---

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

FORM 10-K

(Mark One)

[X] Annual Report Pursuant To Section 13 Or 15(D) Of The
Securities Exchange Act Of 1934

For the fiscal year ended August 31, 2011

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

For the transition period from _____ to _____

Commission File Number000-28259

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

|COLORADO                                                             | 84-1516745                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|Suite 750, PO Box 11527, 650 West Georgia Street,                    |                                     
|Vancouver, British Columbia, Canada                                  | V6B 4N7                             
|(Address of principal executive offices)                             | (Zip Code)                          
|                                                                     |                                     
|604-609-7736                                                         |                                     
|Issuer's telephone number                                            |                                     

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

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. [  
] Yes    [X] No

Check whether the issuer is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act. [   ]
Yes    [X] No

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

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
[   ] Yes    [X] No

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not 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-K or any amendment to this Form 10-K.
[   ] Yes    [X] No

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

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


---

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [  
]     No [X]

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

50,434,097 common shares @ $0.33(1)= $16,643,252
  (1) Closing price as quoted on the OTC Bulletin Board on
February 28, 2011.

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

50,487,577 Shares of $0.001 par value common stock
outstanding as of November 25, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

None

---

DESTINY MEDIA TECHNOLOGIES INC.FORM 10-K

INDEX

|               |                                                                                                                          | PAGE
|-------------- | ------------------------------------------------------------------------------------------------------------------------ | ----
|               |                                                                                                                          |     
|PART
      I   |                                                                                                                          | 4   
|               |                                                                                                                          |     
|Item
      1.  | Business.                                                                                                                | 5   
|               |                                                                                                                          |     
|Item
      1A. | Risk
      Factors.                                                                                                      | 12  
|               |                                                                                                                          |     
|Item
      1B. | Unresolved
      Staff Comments.                                                                                         | 14  
|               |                                                                                                                          |     
|Item
      2.  | Properties.                                                                                                              | 14  
|               |                                                                                                                          |     
|Item
      3.  | Legal
      Proceedings                                                                                                  | 16  
|               |                                                                                                                          |     
|Item
      4.  | Removed
      and Reserved                                                                                               | 16  
|               |                                                                                                                          |     
|PART
      II  |                                                                                                                          | 17  
|               |                                                                                                                          |     
|Item
      5.  | Market
      For Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases Of Equity Securities | 17  
|               |                                                                                                                          |     
|Item
      6.  | Selected
      Financial Data                                                                                            | 19  
|               |                                                                                                                          |     
|Item
      7.  | Management's
      Discussion And Analysis Of Financial Condition and Results Of Operations                              | 19  
|               |                                                                                                                          |     
|Item
      7A. | Quantitative
      And Qualitative Disclosures About Market Risk                                                         | 26  
|               |                                                                                                                          |     
|Item
      8.  | Financial
      Statements And Supplementary Data.                                                                       | 27  
|               |                                                                                                                          |     
|Item
      9.  | Changes
      In And Disagreements With Accountants On Accounting And Financial
      Disclosure.                        | 28  
|               |                                                                                                                          |     
|Item
      9A  | Controls
      and Procedures                                                                                            | 28  
|               |                                                                                                                          |     
|Item
      9B  | Other
      Information                                                                                                  | 28  
|               |                                                                                                                          |     
|PART
      III |                                                                                                                          | 29  
|               |                                                                                                                          |     
|Item
      10. | Directors,
      Executive Officers And Corporate Governance.                                                            | 29  
|               |                                                                                                                          |     
|Item
      11. | Executive
      Compensation                                                                                             | 31  
|               |                                                                                                                          |     
|Item
      12. | Security
      Ownership Of Certain Beneficial Owners And Management And Related
      Stockholder Matters.              | 33  
|               |                                                                                                                          |     
|Item
      13. | Certain
      Relationships And Related Transactions, And Director Independence.                                         | 35  
|               |                                                                                                                          |     
|Item
      14. | Principal
      Accountant Fees and Services                                                                             | 35  
|               |                                                                                                                          |     
|PART
      IV  |                                                                                                                          | 36  
|               |                                                                                                                          |     
|Item
      15. | Exhibits,
      Financial Statement Schedules                                                                            | 36  
|               |                                                                                                                          |     
|Signatures     |                                                                                                                          | 38  

---

PART I

FORWARD LOOKING STATEMENTS

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

CURRENCY

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

---

ITEM
1.              
BUSINESS

OVERVIEW AND CORPORATE BACKGROUND

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

Our principal executive office is located at Suite 750, PO Box
11527, 650 West Georgia Street, Vancouver, British Columbia V6B 4N7. Our
telephone number is (604) 609-7736 and our facsimile number is (604)
609-0611.

Our common stock trades on TSX Venture Exchange in Canada under
the symbol DSY, on the OTCBB and OTCQX under the symbol DSNY, and on various
German exchanges (Frankfurt, Berlin, Stuttgart and Xetra) under the symbol DME,
WKN 935 410.

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

OUR PRODUCTS AND SERVICES

Destiny develops and markets services that enable the secure
distribution of digital media content over the internet. Destiny services are
based around proprietary security, watermarking and playerless streaming media
technologies.

The current offerings include the Play MPE® secure distribution
network, which the recording industry uses to distribute new pre-release music,
and the Clipstream® instant play streaming media solutions.

Currently, more than 95% of the Companys revenues come from
the Play MPE® digital distribution service. The remaining revenue is derived
from recurring revenues for secure Clipstream® powered market research video
questionnaires.

Play MPE®

Play MPE® is a digital delivery service for securely moving
broadcast quality audio, video, images, promotional information and other
digital content securely through the internet. The system is currently used by
the recording industry for transferring pre-release broadcast quality music,
radio shows, and music videos to trusted recipients such as radio stations,
media reviewers, VIPs, DJs, film and TV personnel, sports stadiums and
retailers. The system replaces the physical distribution (mail, courier or hand
delivery) of CDs. As with traditional physical delivery, our fees are based on
the size of the content and number of recipients.

More than 1,000 record labels, including all four major labels
(Universal Music Group, Warner Music Group, EMI and Sony), are regularly using
Play MPE® to deliver their content to radio.

Each distribution is initiated by our customers, which encode
the content and enter the appropriate data. Our software has a tiered
permissions based access allowing our clients to assign varying rights,
capabilities and responsibilities to different members of their staff. For
example, some customer staff may manage assets (album cover imagery, music
videos, the raw music, promotional information and other meta data), while
others manage hierarchical permission based lists of recipients. Larger labels
are normally structured into label groups, each with their own labels with
varying access (permissions) to various subsets of the master recipient
lists.

The release dates for music can be dependent on the territory
and, where administrative settings permit, local promotions staff will generate
a localized distribution of the song with modified marketing information in the
local language. Local staff will select pre-existing assets from the system and
combine them together with local recipient lists to form a send. Our customers
also choose the level of access for the recipients assigned to the release by
designating whether the release can be streamed, downloaded, exported into an
unlocked digital format or burned to a CD.

While many clients are set up to manage and upload recipient
lists, most rely on the proprietary Play MPE® network, which is quickly becoming
a valuable asset to the industry. The Play MPE® system provides Play
MPE® staff with the feedback and resources necessary to manage and maintain this network of recipients which is not available with physical distribution or smaller competitors.

---

Staff who "encode" each release choose the access rights, whether the system should automatically generate a template driven marketing email alert, whether the song should be locked to the recipient computer and which partner sites
should have access to the content.

On the impact date, the "send" appears in the "available tracks" section of the user's account. Recipients can access through proprietary iPhone, Mac and Windows based players, through a Direct to Web browser interface
supporting playerless streaming and download or through partner sites, including integration into reporting systems such as Mediabase, radio automation systems such as Nexgen or Selector or through custom direct integration into the backend server
systems at the radio chains. Destiny's proprietary applications offer popular features, such as the ability to drag and drop to build and burn playlists to CD's for music meetings, the ability to convert and export into a wide variety of formats
from the iTunes AAC format to the popular MP3 format and to export meta data automatically into third party applications.

The system generates an unbranded Clipstream® format playerless streaming audio clip for previewing and two broadcast quality versions of the downloadable audio. The recipient can choose to receive a lossless compressed exact copy of the
original file at up to four times regular download speed or a variable bitrate compressed version, indistinguishable to the human ear, at up to fifteen times regular download speed. Recipients receive a custom library of available tracks and are
able to repeat the download if music is lost.

All exported songs are marked in real time with Destiny's patent pending watermark technology. Songs on the internet are scanned through Destiny's integration into the International Federation of the Phonographic Industry's
("IFPI") internet web crawler.  Headquartered in London, UK, the IFPI is the organization that represents the interests of the recording industry worldwide and one of its missions is to safeguard the rights of record producers. IFPI web
crawlers visit torrents, peer to peer networks and websites searching for unauthorized content.  When problem files are identified, the IFPI software looks for Destiny's watermark in the content to identify the originating source. If a mark is
found, Destiny's server and the originating label are automatically contacted so that recipient can be disabled from the system and appropriate action can be taken against the individual to hold that recipient accountable for the unauthorized
distribution.

After the content is released, all activity by the recipient is logged in real time, providing record labels and promotions staff real time detail on which songs are accessed, streamed, downloaded and exported. This contrast directly with physical
distribution where they are unsure whether the courier package went to the correct individual or whether it was opened. This information provides invaluable feedback in real time to marketing and promotions staff who can cater their programs
appropriately.

Finally, details of the transaction are fed to the billing servers for generation of automated monthly billing summaries for invoicing.

Real time usage statistics for Play MPE® are available at: http://tinyurl.com/2dyb7ao

Clipstream®

Clipstream® is an innovative "instant play" solution for playback of streaming audio and streaming video. Unlike Windows Media Player or Quicktime, there is no player that has to launch for the content to playback. The Clipstream® software
suite enables audio or video content to be "streamed" so that the media plays instantly and automatically when the user initiates playback. Creating streaming video content with other technologies can be a complicated process and in most
cases, users are required to purchase and maintain streaming servers. With Clipstream®, content owners simply encode the content into the Clipstream® format, then upload to an existing website.

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

According to Comscore's May 2011 US Online Video rankings, 176 million U.S. Internet users watched online video content in May for an average of 15.9 hours per viewer. The total U.S. Internet audience engaged in more than 5.6 billion viewing
sessions during the course of the month. Most of these streams are served by only four competitive technologies to Clipstream® and none of them can offer as high a playrate, secure streams and instant
play. Because competing solutions are player based, they require users to maintain the installed playback software. This exposes the computer to viruses, high resource use and instability. Clipstream® relies on features found in most browsers on
most operating systems to provide the easiest user experience and the highest cross platform, secure playback rate.

---

A quality comparison between Clipstream® and the most common alternate video formats is available at http://tinyurl.com/2fqacwc with Clipstream® in the bottom right. An empty panel in the comparison
reflects that the corresponding player is not installed on the viewing computer.  This common situation is one reason Clipstream® content has a much higher play rate than other solutions.

