |   |   | -             |  
|Cancellation of stock options                      | -                  |   |   | -       |   |   | (4,142     | ) |   | -        |   |   | 4,142        |   |   | -           |   |   | -          |   |   | -             |  
|Amortization of deferred stock compensation        | -                  |   |   | -       |   |   | -          |   |   | -        |   |   | 33,146       |   |   | -           |   |   | -          |   |   | 33,146        |  
|Options issued
      to non-employees for services | -                  |   |   | -       |   |   | 16,793     |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 16,793        |  
|                                                   |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|Balance, August 31, 2002                           | 28,730,903         |   | $ | 28,382  |   | $ | 2,828,580  |   | $ | 50,000   |   | $ | (18,093      | ) | $ | (3,574,786  | ) | $ | (10,285    | ) | $ | (696,202      | )
|                                                   |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|Loss for the year                                  | -                  |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | (94,272     | ) |   | -          |   |   | -             |  
|Cumulative translation adjustment                  | -                  |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | -           |   |   | (44,620    | ) |   | -             |  
|Comprehensive loss                                 |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   | (138,892      | )
|Common stock issued for services rendered          |                    |   |   |         |   |   |            |   |   | -        |   |   |              |   |   |             |   |   |            |   |   |               |  
|(notes 11 (a)(i) and (ii))                         | 1,100,000          |   |   | 1,100   |   |   | 140,021    |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 141,121       |  
|Common stock issued for settlement of debt         |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|(note 11 (a)(iii))                                 | 336,300            |   |   | 336     |   |   | 34,294     |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 34,630        |  
|Common stock issued for cash on private            |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|placement (notes 11 (b)(i) and (ii) )              | 1,550,000          |   |   | 1,550   |   |   | 148,450    |   |   | (50,000  | ) |   | -            |   |   | -           |   |   | -          |   |   | 100,000       |  
|Common stock issued on conversion of               |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|loans payable (note 11 (c))                        | 2,000,000          |   |   | 2,000   |   |   | 182,000    |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 184,000       |  
|Finders fee cancelled                              | -                  |   |   | -       |   |   | 10,000     |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 10,000        |  
|Provision for note receivable (note 6)             |                    |   |   |         |   |   | (99,946    | ) |   |          |   |   |              |   |   |             |   |   |            |   |   | (99,946       | )
|Amortization of deferred stock compensation        | -                  |   |   | -       |   |   | (3,646     | ) |   | -        |   |   | 17,228       |   |   | -           |   |   | -          |   |   | 13,582        |  
|Common stock cancelled (note 11 (d))               | (713,605           | ) |   | (363    | ) |   | 363        |   |   |          |   |   | -            |   |   | -           |   |   | -          |   |   | -             |  
|Options issued
      to non-employees for services | -                  |   |   | -       |   |   | 5,963      |   |   | -        |   |   | -            |   |   | -           |   |   | -          |   |   | 5,963         |  
|                                                   |                    |   |   |         |   |   |            |   |   |          |   |   |              |   |   |             |   |   |            |   |   |               |  
|Balance, August
      31, 2003                     | 33,003,598         |   | $ | 33,005  |   | $ | 3,246,079  |   | $ | -        |   | $ | (865         | ) | $ | (3,669,058  | ) | $ | (54,905    | ) | $ | (445,744      | )

See accompanying notes to consolidated financial statements.

