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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, 2004

 ̈ Transition
  Report Under Section 13 Or 15(D) Of The Securities Exchange Act Of 1934

For the transition period from _____ to _____

COMMISSION FILE NUMBER 000-28259

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

|COLORADO                                                             | 84-1516745                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation
      or organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|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: $751,914

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.) $15,170,161 as of December 8,2004

State the number of shares outstanding of each of the issuer's
  classes of common equity, as of the latest practicable date. 36,119,431
  Shares of Common Stock as of December 8, 2004

Transitional Small Business Disclosure Format (check one):
  Yes ̈  Nox

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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.                                                                                              | 19  
|           |                                                                                                                       |     
|Item 3.    | Legal Proceedings.                                                                                                    | 19  
|           |                                                                                                                       |     
|Item 4.    | Submission Of Matters To A Vote Of Security
      Holders.                                                            | 20  
|           |                                                                                                                       |     
|PART II    |                                                                                                                      
|           |                                                                                                                       |     
|Item 5.    | Market For Common Equity And Related Stockholder
      Matters.                                                       | 21  
|           |                                                                                                                       |     
|Item 6.    | Management's Discussion And Analysis Or
      Plan Of Operation.                                                      | 22  
|           |                                                                                                                       |     
|Item 7.    | Financial Statements.                                                                                                 | 30  
|           |                                                                                                                       |     
|           |                                                                                                                       |     
|Item 8.    | Changes In And Disagreements With Accountants
      On Accounting And Financial Disclosure.                           | 31  
|           |                                                                                                                       |     
|Item 8A.   | Controls And Procedures                                                                                               | 31  
|           |                                                                                                                       |     
|PART III   |                                                                                                                      
|           |                                                                                                                       |     
|Item 9.    | Directors, Executive Officers, Promoters
      And Control Persons; Compliance With Section 16(A) Of The Exchange Act | 32  
|           |                                                                                                                       |     
|Item 10.   | Executive Compensation                                                                                                | 35  
|           |                                                                                                                       |     
|Item 11.   | Security Ownership Of Certain Beneficial
      Owners And Management                                                  | 38  
|           |                                                                                                                       |     
|Item 12.   | Certain Relationships And Related Transactions                                                                        | 40  
|           |                                                                                                                       |     
|Item 13.   | Exhibits And Reports On Form 8-K                                                                                      | 41  
|           |                                                                                                                       |     
|Item 14.   | Principal Accountant and Services.                                                                                    | 42  
|           |                                                                                                                       |     
|Signatures | 43                                                                                                                   

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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. is a holding company that
  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.

We develop software tools that enable digital content owners
  to:

| | A) | Stream audio and video content in web pages and
        emails on a variety of operating systems and on compliant hardware devices.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------
| | B) | Securely sell digital content online so that it
        is protected from piracy                                                   
| | C) | Securely move digital content from one computer
        to another through the internet.                                           

The company has developed four proprietary technologies to
  facilitate the distribution of digital content. All four technologies are commercially
  mature and ready for market.

|1. | ClipstreamTM is a playerless streaming audio and
        streaming video technology which enables content owners to embed live
        and on demand audio and video into websites and emails on a variety of
        operating systems and compliant hardware devices.                                                                                                                                                                                                                
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | MPETM is a system for a) enabling the secure sale
        of digital content via peer to peer networks and b) 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
        other content including video, software, electronic books and research
        reports.
|3. | The 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 ClipstreamTM or within the Destiny
        Media Player product.                                                                                                                                                                                                                                     

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|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.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ClipstreamTM licenses and maintenance currently represents
  approximately 96% of our recognized revenues. The Radio Destiny Broadcaster
  and Destiny Media Player are sold online under the brand name Pirate Radio.
  Pirate Radio represents approximately 4% of our recognized revenue.

The original version of MPETM was developed beginning in 1999
  to facilitate sales of music to consumers through peer to peer networks. The
  MPETM download was self-executing and included an e-commerce process, a player,
  album cover graphics, lyrics and links to the artist’s website.

The company found it difficult to generate revenues through
  music sales and marketing of MPETM was suspended in late 2000.

In early 2003, the company identified an opportunity to adapt
  the MPETM technology so that recording companies could move songs securely through
  the internet. This would provide significant savings to the industry in physical
  media and delivery costs, while providing a higher level of service.

A new MPETM system was developed which featured list management,
  ClipstreamTM powered email previews and reporting. This system was launched in
  October 2003 to the Canadian music industry on a trial basis.

With strong feedback from the recording industry, the MPETM
  system was adapted through 2004 to include stronger list management, integrated
  CD burning, support for other formats and a more functional user interface.
  The company announced a license agreement with the Universal Music Group in
  June 2004, which included a requirement for further customization. This customization
  was completed and the release version of MPETM was announced subsequent to year
  end in October 2004.

Revenues from the MPETM system are transaction based and are
  billed to the content owners as songs are moved securely to radio stations,
  music reviewers, buyers, internally and to trusted users and VIP’s. These
  revenues began subsequent to year end and should become significant by mid fiscal
  2005 as transactions increase in size and other record labels adopt the system.

In fiscal 2004, work continued on adopting the consumer version
  of MPETM for utilization by commercial users including DJ’s, restaurants,
  nightclubs and digital jukeboxes. The company has secured access to a catalogue
  of mainstream music and expects to launch an online store for commercial users
  in fiscal 2005.

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.

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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 EA, MGM,
  Sony 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 ClipstreamTM that enables web site owners to upload audio and video media
  content to a standard web server using the ClipstreamTM software and to have
  the media content play back on almost all 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 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 ClipstreamTM software products. As a result
  of this determination, we stopped supporting the MPE security 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 ClipstreamTM.

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 in fiscal 2003 and the release version
  of MPETM subsequent to year end.

OUR PRODUCTS

ClipstreamTM Suite
  http://www.clipstream.com

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

|1. | ClipstreamTM Audio
|-- | -----------------

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|2. | ClipstreamTM Video     
|-- | ----------------------
|  
|3. | ClipstreamTM Live      
|  
|4. | ClipstreamTM Audiomail 
|  
|5. | ClipstreamTM IVR Server

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

ClipstreamTM 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 ClipstreamTM player is
  either an Active X control or a Java applet and because these technologies are
  natively supported by most email and web browser clients, ClipstreamTM content
  will play instantly for 98% of the audience. The content will play directly
  within an email or web page rather than in a separate window. This makes ClipstreamTM
  uniquely well suited for advertising and high reliability applications such
  as in military applications. 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 ClipstreamTM
  compression formats using the ClipstreamTM encoder software that 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. The code key system is a
  proprietary system developed by Destiny, which could be sold commercially.

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

Our ClipstreamTM 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 ClipstreamTM 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. This can present a significant savings in server
        infrastructure as it takes significantly less server hardware to support
        ClipstreamTM than competing solutions.
|
| | 3. | The ClipstreamTM software enables streaming through
        firewalls and proxies that may block competing streaming solutions.                                                                                                                                                                                                                             
|
| | 4. | The ClipstreamTM software is compatible with FlashTM,
        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.                                                                                                                                                                                                                         

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| | 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 ClipstreamTM format and upload
        it to their web site with the accompanying applet.                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 7. | We have developed our ClipstreamTM software to be
        as scaleable as possible. A video or audio clip encoded in ClipstreamTM
        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 ClipstreamTM 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 ClipstreamTM software products are described below:

|ClipstreamTM Video     | Our ClipstreamTM 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 ClipstreamTM Video product also
        eliminates the requirement of a customer to develop multi- streaming formats
        to reach the customer’s targeted audience.                                                                                                         
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|ClipstreamTM Audio     | Our ClipstreamTM 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.                                                                                                                                                                                                                                                                                   
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|ClipstreamTM Live      | The ClipstreamTM Live system
        enables customers to embed live video into any web delivery method, including
        web pages, e-mails, advertisements and specific web applications. 
        Our ClipstreamTM 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.                                    
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|ClipstreamTM Audiomail | ClipstreamTM 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 ClipstreamTM
        AudioMail system is marketed as both a personal and an enterprise software
        solution.                                                          
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|ClipstreamTM IVR       | The ClipstreamTM 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 ClipstreamTM 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 ClipstreamTM format; (iii) output
        the ClipstreamTM audio files to a specified folder on a network accessible
        drive; and (iv) instigate an application when new audio files have been
        saved.

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We plan to focus future development of the ClipstreamTM 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 ClipstreamTM 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 non-commercial
  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 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.

MPETM 
  http://www.destinympe.com
  The original version of our MPETM 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 right holder’s
  audio or video media to be encoded in our proprietary MPETM 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 MPETM media file can be unlocked
  by the customer once the purchase is complete. The objective of the MPETM software
  is to ensure broad distribution of digital files via peer-to-peer systems such
  as Napster while ensuring that the originating

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artist gets paid. Currently, the MPETM 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.

We have adapted the original version of MPETM for a business
  to business model where we charge the recording industry a fee for each song
  they send to radio stations and trusted users. We created a system that announces
  the song via a ClipstreamTM 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.

The system has grown quickly since the October 6, 2004 launch,
  subsequent to year end. As of November 19, 2004, there are 5,102 unique users
  from 1,078 recipient companies and 193 tracks have been added to the system
  by 30 different record labels.