The return on investment for selling direct licensing is low as the competing streaming solutions are inexpensive and there is a long pre-sale and post-sale support cycle. For that reason, the Company has focused on marketing into niche
opportunities such as the market research industry where the higher playrate and security are required, while investing into research and development for new high margin recurring revenue service based offerings built around the Clipstream®
feature set.

Clipstream® Powered Survey Clip

Market research professionals often use videos and imagery to describe a product or to preview a potential movie trailer or advertisement that may or may not air. Often, the content of the video is sensitive or confidential. Destiny offers a
solution that secures the content so that it will only play from an authorized domain, blocks screenscraper programs (programs which are able copy screen displays) and watermarks the content to protect it from being recorded by video camera or other
means.  Destiny's clips are incorporated into online surveys where the high penetration and playrate ensure the minimum number of high value survey participants "drop out".

The Clipstream® survey solution (http://www.surveyclip.com/ ) is well suited to the market research vertical. Market research companies have embraced the technology for internet based video surveys and Destiny
has become a long time member and sponsor of CASRO (http://www.casro.org/).

There is a high acquisition cost to survey participants who are often paid to participate. It is important that everyone gets the exact same viewing experience so that results are not skewed and that play rates are reliable, so participants do not
drop out because they do not have the correct CODEC or the latest video player installed correctly.

New Clipstream® Products

The following products are under development and not yet commercially available.

Licensing of Next Generation Clipstream®

The Company has filed a provisional patent application for a solution to the transcoding problem faced by video publishers.  With other streaming solutions, the publisher has to transcode the video into different versions for different devices and
operating systems. These multiple copies of the same file use up valuable server storage space and there is commonly quality degradation from one version to the next. Transcoding takes time and uses up CPU. The Company is building out the next
generation of Clipstream® which will work on all browsers, even without the publishers permission and which can be served up from any standard web browser. We expect that this solution can be licensed widely.

IPTV

The Company has developed technology (http://tv.clipstream.com) that enables users to remotely access their own video or TV signal through any web browser without installing player software. The Company is not
offering this product directly to consumers and may pursue direct OEM licensing opportunities where the broadcast software can be pre-installed on internet enabled TV's, IP security cameras and computers.

HD Internet Radio

Destiny is developing a new internet radio service, which enables radio stations to embed their own on air signal into their corporate website without hiring new media consultants and installing high speed connections and streaming servers into
their own offices. Instead our software forwards a single stream to our servers where it is replicated. Users who click on the play button on the station's website receive the stream from Destiny's servers in the playerless
Clipstream® format. We expect that higher play rates will mean lower user support requirements for
staff at the station.

---

This application can extend to derivative business opportunities where the station's signal can be archived on our servers to meet regulatory and advertiser requirements and where the stream can be analyzed to automate reporting of which songs
were played on air by that station.

Cloud Offering

This new asset management system is being built out in direct response to customer requests for a hosting system that allows users to easily organize and reuse content. Members will be able to upload a wide variety of assets (video, documents,
software, audio, pictures, etc.), which they can lock down to be accessed by certain users. Reporting on access is available on an asset by asset basis. Streamed versions of audio and video content are created automatically by a farm of stream
encoding servers.  Users can create audio content by dialing in through a telephone, so meetings and other audio content can easily be automatically converted into streaming media. Users can choose templates to organize assets into web pages or
emails or they can simply embed assets to appear to be served from their own corporate websites even though the content is originating on Destiny's servers. The system has a wide variety of features including sophisticated email list management for
staying in contact with customers.

BUSINESS DEVELOPMENT

In June, the US Patent and Trademark Office approved our patent claims for a proprietary watermarking solution 11/874839 "Methods for Watermarking Media Data". This technology enables content owners to trace back the source of pirated
content. Also, the Company began developing a solution to the significant costs associated internet video "transcoding" and filed a provisional patent application in August.

In October 2010, the Company received approval for its shares to trade on the TSX Venture Exchange in Canada under the symbol "DSY". In August 2011, the Company received approval for its shares to trade on the OTC market's OTCQX
tier.

MPE®

In 2011, annual revenue increased 6% to $4,007,230 with over 95% of our revenue from Play MPE®.

A major focus in fiscal 2011 was to complete a new revision of our encoder and various players for the international market and recipient types other than radio and to integrate our solution with Clear Channels RCS subsidiary's scheduling and radio
automation software. Both of these solutions are expected to launch over Christmas 2011, when the music industry slows down. In anticipation of this roll out, staff have spent time with potential customers in Japan and major western European
markets, such as France and Germany, so they can begin trials in conjunction with the launch. Most sends in these markets to date have originated in the UK and to ensure volume, it is important that local sub-labels are able to send directly from
the local markets.

We have customized the way the system works to be compatible with German privacy and spam laws and we have modernized the player interface to appeal to journalists and other recipients who prefer a quicker "one click" experience over the
extensive features in a player application. Non-radio markets are much larger than radio and will be a focus for future growth. The new system will also integrate more closely with back end solutions, such as with the labels' video repositories.

In April 2011, we became aware that our exclusive reseller in Australia and New Zealand had breached our agreement and had been representing a product from a regional competitor in negotiating with our clients. As a result, staff have begun
supporting Play MPE® directly and building relationships with our clients. The Company is currently reviewing different methods of maintaining the Australian business. With an automated system, twenty- four hour technical support, advanced
feature set, and an ability for labels to share releases globally, we have had positive feedback from recipients and customers alike.

In May, we entered into an agreement with All Access Today Japan, a subsidiary of Dentsu in Tokyo, which handles concert promotion, licensing, fan sites and tours for big name artists.  They will be representing both our Play MPE® and new
Clipstream® solutions in the Asian market.  They have begun demonstrating the system to the majors and other industry participants and we plan to launch trials there with our new player software.

Some highlights for the year include:

---

| | September 9-10, 2010: | Canadian Country
      Music Association Industry Awards, Edmonton, Alberta
| | --------------------- | ---------------------------------------------------------------------------
| |                       |                                                                            
| | September 8-11, 2010: | Christian Music
      Broadcasters Momentum Conference in Orlando, Fla.    
| |                       |                                                                            
| | October 27-28, 2010:  | Billboard Film
      and TV Music Conference, Los Angeles, California      
| |                       |                                                                            
| | March 2-4, 2011:      | Country Radio
      Seminars in Nashville, Tennessee                       
| |                       |                                                                            
| | March 9-12, 2011:     | Canadian Music
      Week in Toronto, Canada                               
| |                       |                                                                            
| | March 15-19, 2011:    | South by
      Southwest Music and Media Conference in Austin, Texas.      
| |                       |                                                                            
| | April 28-30, 2011:    | A&R
      Worldwide/All Access Convention in Los Angeles, California.      
| |                       |                                                                            
| | April 29-30, 2011:    | Worldwide Radio
      Summit, Los Angeles, California                      
| |                       |                                                                            
| | August 10-13, 2011:   | FMQB Triple A
      Convention, Boulder Colorado                           

Clipstream®

The sales focus for Clipstream® was to manage legacy license
sales and to focus on expanding usage in the market research niche where the
product has become a standard for secure video questionnaires. Because of the
cost of acquisition of a survey participant and the sensitivity of the content,
the high play rate and security of the Clipstream® solution is critical.

The Company continues to invest only minimally into sales and
marketing until the new high margin Clipstream® services are ready for launch.

Some highlights for the year include:

| | October, 11-14, 2010 (in San Diego,
California) and June 2-3, 2011 (New York, New York): Council of American Survey
Research Organizations Technology Conference
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

Significant Customers

During the year ended August 31, 2011, revenue earned from
three customers represented 64% of our gross revenue. During the year ended
August 31, 2010, revenue earned from three customers represented 61% of our
gross revenue.

OUR BUSINESS OPERATIONS

We lease approximately 5,792 square feet of office space, with
the lease expiring in October of 2013, and we currently have twenty-five full
time employees and one part time employee. Our employees include our President
and Chief Executive Officer, Chief Financial Officer, twelve sales and technical
support personnel, and nine software developers. We also employ contractors as
needed.

We manage our own server infrastructure and use the services of
an external hosting facility. We have racks of server and storage hardware at
four physical locations (three in Vancouver, Canada and one in London, England).
Servers are highly redundant with RAIDs, custom switches, redundant power
supplies and multiple connections to the internet backbone. Access to the
network is load balanced across the server locations, providing total bandwidth
of 2.2 gigabits per second and continued access to users if a facility ever
failed.

Research and Development

Total research and development expenditures for the year ended
August 31, 2011 were $1,563,690 (2010: $1,193,618).

COMPETITION

MPE®

The nature of the pre-release digital distribution of
promotional music ultimately lends itself to one dominant system where labels
and recipients participate. Play MPE® has the largest market share of a
relatively new market and a network effect entrenches the system as it is difficult for any
one user to switch to an alternative without the entire industry switching.

---

Play MPE® has several advantages over physical distribution
(mail, courier or hand delivery) of manufactured CDs. Digital distribution
through Play MPE® is faster, less expensive, more reliable, more secure,
provides additional real time and more accurate reporting of usage, provides a
great deal of added functionality and provides the error free and automatic
transmission of meta data. Meta data includes International Standard Recording
Codes (ISRC)  which is a standard code for uniquely identifying sound
recordings and music video recordings - song and artist names, beats per minute,
release and impact dates, etc. The automatic transmission of this meta data
reduces the time required for manual data entry into radio automation software
on the receiving side and eliminates inaccuracies in royalty reporting.

Play MPE® provides extensive functionality, security and audio
quality and while significant savings are realized over physical delivery, lower
cost digital options exist. No digital delivery competitors have as extensive a
recipient network or global presence as Play MPE®. The Company expects that
competition will be strongest where audio quality, security, recipient network,
and reporting are not as important as cost.

The Company has entered into strategic alliances to ensure that
Play MPE® is an integrated part of the music industry. With an agreement with
RCS (http://www.rcsworks.com), we are launching a Play MPE® powered site branded
as Musicpoint, which will provide instant access to over 9,000 customers across
its product lines, RCS is the leading supplier of radio automation and
scheduling software, marketed under the brands Selector, GSelector and NexGen
Digital.

Play MPE® integrates with Wide Orbit Automation for Radio,
various product offerings from OMT and supports Broadcast Electronics Audio
Vault.

Also, the Company exports directly into a wide variety of back
end systems such as Clear Channel's Prophet system, the BBC's internal
distribution system and Sirius XM's servers. Mediabase, the dominant supplier of
reporting information to the recording industry exclusively links download links
wherever a new song appears and these links direct their users to register into
our system to access this content.

A tabular comparison is set out below which outlines some of
the more significant competitive advantages relative to competing digital
solutions or to physical delivery. Competing digital solutions generally show a
low investment in technology resulting in less secure and lower quality sound
distributions. Direct competitors are often regional, with little global
presence.