F-6

---

DESTINY MEDIA TECHNOLOGIES INC. 
  Consolidated Statements of Cash Flows 
  (Expressed in United States dollars)

Years ended August 31, 2003 and 2002

|                                                                    |   | 2003     |   |   | 2002     |  
|------------------------------------------------------------------- | - | -------- | - | - | -------- | -
|                                                                    |   |          |   |   |          |  
|Cash flows from operating activities:                               |   |          |   |   |          |  
|Loss for the year                                                   | $ | (94,272  | ) | $ | (377,688 | )
|Items not involving
      cash:                                     |   |          |   |   |          |  
|Depreciation
      and amortization                                 |   | 47,874   |   |   | 101,437  |  
|Shares
      issued for services rendered                           |   | 141,121  |   |   | 15,000   |  
|Shares
      issued for debt settlement                             |   | -        |   |   | 85,543   |  
|Stock-based
      compensation  employees                          |   | 13,582   |   |   | 33,146   |  
|Stock-based
      compensation  non-employees                      |   | 5,963    |   |   | 16,793   |  
|Interest
      accrued on term deposit                              |   | (142     | ) |   | (84      | )
|Gain
      on sale of subsidiary                                    |   | -        |   |   | (182,955 | )
|Changes in non-cash
      working capital:                          |   |          |   |   |          |  
|Accounts
      receivable                                           |   | (80,066  | ) |   | (12,543  | )
|Inventory                                                           |   | (4,024   | ) |   |          |  
|Prepaid
      expenses                                              |   | 57,267   |   |   | (44,705  | )
|Accounts
      payable and accrued liabilities                      |   | 9,296    |   |   | 132,883  |  
|Deferred
      revenue                                              |   | (208,869 | ) |   | 14,901   |  
|Net cash used in
      operating activities                         |   | (112,270 | ) |   | (218,272 | )
|                                                                    |   |          |   |   |          |  
|Cash flows from investing activities:                               |   |          |   |   |          |  
|Purchase of equipment                                               |   | (938     | ) |   | (20,478  | )
|Purchase
      of other assets                                      |   | (10,489  | ) |   | (10,431  | )
|Net cash used in
      investments                                  |   | (11,427  | ) |   | (30,909  | )
|                                                                    |   |          |   |   |          |  
|Cash flows from financing activities:                               |   |          |   |   |          |  
|Proceeds from loans
      payable                                   |   | 1,349    |   |   | 192,291  |  
|Proceeds on sale
      of subsidiary                                |   | -        |   |   | 250      |  
|Common stock issuable,
      net of agent fees                      |   | -        |   |   | 45,000   |  
|Net proceeds from
      issuances of common stock and subscriptions |   | 116,000  |   |   | 9,000    |  
|Amounts
      paid to related party                                 |   | (37      | ) |   | (1,300   | )
|Net
      cash provided by financing activities                     |   | 117,312  |   |   | 245,241  |  
|                                                                    |   |          |   |   |          |  
|Net increase (decrease) in cash during the year                     |   | (6,385   | ) |   | (3,940   | )
|                                                                    |   |          |   |   |          |  
|Effect of foreign exchange rate changes on cash                     |   | (8,489   | ) |   | (5,506   | )
|                                                                    |   |          |   |   |          |  
|Cash, beginning
      of year                                       |   | 20,997   |   |   | 30,443   |  
|                                                                    |   |          |   |   |          |  
|Cash, end of
      year                                             | $ | 6,123    |   | $ | 20,997   |  
|                                                                    |   |          |   |   |          |  
|Supplementary disclosure:                                           |   |          |   |   |          |  
|Cash paid for:                                                      |   |          |   |   |          |  
|Interest                                                            | $ | 18,013   |   | $ | 4,152    |  
|Income
      tax                                                    |   | -        |   |   | -        |  
|Non-cash transactions:                                              |   |          |   |   |          |  
|Common
      stock issued from cash received in prior period        |   | 50,000   |   |   | -        |  
|Stock
      issued for settlement of debt                           |   | 34,630   |   |   | 85,543   |  
|Stock
      issued for services rendered                            |   | 141,121  |   |   | 15,000   |  
|Deferred
      stock-based compensation                             |   | 19,545   |   |   | 49,937   |  
|Common
      stock issued on conversion of loans payable            |   | 184,000  |   |   | -        |  
|Barter
      transaction                                            |   | 9,700    |   |   | 36,000   |  

See accompanying notes to consolidated financial statements.