OUR TARGETED MARKETS

ClipstreamTM

Our targeted market for our ClipstreamTM software products include:

| | A) | Advertisers                                                                           
| | -- | --------------------------------------------------------------------------------------
| | B) | Market Research Companies                                                             
| | C) | Military Applications                                                                 
| | D) | Web Portals                                                                           
| | E) | Custom Applications where our video is integrated into another software
      solution
| | F) | Email Marketing                                                                       
| | G) | Distance Learning                                                                     
| | H) | Music Previews                                                                        
| | I) | Online Communities                                                                    
| | J) | Website navigation                                                                    
| | K) | Corporate Communications                                                              
| | L) | Movie Trailers                                                                        
| | M) | Corporate Intranets                                                                   
| | N) | Send to a friend Email Campaigns                                                      

PirateRadio

Our PirateRadioTM 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 also offering this product through Amazon.com.

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MPETM

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 are targeting radio
  to create demand.

We are also expecting to sell MPETM encoded content through
  an online store and through partnerships with digital jukebox manufacturers
  to commercial music users.

OUR REVENUE MODEL

ClipstreamTM Products

We license our ClipstreamTM 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 ClipstreamTM branding and potentially incorporating their own
  branding.

We charge an encode fee and a “cost per thousand impressions”
  fee to customers who incorporate our ClipstreamTM software technology into their
  e-mail campaigns.

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

Our Clipstream Live video server system is priced based on
  the number of streams as a software license.

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 ClipstreamTM 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.

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. This code key manager was developed
  by Destiny and is proprietary.

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

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MPETM

Subsequent to year end, we began to charge based on the number
  of tracks and the number of recipients.

Our sales of music will be on a per track basis. A royalty
  will be paid back to the content owners.

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 to our current
  customers and to our targeted potential customers. In addition, we have established
  a network of over 100 global resellers. We charge our reseller partners an annual
  partner fee that 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.

ClipstreamTM:http://www.clipstream.com
  Radio Destiny Broadcaster and Destiny Media Player: http://www.pirateradio.com
  
  MPETM: http://www.destinympe.com

Some MPETM sales are marketed through our commercial partner,
  Promo Only.

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

1.
      We include short advertisements for ClipstreamTM
          on media clips that incorporate our ClipstreamTM software.2.
      We locate icons on our applets that include links
          to our ClipstreamTM web site when clicked on by a user.3.
      We typically require our ClipstreamTM customers
          to add a ClipstreamTM link on their web site or e- mail campaign. This
          ever increasing number of incoming links to the ClipstreamTM site increases
          the rating in the search engines, so that ClipstreamTM 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”
          ClipstreamTM 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.

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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.

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 twelve 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 three
  software developers. We also employ a book keeper and other 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.

We run our own high end servers, which support dual CPU’s,
  redundant power supplies, RAID arrays for storage and a real time back up server.

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 MacromediaTM, Hello NetworksTM,
  Eye WonderTM and OplayoTM. 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 the Live 365 Network.

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

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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.

TRADEMARKS AND INTELLECTUAL PROPERTY

We have been granted a trademark for ClipstreamTM 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 for the MPETM distribution
  system and for the ClipstreamTM audio and video codecs. Patent protection is
  currently pending.

Trademark protection for MPETM 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.

RISK OF NON-COMPLIANCE WITH THE SECTION 404 OF THE SARBANES-OXLEY
  ACT OF 2002.

Beginning in Fiscal 2005, Section 404 of the Sarbanes-Oxley
  Act of 2002 ("the Act") will require the Company to include an internal control
  report of management in its Annual Report on Form 10-KSB. The internal control
  report must contain (i) a statement of management's responsibility for establishing
  and maintaining adequate internal control over financial reporting, (ii) a statement
  identifying the framework used by management to conduct the required evaluation
  of the effectiveness of our internal control over financial reporting, (iii)
  management's assessment of the effectiveness of our internal control over financial
  reporting as of the end of our most recent fiscal year, including a statement
  as to whether or not internal control over financial reporting is effective,
  and (iv) a statement that the Company's independent auditors have issued an
  attestation report on management's assessment of internal control over financial
  reporting.

At the conclusion of the Fiscal 2004 year end audit, the Company’s
  auditors identified several material weaknesses, potentially jeopardizing our
  ability to issue an unqualified 302 certification in connection with the 2004
  Annual Report filed on Form 10-KSB. Those material weaknesses included corporate
  governance control issues, revenue internal control issues, payroll internal
  control issues, and financial reporting internal control issues.

Management acknowledges its responsibility for internal controls
  over financial reporting and seeks to continually improve those controls. In
  addition, in order to achieve compliance with Section 404 of the Act within
  the prescribed period, beginning in early Fiscal 2005, the Company will engage
  in a process to document and evaluate its internal controls over financial reporting.
  In this regard, management will dedicate internal resources, engage outside
  consultants and adopt a detailed work plan to (i) assess and document the adequacy
  of internal control over financial reporting, (ii) take steps to improve control
  processes where appropriate, (iii) validate through testing that controls are
  functioning as documented and (iv) implement a continuous reporting and improvement
  process for internal control over financial reporting. The Company believes
  the process commencing in early Fiscal 2005 for documenting, evaluating and
  monitoring its internal control over financial reporting will be consistent
  with the objectives of Section 404 of the Act and will ensure that the material
  weaknesses identified by the auditor during the Fiscal 2004 year end audit will
  be remediated.

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In addition, the Company will have to improve its financial
  controls as they relate to the material weaknesses as discussed. The Company
  can provide no assurance as to its, or its independent auditors, conclusions
  at August 31, 2005 with respect to the effectiveness of its internal control
  over financial reporting under Section 404 of the Act. The existence of the
  above factors and circumstances create a risk that the Company, or its independent
  auditors, will not be able to conclude at August 31, 2005 that the Company's
  internal controls over financial reporting are effective as required by Section
  404 of the Act.

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 $407,872 as of August
  31, 2004. In addition, we had accounts payable and accrued liabilities in the
  amount of $440,997 as of August 31, 2004. We had a loss from operations
  of $419,436 for the year ended August 31, 2004. 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, 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, existing
  shareholders will experience dilution of their interests in Destiny.

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

Our revenues have decreased to $751,914 for the year ended
  August 31, 2004 from $1,133,098 for the year ended August 31, 2003. The
  decrease in revenue is attributed to our internal focus on the commercial deployment
  of MPETM. The allocation of significant resources to the final stages of the
  MPETM development and customization has resulted in the reduction in ClipstreamTM
  revenues for fiscal 2004. Our operating expenses to date 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 all product
  revenues. We are working to continue the increase in revenues from sales of
  our ClipstreamTM software. We are commercially launching our MPE secure media
  distribution system to the market in the first quarter of fiscal 2005. There
  is no assurance that we will be able to continue to increase revenues from our
  ClipstreamTM 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 ClipstreamTM 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 ClipstreamTM 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 ClipstreamTM 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.

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We have been successful in containing our operating expenses.
  However, operating expenses did increase slightly to $1,256,580 for the
  year ended August 31, 2004 from $1,217,790 for the year ended August 31,
  2003. Our ability to achieve profitability is conditional upon our ability to
  maintain our operating expenses. While we have been successful in containing
  our operating expenses, there is a risk that we will have to increase our operating
  expenses in the future. Factors that could cause our operating expenses to increase
  include our determination to spend more on sales and marketing in order to increase
  product sales or our determination that more research and development expenditures
  are required in order to keep our current software products competitive or in
  order to develop new products for the market. To the extent that our operating
  expenses increase without a corresponding increase in revenue, our financial
  condition would be adversely impacted.

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

We are currently party to two material legal proceedings,
  as described in Item 3 of Part I under the heading “Legal Proceedings”.
  If we are not successful in these legal proceedings and are forced to make payments
  of damages to the plaintiffs, then our business and our financial condition
  would be adversely affected. As at August 31, 2004, the Company has accrued
  for the disputed fees and will seek all options available to extinguish this
  debt. Any adjustments to the amounts recognized will be recorded when determinable.

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 $4,088,494. In addition, our loss for the year
  ended August 31, 2004 was $419,436. 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 $12,600
  Canadian (equal to approximately $10,270 US) per month. The lease expires
  August 31, 2007. 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 ClipstreamTM and VideoclipstreamTM 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.

The Company’s are currently in discussions to resolve
  this matter outside of the courts.

On September 14, 2004, subsequent to year end, a statement
  of claim was filed against the Company by its former solicitor for fees of $145,978
  CDN relating to legal services provided in connection with a failed transaction
  in 2001 and other general corporate matters. It is the Company’s position
  that a significant portion of the fees being sought by its former solicitor
  are unwarranted and that the fees should not be borne by the Company. The Company
  has engaged legal counsel to defend itself. The Writ of Summons was filed in
  the BC Supreme Court on September 14, 2004. As at August 31, 2003 and 2004,
  the Company has accrued for the disputed fees and will seek all options available
  to extinguish this debt. Any adjustments to the amounts recognized will be recorded
  when determinable.

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, 2004.

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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                 | $0.22    | $0.06  
|1stQuarter 2004                 | $0.35    | $0.08  
|2ndQuarter 2004                 | $0.36    | $0.16  
|3rdQuarter 2004                 | $0.66    | $0.37  
|4thQuarter 2004
      (to date) | $0.69    | $0.28  

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 December 8, 2004, we had 36,119,431 shares of our common
  stock outstanding and there were 1,710 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.