Play MPE®
    Competing alternatives
    Physical DistributionSpeed
    Proprietary lossless compression at 4 times
      download speed or 15 times download speed with inaudible
      compression loss.
    Trade off between slower download speeds or
      lower quality file.
    Dependent on mail courier.Security
    User and machine authentication. Digital
      locking and Watermark available
    Watermarking, password and other access
      control methods.
    Typically no security.Watermarking
     Patent pending proprietary watermark "Methods
      for Watermarking Media Data"  Embeds in real time  Uniquely
      identifies the recipient account,  Survives on air broadcast and
      compression,  Inaudible  Integrated with the IFPI
     Not available or Licensed 3rd
      party watermarks  Range available offers trade off between audio
      quality and reliability  Longer implementation required  Does
      not survive on air broadcast, conversion to new formats, compression or
      filtering  None known to be integrated with the IFPI
    Unique individual watermarking not available.Cost
    Estimated to be approximately 80% savings
      over physical
    Unknown range
    Costs generally include:  mail or courier
      charges 
       manufacture of CD 
       address label,
      packaging, 
       list maintenance


---

Streaming
    Instant, Clipstream® powered
    3rd party players and codecs.
    Not applicableReporting
    Real time
    None to real time
    NonePlayer Versions and capabilities
     PC  Mac and,  iPhone player
      versions including the following proprietary software features: 
      encrypted audio playback,  drag and drop play lists,  integrated
      CD burning,  export to other formats
    Required 3rd party players which require
      correct version and association information.
    Labor intensive process to encode into a
      digital format at radio to integrate into radio automation and reporting
      software systemsPortability
    No Player required Play MPE Direct to Web
      supports playerless streaming and download from any web browser
    Websites require installation of a third party
      media player and authentication agents
    Portable.Meta Data
    Fingerprinting, photos, video, PDFs, Data
      (ISRC codes, intro times, beats per minute, etc.) exported into radio
      automation system/software. Exclusive integration with RCS Sound Software
       the worlds leading radio scheduling software provider.
    Artist name, title, label, compatible with only
      one automation system.
    Radio must manually input meta data requiring
    more labor and leading to errors causing errors in royalty reporting.Formats
    CD, WAV, MP2, MP3, AAC, WMA
    MP3, WMA, WAV
    CD


Clipstream®

Our principal competitor for Clipstream® is Adobe Flash and to
a lesser extent, the player solutions provided by Apple, Real Networks and
Microsoft. Flash is recognized as the dominant player in the space, with a near
monopoly over instant play streaming video. Clipstream® has a number of economic
and usability advantages that make it extremely compelling in certain
circumstances, but the margins on streaming licenses are low. The corporate
strategy is to license Clipstream® to niches where its cost, security and
performance advantages are extremely beneficial, while creating new service
offerings that embrace competing technologies while extending them with the
benefits of Clipstream®.

The current version of Clipstream relies on Java Technology
owned by Oracle Corporation be pre-installed on the browser or if it isn't, for
the consumer to install it. On some browsers, particularly on mobile, this isn't
always the case. We have filed a patent for a new solution that we are building
out that will work on all browsers, providing a near 100% play rate, including
on mobile and devices such as the iPad and iPhone that currently block Flash.
Because this solution allows the publisher to use just one version of the video,
rather than multiple versions to support different devices, we expect that this
solution will be popular. Site owners will save the cost and quality loss of
transcoding and will need much less storage than with multiple video versions.
We are not aware of a competitor with a similar feature set.

Clipstream® Advantages

- A Clipstream® powered website does not require that its visitors download
  and install player software. Clipstream® just plays. Other solutions require
  intrusive codecs and new versions of their player in the background.
- As Clipstream® is playerless, management estimates that at least 10% more
  visitors see the rich media content
- Clipstream® playback takes minimal CPU and memory resources, so the
  viewer's computer is free for other tasks. This means that many Clipstream®
  objects can appear on the same page. Other solutions often restrict to one
  piece of content per page.

---

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

GOVERNMENT REGULATION

We are not currently subject to direct regulation by any
governmental agency other than laws and regulations generally applicable to
businesses. It is possible that a number of laws and regulations may be adopted
in both the United States and Canada with particular applicability to the
Internet. Governments have and may continue to enact legislation applicable to
us in areas such as content distribution, performance and copying, other
copyright issues, network security, encryption, the use of key escrow data,
privacy protection, caching of content by server products, electronic
authentication or digital signatures, illegal or obscene content, access
charges and retransmission activities. The applicability to the Internet of
existing laws governing issues such as property ownership, content, taxation,
defamation and personal privacy is also uncertain. Export or import
restrictions, new legislation or regulation or governmental enforcement of
existing regulations may limit the growth of the Internet, increase our costs of
doing business or increase its legal exposure.

ITEM 1A. RISK FACTORS

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

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

Over 95% of our revenue is generated from our Play MPE®
distribution service. Competitors may arise and/or customers may not renew
distribution contracts. This factor could cause our revenue to decrease with the
result that our financial condition and operating results would be adversely
affected. Competitors have been small, regionally based, have limited resources,
and have yet to capture a material share of the market. If a competitor were to
develop a comparable or superior product, our market share could be reduced.

---

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

Operating expenses increased to $3,209,630 for the year ended August 31, 2011 from $3,082,320 for the year ended August 31, 2010 while our revenue increased to $4,007,230 for the year ended August 31, 2010 from $3,771,382 for the
  year ended August 31, 2010. Our ability to maintain profitability is conditional upon our ability to control 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 counterclaims and one claim against the Company, as described in Item 3 of Part I under the heading "Legal Proceedings". If we are not successful in these legal proceedings and are forced to make payments of
damages to the plaintiffs, then our business and our financial condition would be adversely affected.

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

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

Our financial results may be adversely impacted by currency fluctuations.

Our revenues are primarily in United States dollars and Euros while our operating expenses are primarily in Canadian dollars. An increase in the value of the Canadian dollar in relation to the United States dollar and/or Euro could have the effect
of increasing our loss from operations. We do not currently hedge our foreign currency exposures.

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.

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.

ITEM
1B.            UNRESOLVED
STAFF COMMENTS

None

ITEM
2.              
PROPERTIES

Our head office is located in leased premises at Suite 750, 650
Georgia Street, Vancouver, British Columbia, Canada V6B 4N7. Our principal business operations are carried out from
head office. Our leased premises consist of approximately 5,792 square feet. We
pay rent of approximately $19,000 Canadian (equal to approximately $19,000 US)
per month. The lease expires October 30, 2013. We consider our leased premises
adequate for our current business purposes.

---

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

Patents

1. Digital Locking "Digital Media
Distribution Method and System" (Granted US 20020146122)

This patent provides a method of
locking digital content which prevents play back on unauthorized machines and
devices. Claims include separating security from the content, so that content
files can be shared securely over peer to peer networks. This is one of the
earliest patents for securing peer to peer distributed content.

http://www.dsny.com/v7/pdfs/Digital_media_distribution_method_and_sy.pdf

One of the more important claims in
this patent is the ability to uniquely recognize a particular computer. Uniquely
identifying a persons computer is a common issue which is usually approached by
saving cookies or beacons to the users computer or by tracking IP addresses.
These are not reliable solutions as cookies are easily deleted and IP addresses
easily changed. Destinys propriety hash code process creates a serial number
that can be used to recognize the user on subsequent visits without ever saving
anything to that users computer.

2. Watermarking "Methods for
Watermarking Media Data" (US 20080098022) (pending Japan, Europe, Canada, USA)

Destiny has a developed a watermarking
technology which can uniquely identify the individual who originally accessed a
particular song. Our watermark is unique as it can be embedded and identified
rapidly, it is inaudible, it survives on air broadcast, compression and
conversion to other formats and is virtually impossible to remove. Patents are
pending in the US, Canada, Europe, Japan and China.

Our watermarking technology is used in
the Play MPE® distribution system when songs are exported or when streaming a
track.

Other watermarking technologies are
slow and provide a trade off between a destruction of audio quality and the ease
that they can be filtered out.

http://www.dsny.com/v7/pdfs/METHODS_FOR_WATERMARKING_MEDIA_DATA.pdf

3. Cross Platform Streaming Video
(provisional)

This solution enables publishers to
serve streaming video from their web site without the need for a separate
streaming server. The solution will play instantly in all recent browsers,
including mobile devices, without the need for a separate video player.

Registered Trademarks

Clipstream® Granted: USA, Canada, Japan, Israel, European
Community, China

Play MPE® Granted: Japan, USA, Canada, European Community,
China

MPE® Granted: Japan, USA, Canada, European Community
  
Pending: China

Sonox Digital® Granted: Japan, China 
Pending: Canada, USA

---

Domain Names

Destiny owns a large number of domain names, including many
valuable four letter (dice.net, dsny.com) and URLs featuring common words
(radio-play.com, streamingaudio.com, pirateradio.com and many others.)

Trade Secrets

As an innovative software development company, the Company has
a wide range of proprietary algorithms and software libraries which form the
core of its offerings.

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

| | (1) | Destiny had commenced two outstanding Canadian lawsuits
      (Federal Court of Canada Court File No. T- 413-06 and Ontario Superior
      Court Ontario Court File No. 07-CV-38068 as a result of certain activities
      undertaken by Yangaroo Inc., a Canadian competitor (Yangaroo). Destiny
      was a defendant by counterclaim. A third lawsuit was launched in the
      United States (US District Court for the Eastern District of Wisconsin
      Green Bay Division Case No. 1:09-CV-00462), in which Destiny was
      defendant. The US District Court lawsuit had previously dismissed
      Yangaroos claim in its entirety with the dismissal upheld on appeal
      during the year.                                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | On June 17, 2011 Destiny entered into a settlement
      agreement (the Settlement Agreement) with Yangaroo to settle all
      outstanding litigation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Pursuant to the Settlement Agreement, Yangaroo paid
      Destiny a lump sum amount totaling $600,000 (Canadian Funds). The
      settlement payment was received and recorded in the fourth quarter of
      fiscal 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | As part of the settlement Destiny also acquired a cost
      and royalty free, non-exclusive, worldwide, irrevocable, license to two
      patents held by Yangaroo (US Patent No. 7,529,712 and Canadian Patent No.
      2,407,774). No value was assigned or recorded to the licenses to
      Yangaroos patents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Each party has agreed not to make any claim for costs
      against the other party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (2) | On August 12, 2009 the Company received a statement of
      claim for wrongful dismissal. The claim is for approximately $184,000
      ($180,000 CDN) plus an award of stock options and unspecified damages. The
      Company believes the claim is without merit. The matter was heard at trial
      subsequent to year-end and management expects a decision shortly.
      Management believes it is unlikely that the outcome of this matter will
      have an adverse impact on its result of operations, cash flows and
      financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (3) | On June 10, 2011, the Company commenced proceedings in
      the Federal Court of Australia against Shooting Star Picture Company Pty
      Ltd, Peter Skillman and D-Star Music Delivery Pty Ltd. (collectively the
      respondents). The Company alleges various claims against the respondents
      including, amongst other things, breach of contract, misleading and
      deceptive conduct, breach of fiduciary duties, breach of confidence and
      the tort of deceit. The respondents have cross-claimed for approximately
      $155,000 (AU$145,000) plus a percentage of unspecified revenue the Company
      received from the Australian market in during a portion of the year ended
      August 31, 2011. Management believes, both, that the counterclaim is
      without merit and the damages claim significantly exceeds this
      counterclaim such that it is unlikely that the outcome of this matter will
      have a material adverse impact on its result of operations, cash flows and
      financial condition.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (4) | On November 10, 2011, the Company was served with a
      Notice of Civil Claim in the Supreme Court of British Columbia from
      Noramco Capital Corporation for $100,000 plus interest. The claim asserts
      that the Company has repudiated a subscription agreement entered into in,
      or around, August 2000. Management believes the claim is without merit and
      that it is unlikely that the outcome of this matter will have a material
      adverse impact on its result of operations, cash flows and financial
      condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|ITEM 4. | (REMOVED AND RESERVED)
|------- | ----------------------