F-7

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|1. | Organization:
        Destiny Media Technologies Inc. (the Company) was incorporated
          in August 1998 under the laws of the State of Colorado. The Company
          develops enabling technologies that allow for the distribution over
          the Internet of digital media files in either a streaming or digital
          download format. The technologies are proprietary. The Company operates
          out of Vancouver, BC, Canada and serves customers predominantly located
          in the United States and Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2. | Continuing operations:
      From inception of the business, the Company has incurred
        cumulative losses of $3,669,058 and at August 31, 2003 had a working capital
        deficiency of $428,486. As a result, substantial doubt exists about its
        ability to continue as a going concern.
      These financial statements have been prepared on the
        going concern basis which assumes that the Company will be able to realize
        its assets and satisfy its liabilities and commitments in the ordinary
        course of business. Operations to date have been primarily financed by
        equity transactions. Depending on the Companys ability to continue
        to grow sales and related cash flows, the Company may need additional
        capital through public or private financings that may not be available
        on reasonable terms. Accordingly, the Company will require the continued
        financial support from its shareholders and creditors until it is able
        to generate sufficient cash flows from operations on a sustained basis.
        It is managements intention to leverage the Companys existing
        technology to further develop sales and to evaluate its projected expenditures
        relative to its available cash. There can be no assurances that the Company
        will be successful in generating additional cash for operations. If it
        is not successful in generating cash for operations, the Company will
        be required to reduce operations or liquidate assets. The consolidated
        financial statements do not include any adjustments relating to the recoverability
        of assets and classification of assets and liabilities that might be necessary
        should the Company be unable to continue as a going concern.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3. | Significant accounting policies:
      These consolidated financial statements have been prepared using generally
        accepted accounting principles in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-8

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|3. | Significant accounting
        policies:
|-- | ----------------------------------------
|   |                                         
|   | (b)                                     
|   |                                         
|   | (c)                                     
|   |                                         
|   | (d)                                     
|   |                                         
|   | (e)                                     
|   |                                         
|   | (f)                                     
|   |                                         
|   | (g)                                     

F-9

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

| | (h) | 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.
        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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------
|   |                                             
|   | (h)                                         
|   |                                             
|   | (i)                                         

| |     | Asset                                                                                                                                                                                                                           | Rate | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | 
| |     |                                                                                                                                                                                                                                 |      | 
| |     | Furniture and fixtures                                                                                                                                                                                                          | 20%  | 
| |     | Computer hardware                                                                                                                                                                                                               | 30%  | 
| |     | Computer software                                                                                                                                                                                                               | 50%  | 
| |     |                                                                                                                                                                                                                                 |      | 
| |     | Leasehold improvements are amortized on a straight-line basis
      over the term of the lease.                                                                                                                                
| |     |                                                                                                                                                                                                                                
| | (j) | Other assets:
      Other assets consist of domain names, trademarks and
        patents and are being amortized straight-line over three years. The amortization
        to be recorded in the next three years is as follows:

| |     | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $ | 11,136 | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | - | ------ | 
| |     | 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $ | 11,136 | 
| |     | 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $ | 5,737  | 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $ | 28,009 | 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (k) | Impairment of long-lived assets:
        The Company assesses the recoverability of its long-lived assets by
          determining whether the carrying value of the long-lived assets can
          be recovered over their remaining lives through undiscounted future
          operating cash flows. The amount of impairment, if any, is measured
          based on projected discounted future operating cash flows using a discount
          rate reflecting the Companys average cost of funds. The assessment
          of the recoverability will be impacted if estimated future operating
          cash flows are not achieved. Through August 31, 2003, no impairment
          charges have been recognized.