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Recent Sales of Unregistered Securities  
  During our fiscal year ended August 31, 2004, we completed the sales of the
  following securities that were not registered pursuant to the Securities Act
  of 1933 (the “Securities Act”):  
  On November 21, 2003, we completed an offering of 2,000,000 shares of our common
  stock at a price of $0.15 per share to a group of investors for total proceeds
  of $300,000. We completed the offering pursuant to Rule 903 of Regulation
  S of the Securities Act. A finder’s fee of $30,000 was paid by us.
  The certificates representing the shares were endorsed with a legend confirming
  their restrictive status pursuant to the Securities Act.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 ClipstreamTM
  software, with the balance being comprised of sales of our PirateRadio software.
  For sales of our ClipstreamTM software, our revenues are primarily attributable
  to revenues from license fees. Revenues associated with maintenance agreements
  for our ClipstreamTM software, which include updates, upgrades, support and training
  services, accounted for approximately 20% of ClipstreamTM revenues. 
  Our revenues decreased to $751,914 for the year ended August 31, 2004 from
  $1,133,098 for the year ended August 31, 2003, representing a decrease of
  $381,184 or 34%. The decrease over prior years revenues is a direct result
  of the Company allocating significant resources to the final development and
  customization of MPETM for commercial deployment in the first quarter of 2005.
  
  In addition, we note revenues in 2003 included $184,023 from deferred revenues
  recognized under software sales from prior periods compared to $64,013 as
  at August 31, 2004, a decrease of $120,010 or 65%. Our revenues for the
  year ended August 31, 2004 included $64,013 of deferred revenues under software
  sales completed in prior periods. Accordingly, revenues from sales of new software
  products were $687,901 or 91% for the fiscal year ended August 31, 2004,
  compared to $949,075 or 83% for the fiscal year ended August 31, 2003. These
  deferred revenues represent revenues associated with maintenance obligations
  performed during the year under software sales completed in prior periods. 
  $50,000  of the deferred revenues represent part payment of an MPETM
  customization fee paid by  Universal Music Group. The MPETM system was launched
  October 6th, 2004 and began generating transaction based revenue
  on that date. Revenues will depend on the rate of adoption by radio and trusted
  users. There are competing systems and there is no assurance that this revenue
  will continue if the system doesn’t continue to receive support from the
  industry. 
  ClipstreamTM revenues were negatively impacted because of a shift of resources
  to facilitate the launch and marketing of MPETM. We are expecting ClipstreamTM
  revenues to grow significantly in the coming year as we plan to increase our
  sales and marketing efforts.

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Operating Expenses

|General and administrative | August 31, | August 31, | $         | %       
|-------------------------- | ---------- | ---------- | --------- | --------
|                           | 2004       | 2003       | Change    | Change  
|                           |            |            |           |         
|Wages and benefits         | $159,689   | $189,499   | $(29,810) | (15.73%)
|                           |            |            |           |         
|Rent                       | 24,045     | 16,381     | 7,664     | 46.79%  
|                           |            |            |           |         
|Telecommunications         | 9,996      | 13,430     | (3,434)   | (25.57%)
|                           |            |            |           |         
|Bad debt                   | 31,745     | 17,414     | 14,331    | 82.30%  
|                           |            |            |           |         
|Office and miscellaneous   | 198,363    | 100,486    | 97,877    | 97.40%  
|                           |            |            |           |         
|Professional fees          | 86,236     | 32,979     | 53,257    | 161.49% 
|                           |            |            |           |         
|                           | $510,074   | $370,189   | $139,885  | 37.79%  

General and Administrative. Our general and administrative
  expenses consist primarily of salaries and related costs including overhead,
  professional fees, and other general office expenditures. General and administrative
  costs increased to $510,074 for the year ended August 31, 2004 from $370,189
  for the year ended August 31, 2003, an increase of $139,885 or 38%. The
  increase in general and administrative costs is primarily due to an increase
  of $97,877 for office and miscellaneous expenses, an increase of $53,257
  for professional fees and an increase of $14,331 to bad expense compared
  to fiscal 2003. The increase to general and administrative costs was partially
  offset by a reduction to wages and benefits of $29,810. The increase to
  office and miscellaneous expenses resulted because of us incurring a one-time
  charge of approximately $80,000 as well as monthly recurring fees relating
  to corporate initiatives for promotional and business development activities.
  During the 12 months ending August 31, 2004, we incurred significant legal fees
  to conclude the settlement of an outstanding lawsuit filed by a former employee
  as well as additional legal fees for the filing of our Form S-8 with the SEC
  and other general corporate matters. Professional fees will continue to be significant
  with the added disclosure requirements being implemented and enforced by the
  SEC due to the certification requirements under the Sarbanes-Oxley Act of 2002.
  The increase in bad debt expense included approximately $8,500 in charges
  relating to a failed transaction as well as other miscellaneous accounts that
  were deemed uncollectible during the fiscal period ending August 31, 2004. Wages
  and benefits decreased due to reduced personnel costs incurred over prior year.
  In fiscal 2003, we incurred a one time consultant fee for business initiatives
  that were partially allocated to wages and benefits for general and administrative
  purposes that were not incurred in fiscal 2004. We also note that the Company
  expects to incur additional administrative fees and wage expenses in fiscal
  2005 as we work to ensure compliance with the Sarbanes-Oxley act of 2002 and
  the required procedures for financial certification of our internal controls
  and financial reporting functions.

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|Sales and marketing       | August 31, | August 31, | $         | %       
|------------------------- | ---------- | ---------- | --------- | --------
|                          | 2004       | 2003       | Change    | Change  
|                          |            |            |           |         
|Wages and benefits        | $302,568   | $338,705   | $(36,137) | (10.67%)
|                          |            |            |           |         
|Rent                      | 32,664     | 27,301     | 5,363     | 19.64%  
|                          |            |            |           |         
|Telecommunications        | 13,578     | 22,384     | (8,806)   | (39.34%)
|                          |            |            |           |         
|Meals and entertainment   | 4,174      | 5,806      | (1,632)   | (28.11%)
|                          |            |            |           |         
|Travel                    | 15,242     | 11,155     | 4,087     | 36.64%  
|                          |            |            |           |         
|Advertising and marketing | 77,281     | 26,758     | 50,523    | 188.81% 
|                          |            |            |           |         
|                          | $445,507   | $432,109   | $13,398   | 3.10%   

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 $445,507 for the year ended August 31, 2004 compared to $432,109
  for the year ended August 31, 2003, representing an increase of $13,398
  or 3%. The increase to sales and marketing is attributed to an increase to advertising
  and marketing efforts of $50,523 and an increase to rent of $5,363 offset
  by decreases to wages and benefits, telecommunications and meals and entertainment.
  Advertising and marketing costs increased due to various monthly initiatives
  undertaken including corporate relations and business development marketing
  campaigns. Rent increased slightly due to the signing of a new lease agreement
  during the year for the next 42 months. Previously the Company had taken advantage
  of favorable rental rates through a sub-lease of the existing premises. Wages
  and benefits decreased due to the sales staff turnover and lower commissions
  being paid on reduced revenues. We expect that the wages and benefits will return
  to prior years balance in fiscal 2005 as sales of ClipstreamTM build on the commercial
  deployment of MPETM.

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|Research and development | August 31, | August 31, | $          | %       
|------------------------ | ---------- | ---------- | ---------- | --------
|                         | 2004       | 2003       | Change     | Change  
|                         |            |            |            |         
|Wages and benefits       | $206,882   | $315,835   | $(108,953) | (34.50%)
|                         |            |            |            |         
|Rent                     | 33,461     | 27,301     | 6,160      | 22.56%  
|                         |            |            |            |         
|Telecommunications       | 13,910     | 22,384     | (8,474)    | (37.86%)
|                         |            |            |            |         
|Repairs and maintenance  | 4,108      | 2,078      | 2,030      | 97.69%  
|                         |            |            |            |         
|                         | $258,361   | $367,598   | $(109,237) | (29.72%)

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 decreased to $258,361 for the year ended August 31, 2004 from $367,598
  for the year ended August 31, 2003, representing a decrease of $109,237
  or 30%. Research and development decreased over prior year because of a decrease
  of $108,953 to wages and benefits and a decrease of $8,474 to telecommunications
  off-set by a slight increases to rent and repairs and maintenance. The decrease
  to wages and benefits is a direct result of the capitalization of software development
  costs. During the year ended August 31, 2004, the Company achieved technological
  feasibility on our MPETM technology thereby allowing us to commence capitalizing
  development costs associated with MPETM. We anticipate further costs being capitalized
  as the Company will work to enhance the existing technology to meet market needs
  as they are determined. Rent increased slightly due to the signing of a new
  lease at its existing premises during the fiscal year 2004. In 2003, we enjoyed
  favorable rental rates from a sub-lease. Telecommunications decreased as a portion
  of these costs were also capitalized in the development of software costs. Costs
  that will be capitalized on the development of MPETM will include direct material
  costs, direct labour and an overhead component.

Depreciation and amortization. Depreciation and amortization
  expenses arose from fixed assets and other assets. Depreciation and amortization
  decreased to $42,638 for the fiscal year ended August 31, 2004 from $47,894
  for the fiscal year ended August 31, 2003, a decrease of $5,256 or 11%.
  The decrease in depreciation and amortization is due to the lower average net
  book value of equipment.