---

PART II

|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES.
|------- | -------------------------------------------------------------------------------------------------------------------------

Market Information

Our shares are currently trading on the OTC Bulletin Board
under the stock symbol DSNY. The first day on which the Companys shares were
traded under the stock symbol DSNY was June 26, 2000. On August 18, 2011,
Destiny Media began trading on the OTC markets tier OTCQX. The high and the low
trading prices for our shares for each quarter of the last two fiscal years
were:

QUARTER
    HIGH ($)
    LOW ($)1stQuarter 2010
    $0.55
    $0.282ndQuarter 2010
    $0.54
    $0.363rdQuarter 2010
    $0.53
    $0.364thQuarter 2010
    $0.48
    $0.301stQuarter 2011
    $0.47
    $0.322ndQuarter 2011
    $0.45
    $0.303rdQuarter 2011
    $0.42
    $0.304thQuarter 2011
    $0.47
    $0.30


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

Our shares have traded on the TSX Venture Exchange under the
symbol DSY since October 12, 2010.

Holders of Common Stock

As of November 28, 2011 we had 50,487,577 shares of our common
stock outstanding and there were 1,071 individual shareholders of our common stock including beneficial shareholders where their ownership is registered to the Depository Trust's nominee.

Dividends

We have neither declared nor paid any cash dividends on our
capital stock and do not anticipate paying cash dividends in the foreseeable
future. Our current policy is to retain any earnings in order to finance the
expansion of our operations. Our Board of Directors will determine future
declaration and payment of dividends, if any, in light of the then-current
conditions they deem relevant and in accordance with applicable corporate law.

Recent Sales of Unregistered Securities

During the year ended August 31, 2011, 50,625 shares were
issued in a cashless exercise of 135,000 options with an exercise price of
$0.25. 400,000 shares were issued in an exercise of 400,000 options with cash
proceeds of $100,000.

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

On November 20, 2009 Destiny's board of directors began to
authorize a program to repurchase up to 1 million shares of the Company's common
stock at a maximum share purchase price of $0.80 per share. As of May 28, 2010
The Company repurchased one million shares, representing approximately 2% of the
shares outstanding at an average price of $.446 for a total approximate cost of
$446,000. On July 6, 2010, The board of directors authorized a second tranche to
repurchase up to 1.5 million shares of the Company's common stock at a maximum
share purchase price of $0.80 per share running through June 30th,
2011. As of June 30th, 2011, the Company had purchased 998,465 shares
at an average price of $0.43.

On June 28, 2011, the board of directors authorized a new
tranche to repurchase up to 2,500,000 shares of the Companys common stock at a maximum share purchase price of $0.80 per
share. As of the three months ended August 31, 2011, the Company has purchased
397,145 shares at an average price of $0.38. Future repurchases will be at times
and in amounts as the Company deems appropriate and will be made through open
market transactions. All repurchases will be made in compliance with the
Securities and Exchange Commission's Rule 10b-18, subject to market conditions,
applicable legal requirements and other factors. The board approved stock
repurchase program runs through June 30th, 2011. In addition to the applicable
securities laws, the Company will not make any purchases during a time at which
its insiders are subject to a blackout from trading in the Company's common
shares. The following table sets forth information about our stock repurchases
for the three months ended August 31, 2011.

---

Period (1)
    Total Number of Shares
      (or Units) Purchased (2)
    Average Price Paid
      per Share (or Unit)
    Total Number of Shares (or Units)
      Purchased as Part of Publicly Announced Plans or
      Programs (3)
    Maximum Number (or Approximate Dollar
      Value) of Shares (or Units) that May Yet Be Purchased
      Under the Plans or Programs (3)June 1, 2011 to June 30, 2011
    239,715
    $****
      0.36
    239,715
    -July 1, 2011 to July 31, 2011
    42,500
    $****
      0.40
    42,500
    2,457,500August 1, 2011 to August 31, 2011
    114,930
    $****
      0.40
    114,930
    2,342,570Total
    397,145
    $****
      0.38
    397,145


(1) Based on trade date.(2) All of these shares were
repurchased pursuant to publicly announced share repurchase programs.(3)
During the year ended August 31, 2011, the Company repurchased a total of
1,106,895 shares pursuant to publicly announced share repurchase programs. Of
which, 949,465 shares were pursuant to the second tranche announced on July 6,
2010 and all of 949,465 shares had been cancelled. 157,430 shares were pursuant
to the new tranche announced on June 28, 2011 and 32,500 shares had been
cancelled as of the year ended August 31, 2011. The rest of 124,930 shares were
cancelled in September 2011.

OTHER INFORMATION

None.

---

ITEM
6.              
SELECTED FINANCIAL DATA

Fiscal Year2011
      
      
      2010
      
      
      2009
      
      
      2008
      
      
      2007(Expressed in US dollars, except per share
        amounts)Continuing Operations:Service revenue
      $
      4,007,230
      
      $
      3,771,382
      
      $
      2,560,447
      
      $
      1,578,888
      
      $
      875,544Income (loss) from continuing operations
      
      797,600
      
      
      689,062
      
      
      44,781
      
      
      (2,404,933
      )
      
      (2,119,068
      )Net income (loss)
      
      638,508
      
      
      1,686,073
      
      
      610,831
      
      
      (2,293,178
      )
      
      (2,096,974
      )Net income (loss) per common share, basic
        and diluted
      $
      0.01
      
      $
      0.03
      
      $
      0.01
      
      $
      (0.05
      )
      $
      (0.04
      )Balance Sheet:Working capital
      $
      1,354,115
      
      $
      976,139
      
      $
      658,673
      
      $
      (192,772
      )
      $
      1,229,357Total assets
      
      3,058,137
      
      
      2,578,817
      
      
      1,425,944
      
      
      661,437
      
      
      1,787,055Long-term liabilities
      
      -
      
      
      3,745
      
      
      13,987
      
      
      100,000
      
      
      100,000Stockholders equity (deficit)
      
      2,405,865
      
      
      2,059,369
      
      
      790,934
      
      
      (132,609
      )
      
      1,351,629


---

The selected financial data should be read in conjunction with
  the Consolidated Financial Statements and Notes thereto, and Managements
  Discussion and Analysis of Financial Condition and Results of Operations
  in Item 7 of this Form 10-K.

|ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------------

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

RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2011

Revenue

Total revenue for the year grew to $4,007,230 (2009 -
$3,771,382), an increase of approximately 6% over the fiscal 2010 year. Fourth
quarter revenue increased to $933,047 (fourth quarter fiscal 2010 - $901,607).

The growth in revenue is driven by the growth in our Play MPE®
system, where access fees for the year have grown by more than 9% over the
previous year. Play MPE® continues to see substantial revenue growth that it has
seen over the previous four years.

2007
    2008
    2009
    2010
    2011Play MPE® Revenue
    $446,594
    $1,154,845
    $2,256,871
    $3,501,743
    $3,831,025Growth over prior year
    138%
    159%
    95%
    55%
    9%


Play MPE® is the world leader in an evolving business which is
transforming the way record labels distribute pre-release music. We have seen
the transition from traditional distribution methods to Play MPE® begin
gradually and the growth seen in prior years has continued into 2011. The growth
in revenue over the previous year has been realized across formats, through
existing clients, and through new clients in new geographic areas and includes;
a 14% increase in North American independent record label revenue, an 18% growth
in European. Australasian revenue increased by 14% through expanded independent record label use.

---

While the digital distribution of pre-release music is still at
an early stage, the value propositions of the Play MPE® system are both
compelling and numerous and we have found we compete well against traditional
and alternative methods of distribution in the market. Our product provides
significant advantages such as reducing the costs and lead times, providing
feedback on usage to the record labels, and enhanced global security, with the
added appeal of reducing the impact on the environment. Play MPE® provides many
significant advantages over competing solutions such superior sound quality,
superior security, advantageous partner relationships, a network of regular
users and countless added functions of the player software and total service
offering.

The majority of our revenue is generated from digital media
distribution service. The service is billed on usage which is based on the
volume and size of distributions provided on a monthly basis (sends) A send
is a song, bundle of songs, album, box set, or video, authorized to be sent to a
particular recipient. The revenue associated with each send will be on a
sliding scale depending on the size of the particular send (song length for
example). The system provides each label under contract to manage their own
lists of recipients and directly encode and distribute their songs. This added
ability provided to our clients substantially eliminates the strain on our own
internal resources that can be seen in competing solutions and allows for high
growth potential. All such revenues are recognized on a monthly basis as the
services are delivered to customers, except where extended payment terms exist.
Such revenues are only recognized when the extended payment term expires.

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

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

Approximately 4% of our revenues are derived from sales of our
Clipstream® software which declined from the previous year by 32%. This reflects
a management strategy of focusing sales, marketing and support resources on MPE®
until the new automated system for Clipstream® is available. We hope to increase
sales of Clipstream® licenses through our hosted solution, and other license
opportunities.

Radio Destiny sales represent 0.1% of our total revenue.

Operating Expenses

Overview

As our technologies and products are developed and maintained
in-house, the majority of our expenditures is on salaries and wages and
associated expenses; office space, supplies and benefits. Our operations are
primarily conducted in Canada. The majority of our costs are incurred in
Canadian dollars while the majority of our revenue is in Euros and US dollars.
Thus, operating expenses and the results of operations are impacted, to the
extent they are not hedged, by the rise and fall of the relative values of
Canadian dollar to these currencies. During the year, the rise in the value of
the Canadian dollar relative to the US dollar had an adverse impact on the
Company.

Our total operating expenses for the year increased by 4% to
$3,209,630 from $3,082,320. The majority of this increase was due to higher
salaries and wages, which is due in part to unfavorable exchange fluctuations,
additional staff for research and development, technical support, and salary
adjustments. We had additional one time costs associated with our listing on the
TSX Venture Exchange and the OTC QX.