F-11

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|3. | Significant accounting
        policies (continued):
|-- | ----------------------------------------------------
|   |                                                     
|   | (l)                                                 
|   |                                                     
|   | (m)                                                 
|   |                                                     
|   | (n)                                                 
|   |                                                     
|   | (o)                                                 

F-12

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------
|   |                                             
|   | (p)                                         

| |  |                                                   |   | 2003     |   |   | 2002     |  
| |  | ------------------------------------------------- | - | -------- | - | - | -------- | -
| |  | Loss for the period:                              |   |          |   |   |          |  
| |  | As
      reported                                 | $ | (94,272  | ) | $ | (377,688 | )
| |  | Stock-based
      compensation expense recognized | $ | 19,545   |   | $ | 49,939   |  
| |  | Compensation
      expense based on fair value    |   |          |   |   |          |  
| |  | method                                            | $ | (67,907  | ) | $ | (112,235 | )
| |  | Pro
      forma                                   | $ | (142,634 | ) |   | (439,984 | )
| |  | Loss per share, basic and diluted:                |   |          |   |   |          |  
| |  | As
      reported                                 | $ | (0.00    | ) | $ | (0.01    | )
| |  | Pro
      forma                                   | $ | (0.00    | ) | $ | (0.02    | )
| |  |                                                   |   |          |   |   |          |  

F-13

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------
|   |                                             
|   | (p)                                         

| |  |                                                  |   | 2003       |  |   | 2002       | 
| |  | ------------------------------------------------ | - | ---------- |  | - | ---------- | 
| |  | Per share weighted - average fair value of stock |   |            |  |   |            | 
| |  | options granted                                  | $ | 0.12       |  | $ | 0.13       | 
| |  | Expected dividend yield                          |   | -          |  |   | -          | 
| |  | Risk-free interest rate                          |   | 5.5%       |  |   | 5.5%       | 
| |  | Volatility                                       |   | 190%       |  |   | 192%       | 
| |  | Expected lives                                   |   | 2.00 years |  |   | 2.00 years | 
| |  |                                                  |   |            |  |   |            | 

|   | (q)                    | Accounting change:
      For the year ended August 31, 2003, the Company adopted
        Statement of Financial Accounting Standards No. 145, (SFAS 145),
        which resulted in a change in the classification of a loss arising on
        debt settlement as an extraordinary item to an item included within loss
        from continuing operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                       
|4. | Recent Pronouncements:
|   |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (a)                    | Accounting for costs associated with exit or disposal activities:
        In June 2002, the FASB issued Statement 146, Accounting for Costs
          Associated with Exit or Disposal Activities. This statement requires
          entities to recognize costs associated with exit or disposal activities
          when liabilities are incurred rather than when the entity commits to
          an exit or disposal plan, as currently required. Examples of costs covered
          by this guidance include one-time employee termination benefits, costs
          to terminate contracts other than capital leases, costs to consolidate
          facilities or relocate employees, and certain other exit or disposal
          activities. This statement is effective for fiscal years beginning after
          December 31, 2002, and will impact any exit or disposal activities the
          Company initiates after that date.

F-14

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|4. | Recent Pronouncements
        (continued):
|-- | ------------------------------------------
|   |                                           
|   | (b)                                       
|   |                                           
|   | (c)                                       

F-15

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|4. | Recent Pronouncements (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|5. | Disposition:
        On August 27, 2002, the Company entered into a binding agreement with
          an unrelated company, (the Purchaser) to sell its subsidiary
          Wonderfall. Under the terms of the agreement, the Company agreed to
          sell and the Purchaser agreed to purchase all of the issued and outstanding
          common shares in Wonderfall.
        There were no tangible assets owned by Wonderfall. The composition
          of the liabilities sold are contained in the following table:

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |         | 
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------- | 
|       | Liabilities assumed:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |         | 
|       | Current portion of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 160,762 | 
|       | Long-term
      debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 22,443  | 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |         | 
|       | Total liabilities assumed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 183,205 | 
|       | Consideration received:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |         | 
|       | Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 250     | 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |         | 
|       | Gain
      on sale of Wonderfall                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $ | 182,955 | 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|**6.** | Note receivable:
      During the year ended August 31, 2003 an accounting
        provision was recorded against the note receivable due to the uncertainty
        of its resolution and collection. The note receivable consists of proceeds
        from short-swing profits owing to the Company by a former director, in
        accordance with securities regulatory rules in the United States. The
        note bears interest at a rate of prime plus 1%. The Company has commenced
        proceedings regarding the collection of the note as the balance plus interest
        was due on September 8, 2001.