Other earnings and expenses

Interest expense decreased to $6,197 for the fiscal year
  ended August 31, 2004 from $18,013 for an effective decrease of $11,816.
  The decrease is due to more effective management of cash flow. The Company was
  able to avoid these costs through improved working capital management aided
  by the capital injection from the private placement completed on November 21,
  2003.

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Interest and other income increased to $12,206 for the
  12 months ended August 31, 2004 from $8,433 for August 31, 2003 representing
  an increase of $3,773. The change over prior year is due to the Company
  earning rental income on excess space sublet during the year.

Extinguishment of debt amounted to $79,221 for the fiscal
  year ended August 31, 2004. We were successful in negotiating the extinguishment
  of $79,221 of liabilities relating to past services provided by various
  accountants, lawyers and telecommunication carriers.

Losses

Our loss before other items increased to $504,666 for
  the year ended August 31, 2004 from $84,692 for the year ended August 31,
  2003, representing an effective increase of $419,974 or 496%. Our loss increased
  to $419,436 for the year ended August 31, 2004 from $94,272 for the
  year ended August 31, 2003, representing an effective increase of $325,164
  or 345%. The decreases to our loss from operations and loss for the year are
  the result of our increased investment in the development of MPETM, the decrease
  to our overall revenues and slight increase to total operating costs compared
  to our prior fiscal year.

LIQUIDITY AND FINANCIAL CONDITION

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.

We had cash of $17,523 as at August 31, 2004 compared
  to cash of $6,123 as at August 31, 2003. We had a working capital deficiency
  of $407,872 as at August 31, 2004 compared to a working capital deficiency
  of $428,486 as at August 31, 2003. We had a shareholders’ deficiency
  of $420,316 as at August 31, 2003 compared to a shareholders’ deficiency
  of $445,744 as at August 31, 2003.

Working Capital Deficiency

The decrease in our working capital deficiency is attributed
  to a significant reduction in accounts payable and accrued liabilities offset
  by a slight increase to loans payable and a significant decrease to accounts
  receivable. Accounts payable and accrued liabilities decreased because of the
  settlement and payout of certain payables that had been accrued in prior periods,
  the funds injected by the private placement completed in November 2003 and general
  improvements to working capital management. The Accounts receivable decreased
  in line with the general decrease to overall revenues.

Our accounts payable and accrued liabilities decreased to
  $440,997 as at August 31, 2004 from $543,281 at August 31, 2003, representing
  a decrease of $102,284 or 19%. The decrease in our accounts payable and
  accrued liabilities is due to the extinguishment of certain long-term payables,
  the funds injected by the private placement completed in November, and general
  improvements to working capital management. However, the current balance of
  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, 2004 is $89,500
  of disputed amounts arising from the cancellation of various agreements. We
  are currently considering all options available to settle these liabilities.

Our loans payable increased to $20,564 as at August 31,
  2004 from $10,825 as at August 31, 2003. These loans are from one of our
  shareholders and are unsecured and non-interest bearing. The balance as at August
  31, 2003 was in fact paid in full from operational cash flows during the year,
  however, an additional amount was temporarily advanced to pursue a vital business
  objective in February 2004. These funds will be paid in full from operational
  cash flows as soon as feasible.

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Our current unearned revenues decreased to $62,305 as
  at August 31, 2004 from $64,013 as at August 31, 2003, representing a total
  decrease of $1,708 or 3%. Included in the year end unearned revenue balance
  was an advanced payment of $50,000 for commercial customization of MPETM
  for a significant licensee. The Company will recognize the advanced payments
  into revenue upon the completion of the development work and along with the
  final receipt of payments for completion of the full project. The decrease in
  unearned 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 initial sale of the license, have decreased because most customers
  are not purchasing the maintenance agreements. We anticipate that our unearned
  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”. Unearned revenues reflect cash received in advance of meeting
  the revenue recognition criteria as described in the notes to the financial
  statements. Unearned revenues result if we complete sales of our software products
  when significant post-delivery obligations exist. In this case, revenue is unearned
  until we complete the post-delivery obligations. Cash that we receive in advance
  of meeting the revenue recognition criteria is recorded as a unearned revenue
  liability.

Cash Flows

Net cash used in operating activities increased to $207,550
  for the year ended August 31, 2004 compared to $112,270, representing an
  increase of $95,280 or 85%. The cash used in operating activities was off-set
  by net cash provided by financing activities in the amount of $319,639 for
  the year ended August 31, 2004 compared to $117,312 for the year ended August
  31, 2003.

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, 2004 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, 2004. 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 250,000 common shares to a consultant
        for services rendered during the fiscal year ended August 31, 2004. Market
        value of the shares issued for services rendered totaled $80,000.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, we completed the following issuances of our common
  stock during the year ended August 31, 2004 in respect of our financing activities:

|1. | We issued 2,000,000 common shares on a private placement
        at $0.15 per share for proceeds of $300,000. In connection with
        this offering the Company paid an agent’s fee of $30,000.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | We issued 62,500 common shares pursuant to option
        agreements at an exercise price of $0.25 for net proceeds of $15,625.                                                                   

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|3. | As at August 31, 2004, 100,000 common shares are
        issuable pursuant to an option agreement. Net proceeds of $25,000
        at an exercise price of $0.25 were received prior to year end. We
        issued the required common shares September 2, 2004.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

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- Software Development Costs. Costs incurred internally
      in creating computer software products are expensed until technological
      feasibility has been established upon completion of a program design. Thereafter,
      applicable software development costs are capitalized and subsequently reported
      at the lower of amortized cost or net realizable value. Capitalized costs
      are amortized based on current and expected future revenue for each product
      with minimum annual amortization equal to the straight-line amortization
      over the estimated economic life of the product not to exceed three years.
      For the year 2004, the Company capitalized $81,857. No costs were capitalized
      in 2003. There was no amortization recorded in 2004 as commercial deployment
      did not occur until subsequent to year end.p
- Stock-Based Compensation. While we have not adopted
      the fair value based method of accounting for stock-based compensation related
      to options under Statement of Financials Accounting Standards (SFAS) No.
      148, “Accounting for Stock-Based Compensation,” which amends
      SFAS No. 123, “Accounting for Stock-Based Compensation,” we
      do make the required pro forma disclosures for the effect on net income
      (loss) as if the fair market value based method of accounting provided for
      under SFAS No. 123 had been adopted. These pro forma disclosures are based
      upon a number of assumptions utilized in a valuation model in determining
      the appropriate valuation of the fair market value of options on the date
      of grant. The key assumptions used in the valuation model are stock price
      at the date of grant, expected volatility, annual expected dividend yield
      and expected life of the options granted.

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ITEM 7.             FINANCIAL
  STATEMENTS.

Index to Audited Consolidated Financial Statements for the Year Ended August
  31, 2004:

|1. | Auditors’ Report;                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------
|  
|2. | Consolidated Balance Sheets as at August 31, 2004
      and 2003;                                                            
|  
|3. | Consolidated Statement of Operations for the Years
      ended August 31, 2004 and 2003;                                     
|  
|4. | Consolidated Statement of Stockholders’ Deficiency
      and Comprehensive Loss for the Years ended August 31, 2004 and 2003;
|  
|5. | Consolidated Statement of Cash Flows for the Years
      ended August 31, 2004 and 2003;                                     
|  
|6. | Notes to Consolidated Financial Statements.                                                                                  

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Consolidated Financial Statements 
  (Expressed in United States dollars)



DESTINY MEDIA TECHNOLOGIES INC.



Years ended August 31, 2004 and 2003



F-1

---

Grant Thornton LLP 
  Chartered Accountants

MANAGEMENT CONSULTANTS

Independent Auditors' Report

The Shareholders 
  Destiny Media Technologies Inc.

We have audited the consolidated balance sheets of Destiny
  Media Technologies Inc. as of August 31, 2004 and 2003 and the consolidated
  statements of operations, stockholders’ deficiency and comprehensive loss
  and cash flows for the years 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 audits in accordance with standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audits to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. 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, 2004 and 2003 and the results
  of its operations and its cash flows for the years 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 8, 2004   | Chartered Accountants