---

|General and administrative |   | 31-Aug            |  |   | 31-Aug            |   |  | $        |   |  | %       |  
|-------------------------- | - | ----------------- |  | - | ----------------- | - |  | -------- | - |  | ------- | -
|                           |   | 2011              |  |   | 2010              |   |  | Change   |   |  | Change  |  
|                           |   | (12
      months) |  |   | (12
      months) |   |  |          |   |  |         |  
|Wages and benefits         | $ | 365,960           |  | $ | 331,749           |   |  | 34,211   |   |  | 10.3%   |  
|Rent                       |   | 40,601            |  |   | 63,438            |   |  | (22,837  | ) |  | (36.0%  | )
|Telecommunications         |   | 18,757            |  |   | 22,834            |   |  | (4,077   | ) |  | (17.9%  | )
|Bad debt                   |   | 8,381             |  |   | (10,696           | ) |  | 19,077   |   |  | (178.4% | )
|Office and miscellaneous   |   | 221,578           |  |   | 227,894           |   |  | (6,316   | ) |  | (2.8%   | )
|Professional fees          |   | 108,595           |  |   | 414,149           |   |  | (305,554 | ) |  | (73.8%  | )
|                           | $ | 763,872           |  | $ | 1,049,368         |   |  | (285,496 | ) |  | (27.2%  | )

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

An increase in professional fees of $300,986 associated with
litigation with a Canadian competitor, and with litigation in Australia with a
former marketing representative, were offset by a lump sum settlement of
$606,540 ($600,000 Canadian Dollars) paid by the Canadian competitor. Costs
associated with litigation are expected to decline significantly after our third
quarter of fiscal 2012.

|Sales and marketing       |   | 31-Aug            |  |   | 31-Aug            |  |  | $       |   |  | %      |  
|------------------------- | - | ----------------- |  | - | ----------------- |  |  | ------- | - |  | ------ | -
|                          |   | 2011              |  |   | 2010              |  |  | Change  |   |  | Change |  
|                          |   | (12
      months) |  |   | (12
      months) |  |  |         |   |  |        |  
|Wages and benefits        | $ | 404,971           |  | $ | 365,182           |  |  | 39,789  |   |  | 10.9%  |  
|Rent                      |   | 43,139            |  |   | 66,001            |  |  | (22,862 | ) |  | (34.6% | )
|Telecommunications        |   | 19,929            |  |   | 23,757            |  |  | (3,828  | ) |  | (16.1% | )
|Meals and entertainment   |   | 11,619            |  |   | 10,775            |  |  | 844     |   |  | 7.8%   |  
|Travel                    |   | 59,035            |  |   | 58,497            |  |  | 538     |   |  | 0.9%   |  
|Advertising and marketing |   | 285,036           |  |   | 262,016           |  |  | 23,020  |   |  | 8.8%   |  
|                          | $ | 823,729           |  | $ | 786,228           |  |  | 37,501  |   |  | 4.8%   |  

Sales and marketing expenses consist primarily of salaries and
related personnel costs including overhead, sales commissions, advertising and
promotional fees, and travel costs. During the year ended August 31, 2011, Play
MPE® has received significant support from the worlds largest record labels and
achieved symbiotic relationships with partners within the music industry
resulting in cost effective and organic marketing efforts and the need for
higher cost marketing efforts has decreased. We expect that the business
relationships we have developed will provide catalysts to global expansion and
barriers to entry with potential competitors should they arise.

|Research and development |   | 31-Aug            |  |   | 31-Aug            |  |  | $       |   |  | %      |  
|------------------------ | - | ----------------- |  | - | ----------------- |  |  | ------- | - |  | ------ | -
|                         |   | 2011              |  |   | 2010              |  |  | Change  |   |  | Change |  
|                         |   | (12
      months) |  |   | (12
      months) |  |  |         |   |  |        |  
|Wages and benefits       | $ | 1,340,956         |  | $ | 933,307           |  |  | 407,649 |   |  | 43.7%  |  
|Rent                     |   | 148,772           |  |   | 178,469           |  |  | (29,697 | ) |  | (16.6% | )
|Telecommunications       |   | 68,730            |  |   | 64,656            |  |  | 4,074   |   |  | 6.3%   |  
|Research and development |   | 5,232             |  |   | 17,186            |  |  | (11,954 | ) |  | (69.6% | )
|                         | $ | 1,563,690         |  | $ | 1,193,618         |  |  | 370,072 |   |  | 31.0%  |  

Research and development costs consist primarily of salaries
and related personnel costs including overhead and consulting fees with respect
to product development and deployment. The increase is mainly due to increased
staffing, increased salaries and wage costs, consulting requirements due to an
increased ongoing investment in building out the functionality of our Play MPE®
(which accounts for over 95% of our revenue) and the development of three new
Clipstream® service offerings, which have yet to launch.

Costs associated with the above in connection to Play MPE® did
not meet the criteria for capitalization and, thus, were charged to expense as
incurred.

Depreciation and Amortization

Depreciation and amortization expense arose from fixed assets
and other assets. Depreciation and amortization increased to $58,339 for the
fiscal year ended August 31, 2011 from $53,106 for the fiscal year ended August
31, 2010, an increase of
$5,233 or 10%. The increase was due to more computer hardware purchased arising from more volume of deliveries.

---

Other earnings and expenses

Other income decreased to $3,091 for the year ended August 31, 2011 from $118,129 for the year ended August 31, 2010 due to the ending of a sublease agreement, a decrease of $115,038.

Interest income increased to $11,508 for the year ended August 31, 2011 from $3,359 for the year ended August 31, 2010, an increase of $8,149.

Interest expense decreased to $691 for the year ended August 31, 2011 from $2,477 for the year ended August 31, 2010, a decrease of $1,786.

Income Taxes

Our provision for income tax expense for the year ended August 31, 2011 is $173,000 compared to a recovery of $878,000 in 2010. In 2010, the Company recognized a recovery for income tax purposes to record the tax benefit associated with
various tax deductions available to the Company. The Company recognized this benefit as a result of an assessment that it is more likely than not that the Company will realize the benefits of those deductions against future taxable income. In 2011,
as the Company continues to be profitable, the Company began utilizing these various tax deductions to offset taxable income. The Company pays no current income tax.

During the year ended August 31, 2011 the Company recorded income tax expense of $173,000 to recognize the utilization of these various tax deductions during the year to reduce taxable income. The Company realized a net increase to tax assets of
$381,000 in 2011 mostly relating amendments to prior years' tax return filings to capitalize software development costs incurred during those fiscal years ended August 31, 2001 to 2004 and eliminate the expiration of losses.

The Company is subject to United States federal and state income taxes at an approximate rate of 34% (2010 - 34%) and to Canadian federal and British Columbia provincial taxes in Canada at an approximate rate of 27.3% (2010- 29.3%) . The effective
tax rate of 21.3% in 2011 is lower than our expected blended tax rate of 29% due to an increase in the estimated value of Canadian tax deductions available to offset Canadian income tax. The increase in the value these benefits is due to an increase
in the value of the Canadian dollar. Our effective tax rate could fluctuate due to the valuation of our deferred tax assets, or by changes in tax laws, regulations, and accounting principles.

As at August 31, 2011 the Company had deferred tax assets of $1,155,000 (August 31, 2010 - $1,328,000) which includes the value of benefits from deductions associated with non-capital losses, depreciable assets, and investment tax credits.
The Company will continue to evaluate the realizability of deferred tax assets yearly by assessing the need for and amount of a valuation allowance.

Income

During the year ended August 31, 2011, operating income increased by 16% to $797,600 (August 31, 2010 –$689,062). Revenue continues to grow faster than overall expenses. Net income was $638,508 (August 31, 2010
–$1,686,073). Our revenue increased in all geographic areas including a 14% increase in North American independent record label revenue, an 18% growth in European and an 14% growth through expanded independent record label use. Earnings
before interest income and expenses, taxes, depreciation and amortization and stock based compensation (Adjusted EBITDA) was $868,013 for the year ended August 31, 2011 (August 31, 2010 -$908,267).

Adjusted EBITDA is not defined under generally accepted accounting principles ("GAAP") and it may not be comparable to similarly titled measures reported by other companies. We used Adjusted EBITDA, along with other GAAP measures, as a
measure of profitability because Adjusted EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact
of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments and the effect of non-cash stock-based compensation
expense. We believe Adjusted EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to Adjusted EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based
compensation from our earnings which can vary based on share price, share price volatility and expected life of the equity instruments we grant. In addition, this
stock-based compensation expense does not result in cash payments by us.
Adjusted EBITDA has limitations as a profitability measure in that it does not
include the interest expense on our debts, our provisions for income taxes, the
effect of our expenditures for capital assets, the effect of non-cash
stock-based compensation expense and the effect of asset impairments. The
following is a reconciliation of net income from operations to Adjusted EBITDA:

---

31-Aug
    
    
    31-Aug2011
    
    
    2010Net income
    $
    638,508
    
    $
    1,686,073Interest income and expenses
    
    (10,817
    )
    
    (882
    )Deferred income tax expense
      (recovery)
    
    173,000
    
    
    (878,000
    )Depreciation and amortization
    
    58,339
    
    
    53,106Stock based compensation
    
    8,983
    
    
    47,970Adjusted EBITDA
    $
    868,013
    
    $
    908,267


LIQUIDITY AND FINANCIAL CONDITION

We had cash of $1,238,173 as at August 31, 2011 compared to
cash of $491,012 as at August 31, 2010. We had a working capital surplus of
$1,354,115 as at August 31, 2011 compared to $976,139 as at August 31, 2010.The
.. increase in our working capital was mainly due to increased cash balance.

Cash Flows

Net cash generated in operating activities was $1,139,070 for
the year ended August 31, 2011, compared to $841,844 for the year ended August
31, 2010. The increase is mainly due to the continued increase in our sales and
the gain in the settlement of litigation of $606,540 ($600,000 Canadian) offset
by a $300,986 increase in professional fees in connection with litigation.

The cash used in investing activities was $63,289 for the year
ended August 31, 2011, compared to $54,250 for the year ended August 31, 2010.
The Company invested in new computer equipment to strengthen our service
quality.

Net cash used in financing activities was $362,305 for the year
ended August 31, 2011 compared to $572,397 for the year ended August 31, 2010.
The Company continued the share buyback program during the fiscal year 2011. The
Company repurchased 1,106,895 shares with a cost of $450,855 during the fiscal
year 2011. The proceeds from exercise of stock options increased to $100,000 for
the year ended August 31, 2011 compared to $6,250 for year ended August 31,
2010.

Our cash from operations was able to provide sufficient funds
during the fiscal year end of August 31, 2011. We are encouraged by our revenue
growth in fiscal 2011 especially in Europe as our record label clients
incorporate Play MPE® into their work flow.

MATERIAL OFF-BALANCE SHEET ARRANGEMENTS

None.

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America,
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.