F-16

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|7. | Equipment              |   |         |  |   |                  |  |   |          | 
|-- | ---------------------- | - | ------- |  | - | ---------------- |  | - | -------- | 
|   |                        |   |         |  |   |                  |  |   |          | 
|   |                        |   |         |  |   | Accumulated      |  |   |          | 
|   |                        |   |         |  |   | depreciation and |  |   | Net book | 
|   | 2003                   |   | Cost    |  |   | amortization     |  |   | value    | 
|   |                        |   |         |  |   |                  |  |   |          | 
|   | Furniture and fixtures | $ | 58,309  |  | $ | 34,806           |  | $ | 23,503   | 
|   | Computer hardware      |   | 120,061 |  |   | 89,606           |  |   | 30,455   | 
|   | Computer software      |   | 17,014  |  |   | 17,014           |  |   | -        | 
|   | Leasehold improvements |   | 8,791   |  |   | 8,016            |  |   | 775      | 
|   |                        |   |         |  |   |                  |  |   |          | 
|   |                        | $ | 204,175 |  | $ | 149,442          |  | $ | 54,733   | 
|   |                        |   |         |  |   |                  |  |   |          | 
|   |                        |   |         |  |   | Accumulated      |  |   |          | 
|   |                        |   |         |  |   | depreciation and |  |   | Net book | 
|   | 2002                   |   | Cost    |  |   | amortization     |  |   | value    | 
|   |                        |   |         |  |   |                  |  |   |          | 
|   | Furniture and fixtures | $ | 52,570  |  | $ | 25,548           |  | $ | 27,022   | 
|   | Computer hardware      |   | 106,933 |  |   | 67,872           |  |   | 39,061   | 
|   | Computer software      |   | 15,036  |  |   | 10,189           |  |   | 4,847    | 
|   | Leasehold improvements |   | 7,769   |  |   | 5,713            |  |   | 2,056    | 
|   |                        |   |         |  |   |                  |  |   |          | 
|   |                        | $ | 182,308 |  | $ | 109,322          |  | $ | 72,986   | 

|8. | Accounts payable and accrued liabilities
      Accrued liabilities as at August 31, 2003 and 2002 totaled $53,838 and
        $47,538 respectively.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                    
|9. | Loans payable:                                                                                                                                     

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 2003   |  |   | 2002    | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------ |  | - | ------- | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |        |  |   |         | 
|    | Loan payable, due to a shareholder, unsecured,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |        |  |   |         | 
|    | non-interest bearing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 10,825 |  | $ | 168,291 | 
|    | Loan payable, due to a shareholder, unsecured,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |        |  |   |         | 
|    | non-interest
      bearing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | -      |  |   | 24,000  | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |        |  |   |         | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 10,825 |  | $ | 192,291 | 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10. | 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 did not complete
        in August of 2000. As the private placement did not complete 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 settlement results between the Company and parties
        involved in the August 2000 private placement

F-17

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|11. | Share capital:
|--- | --------------
|    |               
|    | (a)           
|    |               
|    | (i)           
|    |               
|    | (ii)          
|    |               
|    | (iii)         
|    |               
|    | (b)           
|    |               
|    | (i)           
|    |               
|    | (ii)          
|    |               
|    | (c)           