F-2

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

August 31, 2004 and 2003

|                                                                                |   | 2004       |   |   | 2003       |  
|------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                |   |            |   |   |            |  
|                                                                                |   |            |   |   |            |  
|Assets                                                                          |   |            |   |   |            |  
|                                                                                |   |            |   |   |            |  
|Current assets:                                                                 |   |            |   |   |            |  
|Cash                                                                            | $ | 17,523     |   | $ | 6,123      |  
|Short-term investments                                                          |   | 8,661      |   |   | 8,091      |  
|Accounts receivable,
      net of allowance for doubtful accounts of            |   |            |   |   |            |  
|$19,291 (2003 - $12,241)                                                        |   | 67,484     |   |   | 169,402    |  
|Inventory                                                                       |   | 3,480      |   |   | 4,305      |  
|Prepaid expenses                                                                |   | 18,846     |   |   | 1,712      |  
|Total current assets                                                            |   | 115,994    |   |   | 189,633    |  
|                                                                                |   |            |   |   |            |  
|Software development costs (note 4)                                             |   | 81,857     |   |   | -          |  
|                                                                                |   |            |   |   |            |  
|Other assets, net of accumulated amortization of $73,306
      (2003 - $44,665) |   | 5,198      |   |   | 28,009     |  
|                                                                                |   |            |   |   |            |  
|Equipment (note 5)                                                              |   | 73,572     |   |   | 54,733     |  
|                                                                                |   |            |   |   |            |  
|Total assets                                                                    | $ | 276,621    |   | $ | 272,375    |  
|                                                                                |   |            |   |   |            |  
|                                                                                |   |            |   |   |            |  
|Liabilities and Stockholders’ Deficiency                                        |   |            |   |   |            |  
|                                                                                |   |            |   |   |            |  
|Current liabilities                                                             |   |            |   |   |            |  
|Accounts payable and
      accrued liabilities (note 6)                         | $ | 440,997    |   | $ | 543,281    |  
|Loans payable (note
      7)                                                    |   | 20,564     |   |   | 10,825     |  
|Unearned revenue                                                                |   | 62,305     |   |   | 64,013     |  
|Total current liabilities                                                       |   | 523,866    |   |   | 618,119    |  
|                                                                                |   |            |   |   |            |  
|Deferred leasehold inducement (note 8)                                          |   | 73,071     |   |   | -          |  
|                                                                                |   |            |   |   |            |  
|Obligation for share settlement (note 9)                                        |   | 100,000    |   |   | 100,000    |  
|                                                                                |   |            |   |   |            |  
|Stockholders’ deficiency:                                                       |   |            |   |   |            |  
|Common stock, par
      value $0.001                                            |   |            |   |   |            |  
|Authorized: 100,000,000 shares                                                  |   |            |   |   |            |  
|Issued and outstanding: 35,316,098 shares (2003 –
      33,003,598)             |   | 35,318     |   |   | 33,005     |  
|Issued and held for settlement: 133,333 shares                                  |   |            |   |   |            |  
|Additional paid-in
      capital                                                |   | 3,688,208  |   |   | 3,246,079  |  
|Common stock issuable                                                           |   | 25,000     |   |   | -          |  
|Deferred stock compensation                                                     |   | -          |   |   | (865       | )
|Deficit                                                                         |   | (4,088,494 | ) |   | (3,669,058 | )
|Accumulated other comprehensive
      loss                                      |   | (80,348    | ) |   | (54,905    | )
|Total stockholders’ deficiency                                                  |   | (420,316   | ) |   | (445,744   | )
|                                                                                |   |            |   |   |            |  
|Total liabilities and stockholders’ deficiency                                  | $ | 276,621    |   | $ | 272,375    |  
|                                                                                |   |            |   |   |            |  
|Continuing operations (note 2)                                                  |   |            |   |   |            |  
|Commitments and contingencies (notes 13 and 14)                                 |   |            |   |   |            |  
|Subsequent event (note 18)                                                      |   |            |   |   |            |  

See accompanying notes to consolidated financial statements.

F-3

---

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

Years ended August 31, 2004 and 2003

|                                                              |   | 2004       |   |   | 2003       |  
|------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                              |   |            |   |   |            |  
|Revenue                                                       | $ | 751,914    |   | $ | 1,133,098  |  
|                                                              |   |            |   |   |            |  
|Operating expenses:                                           |   |            |   |   |            |  
|General and administrative                                    |   | 510,074    |   |   | 370,189    |  
|Sales and marketing                                           |   | 445,507    |   |   | 432,109    |  
|Research and development                                      |   | 258,361    |   |   | 367,598    |  
|Depreciation and amortization                                 |   | 42,638     |   |   | 47,894     |  
|                                                              |   | 1,256,580  |   |   | 1,217,790  |  
|                                                              |   |            |   |   |            |  
|Loss before undernoted                                        |   | (504,666   | ) |   | (84,692    | )
|                                                              |   |            |   |   |            |  
|Interest expense                                              |   | (6,197     | ) |   | (18,013    | )
|Interest and other income                                     |   | 12,206     |   |   | 8,433      |  
|Extinguishment of debt                                        |   | 79,221     |   |   | -          |  
|                                                              |   |            |   |   |            |  
|Loss for the year                                             | $ | (419,436   | ) | $ | (94,272    | )
|                                                              |   |            |   |   |            |  
|Loss per common share, basic and diluted                      | $ | (0.01      | ) | $ | (0.00      | )
|                                                              |   |            |   |   |            |  
|Weighted average common shares outstanding, basic and diluted |   | 34,704,896 |   |   | 32,148,984 |  

See accompanying notes to consolidated financial statements.

F-4

---

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

|                                                 |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   | Accumulated |   |   | Total         |  
|------------------------------------------------ | ------------ | - | - | ------- | - | - | ---------- | - | - | -------- | - | - | ------------ | - | - | ------------- | - | - | ----------- | - | - | ------------- | -
|                                                 |              |   |   |         |   |   | Additional |   |   |          |   |   | Deferred     |   |   |               |   |   | other       |   |   | stockholders’ |  
|                                                 | Common stock |   |   | paid-in |   |   | Shares     |   |   | stock    |   |   |              |   |   | comprehensive |   |   | equity      |  
|                                                 | Shares       |   |   | Amount  |   |   | capital    |   |   | issuable |   |   | compensation |   |   | Deficit       |   |   | loss        |   |   | (deficiency)  |  
|                                                 |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|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        | 1,100,000    |   |   | 1,100   |   |   | 140,021    |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 141,121       |  
|Common stock issued for settlement of
      debt | 336,300      |   |   | 336     |   |   | 34,294     |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 34,630        |  
|Common stock issued for cash on private          |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|placement                                        | 1,550,000    |   |   | 1,550   |   |   | 148,450    |   |   | (50,000  | ) |   | -            |   |   | -             |   |   | -           |   |   | 100,000       |  
|Common stock issued on conversion of             |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|loans payable                                    | 2,000,000    |   |   | 2,000   |   |   | 182,000    |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 184,000       |  
|Finders fee cancelled                            | -            |   |   | -       |   |   | 10,000     |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 10,000        |  
|Provision for note receivable (note 10)          |              |   |   |         |   |   | (99,946    | ) |   |          |   |   |              |   |   |               |   |   |             |   |   | (99,946       | )
|Amortization of deferred stock compensation      | -            |   |   | -       |   |   | (3,646     | ) |   | -        |   |   | 17,228       |   |   | -             |   |   | -           |   |   | 13,582        |  
|Common stock cancelled                           | (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      | )
|                                                 |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|Loss for the year                                | -            |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | (419,436      | ) |   | -           |   |   | -             |  
|Cumulative translation adjustment                | -            |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | -             |   |   | (25,443     | ) |   | -             |  
|Comprehensive loss                               | -            |   |   | -       |   |   | -          |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | (444,879      | )
|Common stock issued for services                 |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|rendered (note
      11 (a))                     | 250,000      |   |   | 250     |   |   | 79,750     |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 80,000        |  
|Common stock issued for cash on private          |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|placement
      (note 11 (b))                    | 2,000,000    |   |   | 2,000   |   |   | 268,000    |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 270,000       |  
|Common stock issued on options                   |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|exercised
      (note 11 (c))                    | 62,500       |   |   | 63      |   |   | 15,562     |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 15,625        |  
|Common stock issuable on options                 |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|exercised
      (note 11 (d))                    | -            |   |   | -       |   |   | -          |   |   | 25,000   |   |   | -            |   |   | -             |   |   | -           |   |   | 25,000        |  
|Amortization of deferred stock compensation      | -            |   |   | -       |   |   | -          |   |   | -        |   |   | 865          |   |   | -             |   |   | -           |   |   | 865           |  
|Options issued to non-employees for services     | -            |   |   | -       |   |   | 78,817     |   |   | -        |   |   | -            |   |   | -             |   |   | -           |   |   | 78,817        |  
|                                                 |              |   |   |         |   |   |            |   |   |          |   |   |              |   |   |               |   |   |             |   |   |               |  
|Balance, August 31, 2004                         | 35,316,098   |   | $ | 35,318  |   | $ | 3,688,208  |   | $ | 25,000   |   | $ | -            |   | $ | (4,088,494    | ) | $ | (80,348     | ) | $ | (420,316      | )

See accompanying notes to consolidated financial statements.