---

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") 985-605, Revenue Recognition. Accordingly, revenue is recognized when there is
  persuasive evidence of an arrangement, delivery to the customer has occurred, the fee is fixed and determinable, and collectability is considered probable.

The majority of our revenue is generated from digital media distribution service. The service is billed on usage which is based on the volume and size of distributions provided on a monthly basis. All revenues are recognized on a monthly basis as
the services are delivered to customers, except where extended payment terms exist. Such revenues are only recognized when the extended payment term expires.

At present, the Company does not have yet have a standard business practice for contracts that contain extended payment terms, and therefore recognizes revenue from such contracts when the payment terms lapse and all other revenue criteria have been
met.

Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If we made different judgments or utilized different estimates for any period material differences
in the amount and timing of revenue recognized could result.

Stock-Based Compensation

We recognize the costs of employee services received in share-based payment transactions according to the fair value provisions of the current share-based payment guidance. The fair value of employee services received in stock-based payment
transactions is estimated at the grant date and recognized over the requisite service period. Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price
volatility, forfeiture rates and expected life.

We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards. The Black-Scholes model requires the use of highly subjective and complex assumptions which
determine the fair value of share-based awards, including the option's expected term and the price volatility of the underlying stock. Our current estimate of volatility is based on historical and market-based implied volatilities of our stock
price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the
expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to
vest. Our estimate of the forfeiture rate is based primarily on our historical experience. To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the quarter of revision, as well as in
the following quarters. In the future, as empirical evidence regarding these input estimates is available to provide more directionally predictive results, we may change or refine our approach of deriving these input estimates.

Research and Development Expense for Software Products

Research and development expense includes costs incurred to develop intellectual property. The costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has
been established, at which time any additional costs would be capitalized. We have determined that technological feasibility is established at the time a working model of software is completed. Because we believe our current process for developing
software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.

Significant management judgments and estimates must be made in connection with determination of any amounts identified for capitalization as software development costs in any accounting period. If we made different judgments or utilized different
estimates for any period material differences in the amount and timing of capitalized development costs could occur.

Accounts Receivable and Allowance for Doubtful Accounts

We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required. Accounts outstanding beyond the contractual payment terms are considered past due. We determine our
allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer's current ability to pay its obligation to us.

---

We write-off accounts receivable when they are identified as uncollectible. All outstanding accounts receivable accounts are periodically reviewed for collectability on an individual basis.

Income Taxes

Deferred income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates by tax jurisdiction at each
balance sheet date. Deferred income tax assets also result from unused loss carry-forwards and other deductions. The valuation of deferred income tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect
the estimated realizable amount. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate
all available evidence, such as recent and expected future operating results by tax jurisdiction, and current and enacted tax legislation and other temporary differences between book and tax accounting to determine whether it is more likely than not
that some portion or all of the deferred income tax assets will not be realized. There is a risk that management estimates for operating results could vary significantly from actual results, which could materially affect the valuation of the future
income tax asset. Although the Company has tax loss carry-forwards and other deferred income tax assets, management has determined certain of these deferred tax assets do not meet the more likely than not criteria, and accordingly, these deferred
income tax asset amounts have been partially offset by a valuation allowance as disclosed in Note 5 of our consolidated financial statements.

If management's estimates of the cash flows or operating results do not materialize due to errors in estimates or unforeseen changes to the economic conditions affecting the Company, it could result in an impairment adjustment in future
periods up to the carrying value of the deferred income tax balance of $1,155,000.

Contingencies

As discussed in Part I, Item 3 of this Form 10−K under the heading "Legal Proceedings" and in Note 8 "Contingencies" in Notes to Consolidated Financial Statements, the Company is subject to various legal proceedings and
claims that arise in the ordinary course of business. In accordance with US GAAP, the Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in
both the probability determination and as to whether an exposure can be reasonably estimated. In management's opinion, the Company does not have a potential liability related to any current legal proceedings and claims that would individually
or in the aggregate materially adversely affect its financial condition or operating results. However, the outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. Should the Company fail to
prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Impairment of Long-Lived Assets

We evaluate the recoverability of our long-lived assets including tangible assets in accordance with authoritative guidance. When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we
recognize such impairment in the event the carrying amount of such assets exceeds the future undiscounted cash flows attributable to such assets. We have not recorded any impairment losses to date.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements("ASU 2009-13"). The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and
requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence ("VSOE") if available, third-party
evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The
Company's adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update 2009-14, "Certain Revenue Arrangements That Include Software Elements — a consensus of the FASB Emerging Issues Task Force." This Update removes tangible products containing software components and non-software components that
function together to deliver the tangible products essential functionality from
the scope of the software revenue guidance in Subtopic 985-605 of the
Codification. Additionally, ASU 2009-14 provides guidance on how a vendor should
allocate arrangement consideration to deliverables in an arrangement that
includes both tangible products and software that is not essential to the
products functionality. ASU 2009-14 requires the same expanded disclosures that
are included within ASU 2009-13. ASU 2009-14 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with early adoption permitted. A company is
required to adopt the amendments in both ASU 2009-13 and 2009-14 in the same
period using the same transition method. The Companys adoption of this guidance
did not have a material effect on the Companys consolidated financial
statements.

---

Accounting Standards Not Yet Effective

In April 2010, the FASB issued Accounting Standards Update
2010-13, Compensation  Stock Compensation (Topic 718). The objective of this
Update is to address the classification of an employee share-based payment award
with an exercise price denominated in the currency of a market in which the
underlying equity security trades. The Update provides guidance on the
classification of a share-based payment award as either equity or a liability. A
share-based payment award that contains a condition that is not a market,
performance, or service condition is required to be classified as a liability.
The amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2010. The
amendments in this Update should be applied by recording a cumulative-effect
adjustment to the opening balance of retained earnings. The Company is currently
evaluating the impact of this update on the consolidated financial statements.

In May 2011, the FASB issued Accounting Standards Update
2011-14, Fair Value Measurement (Topic 820). This Update will improve the
comparability of fair value measurements presented and disclosed in financial
statements prepared in accordance with US GAAP and International Financial
Reporting Standards (IFRS). The amendments in this Update result in common
fair value measurement and disclosure requirements in U.S. GAAP and IFRSs and
they explain how to measure fair value and they do not require additional fair
value measurements and are not intended to establish valuation standards or
affect valuation practices outside of financial reporting. The amendments in
this Update apply to all reporting entities that are required or permitted to
measure or disclose the fair value of an asset, a liability, or an instrument
classified in a reporting entitys shareholders equity in the financial
statements. The amendments in this Update are to be applied prospectively. For
public entities, the amendments are effective during interim and annual periods
beginning after December 15, 2011. Early application by public entities is not
permitted. The Company is currently evaluating the impact of this update on the
consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update
2011-05, Presentation of Comprehensive income (Topic 220). The objective of
this Update is to improve the comparability, consistency, and transparency of
financial reporting and to increase the prominence of items reported in other
comprehensive income. To increase the prominence of items reported in other
comprehensive income and to facilitate convergence of U.S. generally accepted
accounting principles (GAAP) and International Financial Reporting Standards
(IFRS), the FASB decided to eliminate the option to present components of other
comprehensive income as part of the statement of changes in stockholders
equity, among other amendments in this Update. The amendments require that all
non-owner changes in stockholders equity be presented either in a single
continuous statement of comprehensive income or in two separate but consecutive
statements. In the two-statement approach, the first statement should present
total net income and its components followed consecutively by a second statement
that should present total other comprehensive income, the components of other
comprehensive income, and the total of comprehensive income. The amendments in
this Update should be applied retrospectively. For public entities, the
amendments are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011. The Company is currently evaluating
the impact of this update on the consolidated financial statements

|ITEM 7A. | QUANTITATIVE
  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|-------- | -------------------------------------------------------------

Foreign Exchange Risk

Our revenues are primarily in United States dollars and Euros
while our operating expenses are primarily in Canadian dollars. Thus, operating
expenses and the results of operations are impacted to the extent they are not
hedged by the rise and fall of the relative values of Canadian dollar to these
currencies. During the year, the rise in the value of the Canadian dollar
relative to the US dollar had an adverse impact on the Company. The effect of
the stronger Canadian dollar in 2011 contributed approximately $83,000 to the
increase in operating expenses during 2011 compared to 2010.

---

|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -------------------------------------------------------------------------------------------------

Index to Audited Consolidated Financial Statements for the Year
Ended August 31, 2011:

|1. | Report of Independent Registered
        Public Accounting Firm  BDO Canada LLP                               
|-- | ---------------------------------------------------------------------------------------------------------------
|   |                                                                                                                
|2. | Consolidated Balance Sheets as at
        August 31, 2011 and 2010;                                            
|   |                                                                                                                
|3. | Consolidated Statement of Operations
        for the Years Ended August 31, 2011 and 2010;                     
|   |                                                                                                                
|4. | Consolidated Statement of Changes
        in Stockholders' Equity for the Years Ended August 31, 2011 and 2010;
|   |                                                                                                                
|5. | Consolidated Statement of Cash Flows
        for the Years Ended August 31, 2011 and 2010;                     
|   |                                                                                                                
|6. | Notes to Consolidated Financial
        Statements.                                                            

---

Consolidated Financial Statements

Destiny Media Technologies Inc.August 31, 2011 and 2010(Expressed in United States dollars)

---

|                  | Tel: 604 688 5421           | BDO Canada LLP
|----------------- | --------------------------- | --------------
|Fax: 604 688 5132 | 600 Cathedral Place        
|www.bdo.ca        | 925 West Georgia Street    
|                  | Vancouver BC V6C 3L2 Canada

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Directors and StockholdersDestiny Media
Technologies Inc.Vancouver, Canada

We have audited the accompanying consolidated balance sheets of
Destiny Media Technologies Inc. (the Company) as of August 31, 2011 and 2010,
and the related consolidated statements of operations, changes in stockholders
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits
provide 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. at August 31, 2011 and 2010, and the results of
its operations and its cash flows for the years ended August 31, 2011 and 2010,
in conformity with accounting principles generally accepted in the United States
of America.