F-18

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|11. | Share capital (continued):
|--- | --------------------------
|    |                           
|    | (d)                       
|    |                           
|    | (e)                       

| |  |                                    |           |   |   | Weighted             |  
| |  | ---------------------------------- | --------- | - | - | -------------------- | -
| |  |                                    | Number of |   |   | average              |  
| |  |                                    | shares    |   |   | exercise
      price |  
| |  |                                    |           |   |   |                      |  
| |  | Outstanding, August 31, 2001       | 2,518,500 |   | $ | 0.40                 |  
| |  | Granted                            | 220,000   |   |   | 0.07                 |  
| |  | Exercised                          | -         |   |   | -                    |  
| |  | Forfeited                          | (603,000  | ) |   | (0.54                | )
| |  | Expired                            | -         |   |   | -                    |  
| |  |                                    |           |   |   |                      |  
| |  | Outstanding, August 31, 2002       | 2,135,500 |   |   | 0.49                 |  
| |  | Granted                            | -         |   |   | -                    |  
| |  | Exercised                          | -         |   |   | -                    |  
| |  | Forfeited                          | (255,000  | ) |   | (0.57                | )
| |  | Expired                            | -         |   |   | -                    |  
| |  |                                    |           |   |   |                      |  
| |  | Outstanding,
      August 31, 2003 | 1,880,500 |   | $ | 0.48                 |  

F-19

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|11. | Share capital (continued):
|--- | --------------------------
|    |                           
|    | (e)                       

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |  |             |  | Options
      outstanding |  | Options
      exercisable |                
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ----------- |  | ------------------------- |  | ------------------------- | ---------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |  |             |  | Weighted                  |  |                           |                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |  |             |  | average                   |  |                           | Weighted       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |  |             |  | remaining                 |  |                           | average        
| |     | Exercise                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |  | Number      |  | contractual               |  |                           | exercise price 
| |     | prices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |      |  | outstanding |  | life
      (in years)     |  |                           | per
      share
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |  |             |  |                           |  |                           |                
| |     | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 0.25 |  | 1,127,500   |  | 2.22                      |  | $                         | 0.22           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 0.83 |  | 120,000     |  | 1.11                      |  |                           | 0.83           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 1.00 |  | 558,000     |  | 1.25                      |  |                           | 1.00           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 1.80 |  | 50,000      |  | 1.67                      |  |                           | 1.80           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 2.50 |  | 25,000      |  | 2.08                      |  |                           | 2.50           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |  |             |  |                           |  |                           |                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |  | 1,880,500   |  |                           |  | $                         | 0.48           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | Of the total options outstanding at year
        end, 1,702,500 (2002  1,732,500) were granted to employees and 178,000
        (2002  403,000) were granted to non-employees of the Company. The
        compensation expense, representing the intrinsic value of the options
        granted to employees was $13,582 (2002 - $33,146), calculated in accordance
        with APB Opinion No. 25. The compensation expense related to options granted
        to non-employees was $5,963 (2002 - $16,793), calculated in accordance
        with SFAS 123.
      During December 2000, the Company cancelled 825,000
        options held by Directors and granted replacement options with a lower
        exercise price. For accounting purposes, these replacement options are
        accounted for as variable plan options up until the date the awards are
        exercised, forfeited or expired, whereby compensation expense is recorded
        to the extent that the market price at the reporting date exceeds the
        new exercise price. As at August 31, 2003, of the original 825,000 options
        cancelled and re-issued, 385,000 options have been forfeited. No incremental
        compensation has been recognized for variable options in fiscal year 2003.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (f) | Warrants:
      During the fiscal year ended August 31, 2003, the Company
        issued 2,000,000 warrants in conjunction with a private placement subscription
        that closed on November 29, 2002. (note 11(c)). Each warrant entitles
        the subscriber to purchase one share of the Companys common stock
        for a one year period from the closing of the private placement. The exercise
        price of each warrant is $0.20 per share and they expire November 29,
        2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-20