F-5

---

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

Years ended August 31, 2004 and 2003

|                                                                    |   | 2004     |   |   | 2003     |  
|------------------------------------------------------------------- | - | -------- | - | - | -------- | -
|                                                                    |   |          |   |   |          |  
|Cash flows from operating activities:                               |   |          |   |   |          |  
|Loss for the year                                                   | $ | (419,436 | ) | $ | (94,272  | )
|Items not involving
      cash:                                     |   |          |   |   |          |  
|Depreciation and amortization                                       |   | 42,638   |   |   | 47,874   |  
|Leasehold inducement (note 8)                                       |   | 50,531   |   |   | -        |  
|Shares issued for services rendered                                 |   | 80,000   |   |   | 141,121  |  
|Stock-based compensation – employees                                |   | 865      |   |   | 13,582   |  
|Stock-based compensation – non-employees                            |   | 78,817   |   |   | 5,963    |  
|Interest accrued on term deposit                                    |   | (121     | ) |   | (142     | )
|Changes in non-cash
      working capital:                          |   |          |   |   |          |  
|Accounts receivable                                                 |   | 109,767  |   |   | (80,066  | )
|Inventory                                                           |   | 1,049    |   |   | (4,024   | )
|Prepaid expenses                                                    |   | (16,805  | ) |   | 57,267   |  
|Accounts payable and accrued liabilities                            |   | (129,675 | ) |   | 9,296    |  
|Unearned revenue                                                    |   | (5,180   | ) |   | (208,869 | )
|Net cash used in operating activities                               |   | (207,550 | ) |   | (112,270 | )
|                                                                    |   |          |   |   |          |  
|Cash flows from investing activities:                               |   |          |   |   |          |  
|Software development
      costs                                    |   | (81,857  | ) |   | -        |  
|Purchase of equipment                                               |   | (10,904  | ) |   | (938     | )
|Purchase of other assets                                            |   | (1,782   | ) |   | (10,489  | )
|Net cash used in investments                                        |   | (94,543  | ) |   | (11,427  | )
|                                                                    |   |          |   |   |          |  
|Cash flows from financing activities:                               |   |          |   |   |          |  
|Proceeds from loans
      payable                                   |   | 9,014    |   |   | 1,349    |  
|Proceeds from issuances
      on options exercised                  |   | 15,625   |   |   | -        |  
|Proceeds from common
      stock issuable on options exercised      |   | 25,000   |   |   | -        |  
|Net proceeds from
      issuances of common stock and subscriptions |   | 270,000  |   |   | 116,000  |  
|Amounts paid to related party                                       |   | -        |   |   | (37      | )
|Net cash provided by financing activities                           |   | 319,639  |   |   | 117,312  |  
|                                                                    |   |          |   |   |          |  
|Net increase (decrease) in cash during the year                     |   | 17,546   |   |   | (6,385   | )
|                                                                    |   |          |   |   |          |  
|Effect of foreign exchange rate changes on cash                     |   | (6,146   | ) |   | (8,489   | )
|                                                                    |   |          |   |   |          |  
|Cash, beginning of year                                             |   | 6,123    |   |   | 20,997   |  
|                                                                    |   |          |   |   |          |  
|Cash, end of year                                                   | $ | 17,523   |   | $ | 6,123    |  
|                                                                    |   |          |   |   |          |  
|Supplementary disclosure:                                           |   |          |   |   |          |  
|Cash paid for:                                                      |   |          |   |   |          |  
|Interest                                                            | $ | 6,197    |   | $ | 18,013   |  
|Non-cash transactions:                                              |   |          |   |   |          |  
|Leasehold improvements acquired through lease inducement            |   | 22,540   |   |   | -        |  
|Common stock issued on conversion of loans payable                  |   | -        |   |   | 184,000  |  
|Common stock issued for cash received in prior period               |   | -        |   |   | 50,000   |  
|Stock issued for settlement of debt                                 |   | -        |   |   | 34,630   |  
|Barter transaction                                                  |   | -        |   |   | 9,700    |  

See accompanying notes to consolidated financial statements.

F-6

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|1. | Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | Destiny Media Technologies Inc. (the “Company”)
        was incorporated in August 1998 under the laws of the State of Colorado.
        The Company develops technologies that allow for the distribution over
        the Internet of digital media files in either a streaming or digital download
        format. The technologies are proprietary. The Company operates out of
        Vancouver, BC, Canada and serves customers predominantly located in the
        United States and Canada.                                                                                                                                                                                                                                                                                
|  
|2. | Continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | From inception of the business, the Company
        has incurred cumulative operating losses of $4,088,494 and at August
        31, 2004 had a working capital deficiency of $407,872. 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. Unless the Company is able to grow sales and generate
        positive cash flows, the Company will 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-7

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|3. | Significant accounting policies:
|-- | --------------------------------
|  
|   | (b)                             
|  
|   |                                 
|  
|   | (c)                             
|  
|   |                                 
|  
|   |                                 
|  
|   |                                 
|  
|   |                                 
|  
|   |                                 
|  
|   |                                 

F-8

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

| | (c) | Revenue recognition (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | Revenues generated in exchange for consulting and
        advertising services are valued at the fair value of the services exchanged,
        based on the Company’s own historical practice of receiving cash,
        or other consideration that is readily convertible to known amounts of
        cash for similar advertising from buyers unrelated in the barter transaction.
        During the year ended August 31, 2004, the Company recognized $nil
        (2003 - $9,700) of revenue from barter transactions.                  
|
| | (d) | Allowance for doubtful accounts:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     | The Company establishes an allowance for doubtful
        accounts through review of open accounts, and historical collection and
        allowance amounts. The allowance for doubtful accounts is intended to
        reduce trade accounts receivable to the amount that reasonably approximates
        their fair value due to their short-term nature. The amount ultimately
        realized from trade accounts receivable may differ from the amount estimated
        in the financial statements based on collection experience.    
|
| | (e) | Inventory:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     | Inventory, consisting solely of finished goods,
        is carried at the lower of cost, determined on a weighted average basis,
        and net realizable value.                                                                                                                                                                                                                                                                                                                                                                             
|
| | (f) | Research and development costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     | Research and, except as indicated below, development
        costs are expensed as incurred. Software and related development costs,
        after the establishment of technological feasibility and commercial viability,
        are capitalized as software development costs until the product is ready
        for general release to customers in accordance with Statement of Financial
        Accounting Standards (“SFAS”) No. 86 “Accounting for
        the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”.
|
| |     | Amortization is provided on a product by product
        basis over the estimated economic life of the product, not to exceed three
        years. Amortization commences when the product is available for general
        release to customers. As at August 31, 2004, the Company had capitalized
        software development costs of $81,857 (2003 - $nil).                                                                                                                                                                              

F-9

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

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

| |  | Asset                  | Rate             
| |  | ---------------------- | -----------------
| |  |                        |                  
| |  | Furniture and fixtures | 20%              
| |  | Computer hardware      | 30%              
| |  | Leasehold improvements | Term of the lease
| |  |                        |                  

| | (h) | Other assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | Other assets consist of domain names, trademarks
        and patents and are being amortized straight-line over three years. The
        balance capitalized as at August 31, 2004 will be fully amortized in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (i) | 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, 2004, no impairment charges
        have been recognized.

F-10

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|3. | Significant accounting policies (continued):
|-- | --------------------------------------------
|  
|   | (j)                                         
|  
|   |                                             
|  
|   | (k)                                         
|  
|   |                                             
|  
|   | (l)                                         
|  
|   |                                             
|  
|   | (m)                                         
|  
|   |                                             

F-11

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

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

| |  |                                    |                                             |   |          |   |   |          |  
| |  | ---------------------------------- | ------------------------------------------- | - | -------- | - | - | -------- | -
| |  |                                    |                                             |   | 2004     |   |   | 2003     |  
| |  |                                    |                                             |   |          |   |   |          |  
| |  | Loss for the period:               |                                             |   |          |   |   |         
| |  |                                    | As reported                                 | $ | (419,436 | ) | $ | (94,272  | )
| |  |                                    | Stock-based compensation expense recognized | $ | 79,682   |   | $ | 19,545   |  
| |  |                                    | Compensation expense based on fair value    |   |          |   |   |          |  
| |  |                                    | method                                      | $ | (289,263 | ) | $ | (67,907  | )
| |  |                                    | Pro forma loss                              | $ | (629,017 | ) |   | (142,634 | )
| |  | Loss per share, basic and diluted: |                                             |   |          |   |   |         
| |  |                                    | As reported                                 | $ | (0.01    | ) | $ | (0.00    | )
| |  |                                    | Pro forma                                   | $ | (0.02    | ) | $ | (0.00    | )

F-12

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

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

| |  |                                                      |   | 2004       |  |   | 2003       | 
| |  | ---------------------------------------------------- | - | ---------- |  | - | ---------- | 
| |  |                                                      |   |            |  |   |            | 
| |  | Expected dividend yield                              |   | -          |  |   | -          | 
| |  | Risk-free interest rate                              |   | 5.5%       |  |   | 5.5%       | 
| |  | Volatility                                           |   | 180%       |  |   | 190%       | 
| |  | Expected lives                                       |   | 2.00 years |  |   | 2.00 years | 
| |  | Per share weighted average fair value of
      stock |   |            |  |   |            | 
| |  | options granted                                      | $ | 0.27       |  | $ | 0.12       | 

|   | (o)                         | 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.                                                                                                    
|  
|   | (p)                         | Loss per common share:                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |                             | The basic loss per common share is computed by dividing
        net loss available to common stockholders by the weighted average number
        of common shares outstanding for the year. Diluted loss per common share
        is computed by giving effect to all potential dilutive options that were
        outstanding during the year. For the years ended August 31, 2004 and 2003,
        all outstanding were anti-dilutive.
|  
|4. | Software development costs:

| |                          |   |        |  |   |      | 
| | ------------------------ | - | ------ |  | - | ---- | 
| |                          |   | 2004   |  |   | 2003 | 
| | Cost                     | $ | 81,857 |  | $ | -    | 
| | Accumulated amortization |   | -      |  |   | -    | 
| |                          | $ | 81,857 |  | $ | -    | 