/s/ BDO Canada LLP
Chartered Accountants

Vancouver, Canada 
  November 25, 2011

---

|Destiny Media Technologies Inc.
|-------------------------------
|                               
|CONSOLIDATED BALANCE SHEETS    
|As at August 31                

|                                                                                                                                                                                     |  | 2011       |   |  | 2010       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------- | - |  | ---------- | -
|                                                                                                                                                                                     |  | $          |   |  | $          |  
|                                                                                                                                                                                     |  |            |   |  |            |  
|ASSETS                                                                                                                                                                               |  |            |   |  |            |  
|Current                                                                                                                                                                              |  |            |   |  |            |  
|Cash and cash equivalents                                                                                                                                                            |  | 1,238,173  |   |  | 491,012    |  
|Accounts receivable, net of allowance for doubtful accounts
      of $23,513 [2010  $17,093]                                                                                        |  | 385,629    |   |  | 542,932    |  
|Other receivables                                                                                                                                                                    |  | 62,779     |   |  | 45,616     |  
|Prepaid expenses                                                                                                                                                                     |  | 23,583     |   |  | 32,282     |  
|Deposits                                                                                                                                                                             |  | 10,223     |   |  |           |  
|Deferred tax
      assets  current portion [note 5]                                                                                                                                 |  | 286,000    |   |  | 380,000    |  
|Total current assets                                                                                                                                                                 |  | 2,006,387  |   |  | 1,491,842  |  
|Deposits                                                                                                                                                                             |  | 38,349     |   |  | 9,496      |  
|Property and equipment, net [note 3]                                                                                                                                                 |  | 144,401    |   |  | 129,479    |  
|Deferred tax
      assets  long term portion [note 5]                                                                                                                               |  | 869,000    |   |  | 948,000    |  
|Total assets                                                                                                                                                                         |  | 3,058,137  |   |  | 2,578,817  |  
|                                                                                                                                                                                     |  |            |   |  |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                 |  |            |   |  |            |  
|Current                                                                                                                                                                              |  |            |   |  |            |  
|Accounts payable                                                                                                                                                                     |  | 293,552    |   |  | 220,538    |  
|Accrued liabilities                                                                                                                                                                  |  | 311,797    |   |  | 259,388    |  
|Deferred leasehold inducement                                                                                                                                                        |  | 4,934      |   |  |           |  
|Deferred revenue                                                                                                                                                                     |  | 37,954     |   |  | 25,018     |  
|Obligation under capital leases  current portion [note
      6]                                                                                                                     |  | 4,035      |   |  | 10,759     |  
|Total current liabilities                                                                                                                                                            |  | 652,272    |   |  | 515,703    |  
|Obligation under capital leases  long term portion
      [note 6]                                                                                                                   |  |           |   |  | 3,745      |  
|Total
      liabilities                                                                                                                                                              |  | 652,272    |   |  | 519,448    |  
|                                                                                                                                                                                     |  |            |   |  |            |  
|Commitments and contingencies [notes 6 and 8]                                                                                                                                        |  |            |   |  |            |  
|Stockholders equity                                                                                                                                                                 |  |            |   |  |            |  
|Common stock, par value $0.001 [note 4]                                                                                                                                              |  |            |   |  |            |  
|Authorized:
      100,000,000 shares      Issued: 50,612,507
      Outstanding: 50,487,577 shares
                [August 31,
      2010  issued and outstanding 51,143,847 shares] |  | 50,613     |   |  | 51,145     |  
|Additional paid-in capital                                                                                                                                                           |  | 8,758,044  |   |  | 9,049,308  |  
|Shares held for cancellation                                                                                                                                                         |  | (50,076    | ) |  |           |  
|Accumulated Deficit                                                                                                                                                                  |  | (6,576,033 | ) |  | (7,214,541 | )
|Accumulated other comprehensive income                                                                                                                                               |  | 223,317    |   |  | 173,457    |  
|Total
      stockholders equity                                                                                                                                                     |  | 2,405,865  |   |  | 2,059,369  |  
|Total liabilities and stockholders equity                                                                                                                                           |  | 3,058,137  |   |  | 2,578,817  |  

See accompanying notes

---

|Destiny Media Technologies Inc.             |                                     
|------------------------------------------- | ------------------------------------
|                                            |                                     
|CONSOLIDATED STATEMENTS OF
      OPERATIONS
|                                           
|Years ended August 31                       | (Expressed in United States dollars)

|                                                     |  | 2011       |   |  | 2010       |  
|---------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                     |  | $          |   |  | $          |  
|                                                     |  |            |   |  |            |  
|Service revenue[note 9]                              |  | 4,007,230  |   |  | 3,771,382  |  
|                                                     |  |            |   |  |            |  
|Operating expenses                                   |  |            |   |  |            |  
|General and administrative [note 8a]                 |  | 763,872    |   |  | 1,049,368  |  
|Sales and marketing                                  |  | 823,729    |   |  | 786,228    |  
|Research and development                             |  | 1,563,690  |   |  | 1,193,618  |  
|Depreciation and amortization                        |  | 58,339     |   |  | 53,106     |  
|                                                     |  | 3,209,630  |   |  | 3,082,320  |  
|Income from operations                               |  | 797,600    |   |  | 689,062    |  
|Other income (expenses)                              |  |            |   |  |            |  
|Interest income                                      |  | 11,508     |   |  | 3,359      |  
|Other income                                         |  | 3,091      |   |  | 118,129    |  
|Interest and other expense                           |  | (691       | ) |  | (2,477     | )
|Income before provision for income taxes             |  | 811,508    |   |  | 808,073    |  
|Deferred income tax recovery (expense) [note 5]      |  | (173,000   | ) |  | 878,000    |  
|                                                     |  |            |   |  |            |  
|Net income                                           |  | 638,508    |   |  | 1,686,073  |  
|                                                     |  |            |   |  |            |  
|Net income
      per common share, basic and diluted |  | 0.01       |   |  | 0.03       |  
|                                                     |  |            |   |  |            |  
|Weighted average common shares
      outstanding:    |  |            |   |  |            |  
|Basic                                                |  | 50,552,886 |   |  | 51,637,922 |  
|Diluted                                              |  | 50,931,848 |   |  | 52,274,419 |  

See accompanying notes

---

|Destiny Media Technologies Inc.                                  |                                     
|---------------------------------------------------------------- | ------------------------------------
|                                                                 |                                     
|CONSOLIDATED STATEMENTS OF
      CHANGES IN STOCKHOLDERS EQUITY
|                                                                
|Years ended August 31                                            | (Expressed in United States dollars)

|                                                               |  |              |   |  |        |   |  |            |   |  |              |   |  |             |   |  | Accumulated       |  |  | Total         |  
|-------------------------------------------------------------- |  | ------------ | - |  | ------ | - |  | ---------- | - |  | ------------ | - |  | ----------- | - |  | ----------------- |  |  | ------------- | -
|                                                               |  |              |   |  |        |   |  | Additional |   |  | Shares       |   |  |             |   |  | other             |  |  | stockholders |  
|                                                               |  | Common stock |   |  |        |   |  | paid-in    |   |  | held for     |   |  | Accumulated |   |  | **comprehensive** |  |  | equity        |  
|                                                               |  | Shares       |   |  | Amount |   |  | capital    |   |  | cancellation |   |  | Deficit     |   |  | income            |  |  |               |  
|                                                               |  | #            |   |  | $      |   |  | $          |   |  | $            |   |  | $           |   |  | $                 |  |  | $             |  
|Balance, August 31, 2009                                       |  | 51,723,647   |   |  | 51,725 |   |  | 9,492,168  |   |  |             |   |  | (8,900,614  | ) |  | 147,655           |  |  | 790,934       |  
|Net income for the year                                        |  |             |   |  |       |   |  |           |   |  |             |   |  | 1,686,073   |   |  |                  |  |  | 1,686,073     |  
|Foreign currency translation
      gain                        |  |             |   |  |       |   |  |           |   |  |             |   |  |            |   |  | 25,802            |  |  | 25,802        |  
|Comprehensive
      income                                     |  |             |   |  |       |   |  |           |   |  |             |   |  |            |   |  |                  |  |  | 1,711,875     |  
|Common stock issued on
      options exercised                 |  | 133,200      |   |  | 133    |   |  | 6,117      |   |  |             |   |  |            |   |  |                  |  |  | 6,250         |  
|Common stock issued on warrants exercised                      |  | 336,000      |   |  | 336    |   |  | (336       | ) |  |             |   |  |            |   |  |                  |  |  |              |  
|Common stock repurchased and
      cancelled                   |  | (1,049,000   | ) |  | (1,049 | ) |  | (466,611   | ) |  |             |   |  |            |   |  |                  |  |  | (467,660      | )
|Stock options repurchased and cancelled                        |  |             |   |  |       |   |  | (30,000    | ) |  |             |   |  |            |   |  |                  |  |  | (30,000       | )
|Stock based compensation                                       |  |             |   |  |       |   |  | 47,970     |   |  |             |   |  |            |   |  |                  |  |  | 47,970        |  
|Balance, August 31, 2010                                       |  | 51,143,847   |   |  | 51,145 |   |  | 9,049,308  |   |  |             |   |  | (7,214,541  | ) |  | 173,457           |  |  | 2,059,369     |  
|Net income for the year                                        |  |             |   |  |       |   |  |           |   |  |             |   |  | 638,508     |   |  |                  |  |  | 638,508       |  
|Foreign currency translation gain                              |  |             |   |  |       |   |  |           |   |  |             |   |  |            |   |  | 49,860            |  |  | 49,860        |  
|Comprehensive income                                           |  |             |   |  |       |   |  |           |   |  |             |   |  |            |   |  |                  |  |  | 688,368       |  
|Common stock issued on options exercised                       |  | 450,625      |   |  | 451    |   |  | 99,549     |   |  |             |   |  |            |   |  |                  |  |  | 100,000       |  
|Common stock repurchased and
      cancelled                   |  | (981,965     | ) |  | (983   | ) |  | (399,796   | ) |  |             |   |  |            |   |  |                  |  |  | (400,779      | )
|Common stock repurchased and held for
            cancellation |  | (124,930     | ) |  |       |   |  |           |   |  | (50,076      | ) |  |            |   |  |                  |  |  | (50,076       | )
|Stock compensation - employees                                 |  |             |   |  |       |   |  | 8,983      |   |  |             |   |  |            |   |  |                  |  |  | 8,983         |  
|Balance, August 31, 2011                                       |  | 50,487,577   |   |  | 50,613 |   |  | 8,758,044  |   |  | (50,076      | ) |  | (6,576,033  | ) |  | 223,317           |  |  | 2,405,865     |  