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|12. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |            |   |   |            |  
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |            |   |   |            |  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 2003       |   |   | 2002       |  
|    | Deferred tax assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |            |   |   |            |  
|    | Net operating loss
      carry forwards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $ | 1,348,555  |   | $ | 1,121,883  |  
|    | Book
      over tax depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 34,699     |   |   | 91,337     |  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 1,383,253  |   |   | 1,213,220  |  
|    | Valuation
      allowance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | (1,383,253 | ) |   | (1,213,220 | )
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |            |   |   |            |  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | $ | -          |   | $ | -          |  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Based on historical operations, management is not able to demonstrate
          that it is more likely than not that the results of future operations
          will generate sufficient taxable income to realize the net deferred
          tax assets, before the valuation allowance, reflected on the Companys
          balance sheet.
        The reconciliation of income tax attributable to continuing operations
          computed at the U.S. federal statutory tax rates to income tax expense
          is:

| |                                                                                                   | 2003    |  | 2002    | 
| | ------------------------------------------------------------------------------------------------- | ------- |  | ------- | 
| |                                                                                                   |         |  |         | 
| | Tax at U.S. statutory rates                                                                       | 34.0%   |  | 34.0%   | 
| | Rate difference in other jurisdictions                                                            | -       |  | 1.6%    | 
| | Change
      in valuation allowance                                                               | (34.0%) |  | (35.6%) | 
| |                                                                                                   |         |  |         | 
| | Tax
      recovery (expense)                                                                      | -       |  | -       | 
| |                                                                                                  
| | The reconciliation of (losses) earnings from operations by
      geographic region is as follows:

| |               |   | 2003     |   |   | 2002     |  
| | ------------- | - | -------- | - | - | -------- | -
| |               |   |          |   |   |          |  
| | United States | $ | (180,742 | ) | $ | (70,391  | )
| | Canada        |   | 86,470   |   |   | (307,297 | )
| |               |   |          |   |   |          |  
| |               | $ | (94,272  | ) | $ | (377,688 | )

F-21

---

|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|13. | Commitment:
        Under an operating lease agreement the Company is committed to premises
          lease payments of $31,755 in 2004
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                        
|14. | Contingencies:                                                                                                                         
|    |                                                                                                                                        
|    | (a)                                                                                                                                    
|    |                                                                                                                                        
|    | (b)                                                                                                                                    

F-22

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|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|14. | Contingencies (continued):                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                         
|    | (c)                                                                                                                                                                     
|    |                                                                                                                                                                         
|15. | Related party transactions and balances:
        Related party transactions not disclosed elsewhere in these consolidated
          financial statements are as follows:
|    |                                                                                                                                                                         
|    | (a)                                                                                                                                                                     
|    |                                                                                                                                                                         
|    | (b)                                                                                                                                                                     
|    |                                                                                                                                                                         
|    | (c)                                                                                                                                                                     
|    |                                                                                                                                                                         
|    | (d)                                                                                                                                                                     

F-23

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|DESTINY MEDIA TECHNOLOGIES INC.
        
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2003 and 2002
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|16. | Financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|17. | Segmented information:
      In the opinion of management, the Company operates solely
        in the digital media software segment, and all revenue from its products
        and services are made in this segment. Management of the Company makes
        decisions about allocating resources based on this one operating segment.
        Substantially, all assets and operations are in Canada. A summary of revenue
        by region (based on location of customers) is as follows:

| | Years
      ended August 31, |   | 2003      |  |   | 2002    | 
| | ---------------------------- | - | --------- |  | - | ------- | 
| |                              |   |           |  |   |         | 
| | United States                | $ | 792,338   |  | $ | 423,562 | 
| | Canada                       |   | 209,720   |  |   | 137,635 | 
| | Other                        |   | 131,040   |  |   | 208,129 | 
| |                              |   |           |  |   |         | 
| | Total
      revenue          | $ | 1,133,098 |  | $ | 769,326 | 

F-24

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