F-13

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|5. | Equipment:
|-- | ----------

| |                        |   |         |  |   | Accumulated      |  |   |          | 
| | ---------------------- | - | ------- |  | - | ---------------- |  | - | -------- | 
| |                        |   |         |  |   | depreciation and |  |   | Net book | 
| | 2004                   |   | Cost    |  |   | amortization     |  |   | value    | 
| |                        |   |         |  |   |                  |  |   |          | 
| | Furniture and fixtures | $ | 61,533  |  | $ | 41,690           |  | $ | 19,843   | 
| | Computer hardware      |   | 137,735 |  |   | 105,841          |  |   | 31,894   | 
| | Leasehold improvements |   | 31,113  |  |   | 9,278            |  |   | 21,835   | 
| |                        |   |         |  |   |                  |  |   |          | 
| |                        | $ | 230,381 |  | $ | 156,809          |  | $ | 73,572   | 
| |                        |   |         |  |   |                  |  |   |          | 
| |                        |   |         |  |   |                  |  |   |          | 
| |                        |   |         |  |   | 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   | 
| | Leasehold improvements |   | 8,791   |  |   | 8,016            |  |   | 775      | 
| |                        |   |         |  |   |                  |  |   |          | 
| |                        | $ | 187,161 |  | $ | 132,428          |  | $ | 54,733   | 

|6. | Accounts payable and accrued liabilities                                                          
|-- | --------------------------------------------------------------------------------------------------
|  
|   | Accrued liabilities as at August 31, 2004 and 2003 totaled $33,648
      and $53,838 respectively.
|  
|7. | Loans payable:                                                                                    

| |                                                |   | 2004   |  |   | 2003   | 
| | ---------------------------------------------- | - | ------ |  | - | ------ | 
| |                                                |   |        |  |   |        | 
| | Loan payable, due to a shareholder, unsecured, |   |        |  |   |        | 
| | non-interest bearing                           | $ | 20,564 |  | $ | 10,825 | 

|8. | Leasehold Inducements                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The Company has recorded leasehold improvements
        and deferred lease inducements, representing the value of a leasehold
        improvement allowance received and the value of six months free rent provided
        by the Company’s landlord. The leasehold improvements and the inducement
        will be amortized over the contractual lease term.

F-14

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|9.  | 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.             
|   
|10. | Note receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | During the year ended August 31, 2003
        an accounting provision of $99,946 was recorded against a note receivable
        from a former director due to the uncertainty of its resolution and collection.
        The note receivable consists of proceeds from short-swing profits owing
        to the Company by the 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.
|   
|11. | Share capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-15

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

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

| |  |                              |           |   |   | Weighted       |  
| |  | ---------------------------- | --------- | - | - | -------------- | -
| |  |                              | Number of |   |   | average        |  
| |  |                              | shares    |   |   | exercise price |  
| |  |                              |           |   |   |                |  
| |  | 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           |  
| |  | Granted                      | 1,597,750 |   |   | 0.25           |  
| |  | Exercised                    | (162,500  | ) |   | 0.25           |  
| |  | Forfeited                    | (188,750  | ) |   | (0.36          | )
| |  | Expired                      | -         |   |   | -              |  
| |  |                              |           |   |   |                |  
| |  | Outstanding, August 31, 2004 | 3,127,000 |   | $ | 0.49           |  

F-16

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

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

| |  |   |          |             | Options outstanding | Options exercisable
| |  | - | -------- | ----------- | ------------------- | -------------------
| |  |   |          |             | Weighted            |                    
| |  |   |          |             | average             |                    
| |  |   |          |             | remaining           |                    
| |  |   | Exercise | Number      | contractual         |                    
| |  |   | prices   | outstanding | life (in years)     |                    
| |  |   |          |             |                     |                    
| |  | $ | 0.25     | 2,294,000   | 2.42                |                    
| |  |   | 0.50     | 170,000     | 4.75                |                    
| |  |   | 0.83     | 120,000     | 0.11                |                    
| |  |   | 1.00     | 468,000     | 0.11                |                    
| |  |   | 1.80     | 50,000      | 0.67                |                    
| |  |   | 2.50     | 25,000      | 1.08                |                    
| |  |   |          |             |                     |                    
| |  |   |          | 3,127,000   | 2.07                |                    

| |  | Of the total options outstanding at year end, 2,525,000
        (2003 – 1,702,500) were granted to employees and 602,000 (2003 –
        178,000) were granted to non-employees of the Company. The stock-based
        compensation expense, representing the intrinsic value of the vested options
        granted to employees was $865 (2003 - $13,582), calculated in
        accordance with APB Opinion No. 25. The compensation expense related to
        options granted to non-employees was $78,817 (2003 - $5,963),
        calculated in accordance with SFAS 123.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|12. | Income taxes:
|--- | -------------

| |                                   |   | 2004       |   |   | 2003       |  
| | --------------------------------- | - | ---------- | - | - | ---------- | -
| |                                   |   |            |   |   |            |  
| | Deferred tax assets:              |   |            |   |   |            |  
| | Net operating loss carry forwards | $ | 1,473,282  |   | $ | 1,348,555  |  
| | Book over tax depreciation        |   | 41,577     |   |   | 34,669     |  
| |                                   |   | 1,514,859  |   |   | 1,383,254  |  
| | Valuation allowance               |   | (1,514,859 | ) |   | (1,383,254 | )
| |                                   |   |            |   |   |            |  
| |                                   | $ | -          |   | $ | -          |  

| | The reconciliation of income tax attributable to
        continuing operations computed at the U.S. federal and Canadian statutory
        tax rates to income tax expense is:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                              | 2004    |  | 2003    | 
| | -------------------------------------------- | ------- |  | ------- | 
| | Tax at blended U.S./Canadian statutory rates | 34.0%   |  | 34.0%   | 
| | Change in valuation allowance                | (34.0%) |  | (34.0%) | 
| | Tax recovery (expense)                       | -       |  | -       | 

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

| |               |   | 2004     |   |   | 2003     |  
| | ------------- | - | -------- | - | - | -------- | -
| | United States | $ | (60,486  | ) | $ | (180,742 | )
| | Canada        |   | (358,950 | ) |   | 86,470   |  
| |               | $ | (419,436 | ) | $ | (94,272  | )

| | If not utilized to reduce future taxable income, the Company’s net
      operating loss carry-forwards will expire as follows:
| | ------------------------------------------------------------------------------------------------------------------------------

| |                     |   |           |  |   |               | 
| | ------------------- | - | --------- |  | - | ------------- | 
| |                     |   | Canada    |  |   | United States | 
| |                     |   |           |  |   |               | 
| | 2005                | $ | -         |  | $ | -             | 
| | 2006                | $ | 114,226   |  | $ | -             | 
| | 2007                | $ | 1,105,168 |  | $ | -             | 
| | 2008                | $ | 1,025,553 |  | $ | -             | 
| | 2009                | $ | 420,879   |  | $ | -             | 
| | 2010                | $ | -         |  | $ | -             | 
| | 2011 and thereafter | $ | 274,984   |  | $ | 1,194,167     | 
| |                     |   |           |  |   |               | 
| |                     | $ | 2,940,810 |  | $ | 1,194,167     | 

F-18

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|13. | Commitment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company’s previous
        existing sub-lease expired on February 29, 2004. On February 9, 2004,
        the Company entered into a new lease with an unrelated landlord commencing
        September 1, 2004 for a term of 36 months. The rent expense under this
        lease for the years ended August 31, 2005, 2006 and 2007, total $151,212
        CDN, $156,946 CDN and $162,680 CDN respectively.                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|14. | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Destiny has commenced legal
        proceedings against Impatica.com Inc. (“Impatica”) for payment
        of $512,500 in unpaid technology licensing fees. It is the Company’s
        position that Impatica has repudiated the licensing agreement and that
        the unpaid license fees totaling $512,500 are a debt owing by Impatica
        to Destiny.                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Impatica has denied liability
        to Destiny on the basis that the license agreement was not formalized.
        Impatica has filed a counterclaim against Destiny seeking return of $162,500
        advanced to Destiny on an alleged “good faith” agreement based
        on the allegation that the technology did not perform as represented.
        These funds were recorded as revenues earned in fiscal 2001 in accordance
        with the Company’s revenue recognition policy.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | No amounts have been recorded
        as receivable or payable in the financial statements at August 31, 2004
        as the outcome of this claim and counterclaim is not determinable.                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company’s are
        currently in discussions to resolve this matter outside of the courts.                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|15. | Related party transactions
        and balances:                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Related party transactions
        not disclosed elsewhere in these consolidated financial statements are
        as follows:                                                                                                                                                                                                                                                                                                                                                                  

| | (a) | During the year, the Company
        was charged $nil (2003 - $13,335) for consulting services provided
        by directors and officers. In addition, commissions of $2,867 (2003
        - $7,691) were paid to directors and officers.     
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                
| | (b) | During the year, the Company
        earned $4,785 (2003 - $5,060) in rental revenue from space sublet
        to a director.                                                                                                                  
| |     |                                                                                                                                                                                                                                                
| | (c) | During the year, the Company
        earned $7,549 (2003 - $2,530) in rental revenue from space sublet
        to a company in which an officer is a significant shareholder.                                                                  
| |     |                                                                                                                                                                                                                                                
| | (d) | As at August 31, 2004, accounts
        payable include $463 (2003 - $9,644) owing to directors and officers
        of the Company. Accounts receivable include $542 (2003 - $3,961)
        owing from directors and officers of the Company.

F-19

---

|DESTINY MEDIA TECHNOLOGIES INC.
        Notes to Consolidated Financial Statements 
        (Expressed in United States dollars)
      Years ended August 31, 2004 and 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                           

|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, |   | 2004    |  |   | 2003      | 
| |                        |   |         |  |   |           | 
| | United States          | $ | 568,209 |  | $ | 792,338   | 
| | Canada                 |   | 65,622  |  |   | 209,720   | 
| | Other                  |   | 118,083 |  |   | 131,040   | 
| |                        |   |         |  |   |           | 
| | Total revenue          | $ | 751,914 |  | $ | 1,133,098 | 

|18. | Subsequent event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | On September 14, 2004, a statement of claim was
        filed against the Company by its former solicitor for fees of $145,978
        CDN relating to legal services provided in connection with a failed transaction
        in 2001 and other general corporate matters. It is the Company’s
        position that a significant portion of the fees being sought by the former
        solicitor are unwarranted, and that the fees should not be borne by the
        Company. The Company has engaged legal counsel to defend itself and will
        file a counter claim for material damages suffered. As at August 31, 2004,
        the Company has accrued for the disputed fees and will seek all options
        available to extinguish this debt. Any adjustments to the amounts recognized
        will be recorded when determinable.

F-20

---

ITEM 8.             CHANGES
  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable.ITEM 8A.
  CONTROLS AND PROCEDURES. As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
  “Exchange Act”), we carried out an evaluation of the effectiveness
  of the design and operation of our disclosure controls and procedures as August
  31, 2004, being the date of our most recently completed fiscal year end. This
  evaluation was carried out under the supervision and with the participation
  of our Chief Executive Officer and Chief Financial Officer, Steven Verstergaard.
  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.
  During our most recently completed fiscal year ended August 31, 2004, there
  were no changes in our internal control over financial reporting that have materially
  affected, or are reasonably likely to affect, our internal control over financial
  reporting.
  The term “internal control over financial reporting” is defined
  as a process designed by, or under the supervision of, the registrant's principal
  executive and principal financial officers, or persons performing similar functions,
  and effected by the registrant's board of directors, management and other personnel,
  to provide reasonable assurance regarding the reliability of financial reporting
  and the preparation of financial statements for external purposes in accordance
  with generally accepted accounting principles and includes those policies and
  procedures that:

| | (1) | Pertain to the maintenance of records that in reasonable
        detail accurately and fairly reflect the transactions and dispositions
        of the assets of the registrant;                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | Provide reasonable assurance that transactions are
        recorded as necessary to permit preparation of financial statements in
        accordance with generally accepted accounting principles, and that receipts
        and expenditures of the registrant are being made only in accordance with
        authorizations of management and directors of the registrant; and
|
| | (3) | Provide reasonable assurance regarding prevention
        or timely detection of unauthorized acquisition, use or disposition of
        the registrant's assets that could have a material effect on the financial
        statements.                                                                                                                                          

31 of 43

---

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, 2004 are as follows:

DIRECTORS:

| | Name of Director   | Age | 
| | ------------------ | --- | 
| |                    |     | 
| | Steven Vestergaard | 38  | 
| |                    |     | 
| | Edward Kolic       | 43  | 
| |                    |     | 
| | Lawrence J. Langs  | 43  | 
| |                    |     | 
| | Yoshitaro Kumagai  | 58  | 
| |                    |     | 
| | Wayne Koshman      | 42  | 

EXECUTIVE OFFICERS:

|Name of Officer    | Age | Office Held                                                         
|------------------ | --- | --------------------------------------------------------------------
|                   |     |                                                                     
|Steven Vestergaard | 38  | President, Chief Executive Officer and Chief Financial
      Officer
|                   |     |                                                                     
|Edward Kolic       | 43  | 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. Mr. Vestergaard has been involved in the software
  development industry since 1982 when he founded a private company called Tronic
  Software. Tronic Software was a developer of computer games which were sold
  by mail order. In 1990 he became employed as a software engineer by Distinctive
  Software Inc., a company that later changed its name to Electronic Arts Canada,
  where he was involved in developing game products. Mr. Vestergaard holds an
  International Baccalaureate Degree and a Bachelor of Science Degree in Computer
  Science from the University of British Columbia.

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

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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 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

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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 EMPLOYEE

We have the following employee 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.

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.

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,
  2004 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, 2004,
  2003 and 2002. 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, 2004. No person other than Mr.
  Vestergaard acted as our chief executive officer during our last fiscal year
  ended August 31, 2004. No other compensation was paid to Mr. Vestergaard or
  Mr. Lawrence other than the compensation set forth below.

|SUMMARY COMPENSATION 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.                 
|   
|(3) | Compensation is stated in United States dollars
        and is based on an exchange rate of $0.8162 US dollars for each $1.00
        Canadian dollar as of December 8, 2004.

STOCK OPTION GRANTS

We granted 225,000 stock options to Mr. Vestergaard, our sole
  named executive officers, during our most recent fiscal year ended August 31,
  2004.

EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

Mr. Vestergaard, our sole named executive officer, exercised
  100,000 stock options but did not sell any common shares during our most recent
  fiscal year ended August 31, 2004. The following is a summary of

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the share purchase options exercised by our named executive
  officers during the financial year ended August 31, 2004 and the year end values
  of outstanding options held by our named executive officers:

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

On August 31, 2004, Steve Vestergaard exercised 100,000 options
  at $0.25 pursuant to an option agreement for net proceeds to the Company
  of $25,000.

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 December 8, 2004 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                                                                             

Subsequent to year end, Mr. Vestergaard exercised 275,000
  options at $0.25 pursuant to option agreements for net proceeds to the Company
  of $68,750. In addition, 105,000 options at $1.00 and 120,000 options
  at $0.83 expired respectively on October 12, 2004.

COMPENSATION ARRANGEMENTS

We currently pay to Mr. Vestergaard a salary of $96,315
  Canadian (equal to approximately $78,506 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 December 8, 2004 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 | 8,780,030 (2)                          | 24.3%                              
|Common Stock            | Edward Kolic  
      Secretary  
      Director                                                          | 266,300 (3)                            | 0.7%                               
|Common Stock            | Lawrence J. Langs  
      Director                                                                       | 150,000 (4)                            | 0.4%                               
|Common Stock            | Yoshitaro Kumagai  
      Director                                                                       | 566,900 (5)                            | 1.6%                               
|Common Stock            | Wayne Koshman  
      Director                                                                           | 150,000 (6)                            | 0.4%                               
|Common Stock            | All Officers and Directors as a  
      Group (5 persons)                                                | 9,913,230                              | 27.4%                              
|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 December
        8, 2004. As of December 8, 2004, there were 36,119,431 shares of our common
        stock issued and outstanding.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Consists of 8,780,030 shares held by Mr. Vestergaard.and
        nil shares that are immediately acquirable upon the exercise of stock
        options held by Mr. Vestergaard within 60 days of December 8, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(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 December 8, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | Consists of 150,000 shares that are immediately
        acquirable upon the exercise of stock options held by Mr. Langs within
        60 days of December 8, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(5) | Consists of 250,000 shares held by Mr. Kumagai and
        175,000 shares that are immediately acquirable upon the exercise of stock
        options held by Mr. Kumagai within 60 days of December 8, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(6) | Consists of 150,000 shares that are immediately
        acquirable upon the exercise of stock options held by Mr. Koshman within
        60 days of December 8, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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 Amended 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 Amended 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, 2004.

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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     | 3,127,000 Shares  
      of Common Stock                                                                      | $0.49 per Share                                                                               | 623,000 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.

SHARE ISSUANCES

During the year ended August 31, 2004, no common shares were
  issued to any officers or directors of the Company.

MANAGEMENT AGREEMENTS

As at August 31, 2004, no agreements existed with any member
  of the management team.

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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 pursuant
        to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002(1)
|               |                                                                                                                                                                                                                     
|33.1           | Destiny Media Consent of
        Independent Registered Public Accounts Firm                                                                                                                                        

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

(b) Reports on Form 8-K.

There were not reports on Form 8-K to be disclosed for the year ended August
  31, 2004.

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ITEM 14.             PRINCIPAL
  ACCOUNTANT FEES AND SERVICES.  (a) Audit Fees  
  Total audit fees billed for professional services rendered by our principal
  accountant for the audit of our annual financial statements and review of financial
  statements included in our Form 10-QSB will total CDN $47,000 (2003 –
  CDN $41,000) (b) Audit-Related Fees  
  During fiscal 2004 we were not required to incur any additional audit-related
  fees in preparation of our financial statements or otherwise (2003 - $nil)
  (c) Tax Fees  
  We do not engage our principal accountant to assist with the preparation or
  review of our annual tax filings. We do, however, engage an outside tax consultant
  to provide this service. In fiscal 2004 we will pay CDN $2,000 (2003 –
  CDN $1,750)(d) All Other Fees  
  During fiscal 2004 we did not incur any other fees other than assurance and
  tax consulting fees disclosed in items 14 (a) and 14 (c) (2003 - $nil)(e) Audit Committees Pre-approval Policy  
  The audit committee pre-approval policies include annually approving the principal
  accountants and a detailed review and discussion of the principal accountants
  current year audit engagement letter and fees estimate.

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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:                             
|                                
|                                
|                                
|                                

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: December 14, 2004                                       
|    |                                                               
|By: | /s/ Edward Kolic                                              
|    | Edward Kolic                                                  
|    | Director                                                      
|    | Date: December 14, 2004                                       
|    |                                                               
|By: | /s/ Yoshitaro Kumagai                                         
|    | Yoshitaro Kumagai                                             
|    | Director                                                      
|    | Date: December 14, 2004                                       

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