Seeaccompanyingnotes

---

|Destiny Media Technologies Inc.             |                                     
|------------------------------------------- | ------------------------------------
|                                            |                                     
|CONSOLIDATED STATEMENTS OF CASH
      FLOWS
|                                           
|Years ended August 31                       | (Expressed in United States dollars)

|                                                      |  | 2011      |   |  | 2010      |  
|----------------------------------------------------- |  | --------- | - |  | --------- | -
|                                                      |  | $         |   |  | $         |  
|                                                      |  |           |   |  |           |  
|OPERATING ACTIVITIES                                  |  |           |   |  |           |  
|Net income                                            |  | 638,508   |   |  | 1,686,073 |  
|Items not involving cash:                             |  |           |   |  |           |  
|Depreciation and amortization                         |  | 58,339    |   |  | 53,106    |  
|Stock-based compensation                              |  | 8,983     |   |  | 47,970    |  
|Deferred leasehold inducement                         |  | 4,880     |   |  |          |  
|Deferred commission costs                             |  |          |   |  | 13,908    |  
|Deferred income taxes                                 |  | 173,000   |   |  | (878,000  | )
|Changes in non-cash working capital:                  |  |           |   |  |           |  
|Accounts receivable                                   |  | 196,666   |   |  | (22,340   | )
|Other receivables                                     |  | (13,518   | ) |  | (30,062   | )
|Prepaid expenses and deposits                         |  | (26,875   | ) |  | 29,308    |  
|Accounts payable                                      |  | 55,772    |   |  | (146,431  | )
|Accrued liabilities                                   |  | 32,417    |   |  | 81,076    |  
|Deferred revenue                                      |  | 10,898    |   |  | 7,236     |  
|Net cash
      provided by operating activities       |  | 1,139,070 |   |  | 841,844   |  
|                                                      |  |           |   |  |           |  
|INVESTING ACTIVITIES                                  |  |           |   |  |           |  
|Purchase of equipment                                 |  | (63,289   | ) |  | (54,250   | )
|Net cash used
      in investing activities           |  | (63,289   | ) |  | (54,250   | )
|                                                      |  |           |   |  |           |  
|FINANCING ACTIVITIES                                  |  |           |   |  |           |  
|Repayments on capital lease obligations               |  | (11,450   | ) |  | (9,769    | )
|Repayments of shareholder loans                       |  |          |   |  | (71,218   | )
|Proceeds from exercise of stock options               |  | 100,000   |   |  | 6,250     |  
|Repurchase of
      stock and options                 |  | (450,855  | ) |  | (497,660  | )
|Net cash used in financing activities                 |  | (362,305  | ) |  | (572,397  | )
|                                                      |  |           |   |  |           |  
|Effect of foreign exchange rate changes
      on cash |  | 33,685    |   |  | 22,715    |  
|                                                      |  |           |   |  |           |  
|Net increase in cash during the year                  |  | 747,161   |   |  | 237,912   |  
|Cash, beginning of
      year                         |  | 491,012   |   |  | 253,100   |  
|Cash, end of year                                     |  | 1,238,173 |   |  | 491,012   |  
|                                                      |  |           |   |  |           |  
|Supplementary disclosure                              |  |           |   |  |           |  
|Interest paid                                         |  | 691       |   |  | 2,477     |  
|Income taxes paid                                     |  |          |   |  |          |  

See accompanying notes

---

|Destiny Media Technologies Inc.                 
|------------------------------------------------
|                                                
|NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS
|                                                
|August 31, 2011 and 2010                        

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, Europe and
Australia.

The Companys stock is listed for trading under the symbol
DSNY on the OTC Bulletin Board in the United States, under the symbol DSY on
the TSX Venture Exchange and under the symbol DME on the Berlin, Frankfurt,
Xetra and Stuttgart exchanges in Germany.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of presentation and fiscal year

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

Certain comparative figures have been reclassified to conform
to the current years presentation.

Principles of consolidation

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

Use of estimates

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

1

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

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

Cash and cash equivalents

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

Revenue recognition

The Company recognizes revenue in accordance with Financial
Accounting Standards Boards (FASB) Accounting Standards Codification (ASC)
985-605, Revenue Recognition. Accordingly, revenue is recognized when
there is persuasive evidence of an arrangement, delivery to the customer has
occurred, the fee is fixed and determinable, and collectability is considered
probable.

The majority of the Companys revenue is generated from digital
media distribution service. The service is billed on usage which is based on the
volume and size of distributions provided on a monthly basis. All revenues are
recognized on a monthly basis as the services are delivered to customers, except
where extended payment terms exist. Such revenues are only recognized when the
extended payment term expires.

Cash received in advance of meeting the revenue recognition criteria
  is recorded as deferred revenue.

2

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

Long-lived assets

Long-lived assets held for use are evaluated for impairment
when events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. Impairment is measured by a
two step process: Step 1) the carrying amount of the asset is compared with its
estimated undiscounted future cash flows expected to result from the use of the
assets and its eventual disposition. If the carrying amount is lower than the
undiscounted future cash-flows, no impairment loss is recognized. Step 2) If the
carrying amount is higher than the undiscounted future cash-flows then an
impairment loss is measured as the difference between the carrying amount and
fair value which may be based on internally developed discounted cash flow
estimates, quoted market prices, when available, or independent appraisals. The
determination of whether or not long-lived assets have become impaired involves
a significant level of judgment in the assumptions underlying the approach used
to determine the estimated future cash flows expected to result from the use of
those assets. Changes in the Companys strategy, assumptions and/or market
conditions could significantly impact these judgments and require adjustments to
recorded amounts of long-lived assets. As of August 31, 2011, there were no
impairment indicators present.

Litigation and settlement costs

We are involved in disputes, litigation and other legal
actions. In accordance with ASC 450, Contingencies, we record a charge equal to
at least the minimum estimated liability for a loss contingency when both of the
following conditions are met: (i) information available prior to issuance of the
financial statements indicates that it is probable that an asset had been
impaired or a liability had been incurred at the date of the financial
statements and (ii) the range of loss can be reasonably estimated.

During the year ended August 31, 2011, the Company incurred
approximately $528,000 (2010: $286,000) in professional legal fees in connection
with legal actions against the Company and legal actions initiated by the
Company. These costs are expensed as incurred and are recorded as a component of
general and administrative expenses. During the year ended August 31, 2011, the
Company recorded a gain on settlement of litigation of $606,540 (2010: $Nil)
which offset the professional fees incurred.

3

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont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 Companys exposure to credit risk has
increased as a result of global market conditions and increased revenue. The
amount ultimately realized from trade accounts receivable may differ from the
amount estimated in the consolidated financial statements based on collection
experience.

Research and development costs

Research costs are expensed as incurred. Development costs are
subject to capitalization beginning when a products technological feasibility
has been established and ending when a product is available for general release
to customers. The Companys products are generally released soon after
technological feasibility has been established and therefore costs incurred
subsequent to achievement of technological feasibility are not significant and
have been expensed as incurred.

Property and equipment

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

Furniture and fixtures
    20%Computer hardware
    30%Computer software
    50%Leasehold improvements
    Straight-line over lease term


4

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

Translation of foreign currencies

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

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

Advertising

Advertising costs are expensed as incurred and totaled $154,258
and $116,177 during the years ended August 31, 2011 and 2010, respectively.

Income taxes

The Company utilizes the liability method of accounting for
income taxes as set forth in ASC 740, Income Taxes(formerly SFAS No.
109, Accounting for Income Taxes). Under the liability method, deferred
taxes are determined based on the temporary differences between the financial
statement and tax basis of assets and liabilities using tax rates expected to be
in effect during the years in which the basis that give rise to the differences
reverse. A valuation allowance is recorded when it is more likely than not that
some of the deferred tax assets will not be realized. In determining the need
for valuation allowances we consider projected future taxable income and the
availability of tax planning strategies. If in the future we determine that we
would not be able to realize our recorded deferred tax assets, an increase in
the valuation allowance would be recorded, decreasing earnings in the period in
which such determination is made.

5

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

We assess our income tax positions and record tax benefits for
all years subject to examination based upon our evaluation of the facts,
circumstances and information available at the reporting date. For those tax
positions where there is a greater than 50% likelihood that a tax benefit will
be sustained, we have recorded the largest amount of tax benefit that may
potentially be realized upon ultimate settlement with a taxing authority that
has full knowledge of all relevant information. For those income tax positions
where there is 50% or less likelihood that a tax benefit will be sustained, no
tax benefit has been recognized in the financial statements.

The Company has concluded that there are no significant
uncertain tax positions requiring recognition in the Companys financial
statements. The Companys evaluation was performed for the tax years ended
August 31, 1999 through August 31, 2011, the tax years which remain subject to
examination by major tax jurisdictions. The Company may from time to time be
assessed interest or penalties by major tax jurisdictions, although any such
assessments historically have been minimal and immaterial to the Companys
financial results. In the event the Company has received an assessment for
interest and/or penalties, it has been classified in the financial statements as
selling, general and administrative expense.

Investment tax credits

The Company uses the flow through method to account for
investment tax credits earned on eligible scientific research and development
expenditures. Under this method, the investment tax credits are recognized as a
reduction to income tax expense.

Stock based compensation

The Company accounts for stock-based compensation arrangements
in accordance with ASC 718, Stock Compensation. Under the fair value recognition
provisions of ASC 718 stock based compensation cost is estimated at the grant
date based on the fair value of the awards expected to vest and recognized as
expense ratably over the requisite service period of the award. The Company has
used the Black-Scholes option pricing model to estimate fair value of its
stock-based awards which requires various judgmental assumptions including
estimating stock price volatility and expected life. The Companys computation
of expected volatility is based on a combination of historical and market-based
implied volatility. In addition, the Company considers many factors when
estimating expected life, including types of awards and historical experience.
If any of the assumptions used in the Black-Scholes valuation model change
significantly, stock-based compensation expense may differ materially in the
future from that recorded in the current period.

6

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

As required under ASC 718-50 Employee Share Purchase Plans,
compensation expense is recorded for shares committed to be released to
employees based on the fair market value of those shares in the period in which
they are purchased by the Company and committed to be released to the employee.

Earnings per share

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

|                                                   |  | Year
      Ended | 
|-------------------------------------------------- |  | ---------------- | 
|                                                   |  |                  | 
|                                                   |  | August 31,       | 
|                                                   |  | 2011             | 
|                                                   |  | $                | 
|Net income                                         |  | 638,508          | 
|Weighted average common shares outstanding         |  | 50,552,886       | 
|Effect of dilutive securities  warrants           |  | 136,260          | 
|Effect of dilutive securities  options            |  | 242,703          | 
|                                                   |  |                  | 
|Diluted weighted average common shares outstanding |  | 50,931,848       | 

Weighted average potentially dilutive securities of 2,216,027
and 6,475,954 shares arising from stock options and share purchase warrants,
respectively, were not included as their effect would be anti-dilutive for the
year ended August 31, 2011 (2010  2,469,794 and 6,531,831 shares arising from
stock options and share purchase warrants, respectively).

7

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

Shares repurchased for cancellation are excluded in the
calculation of earnings per share from the date they are repurchased.

Comprehensive income

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

Recent adopted accounting pronouncements

In October 2009, the FASB issued ASU 2009-13,
Multiple-Deliverable Revenue Arrangements(ASU 2009-13). The new
standard changes the requirements for establishing separate units of accounting
in a multiple element arrangement and requires the allocation of arrangement
consideration to each deliverable based on the relative selling price. The
selling price for each deliverable is based on vendor-specific objective
evidence (VSOE) if available, third-party evidence if VSOE is not available,
or estimated selling price if neither VSOE or third-party evidence is available.
ASU 2009-13 is effective for revenue arrangements entered into in fiscal years
beginning on or after June 15, 2010. The Companys adoption of this guidance did
not have a material effect on the Companys consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update
  2009-14, Certain Revenue Arrangements That Include Software Elements 
  a consensus of the FASB Emerging Issues Task Force. This Update removes
  tangible products containing software components and nonsoftware components
  that function together to deliver the tangible products essential functionality
  from the scope of the software revenue guidance in Subtopic 985-605 of the Codification.
  Additionally, ASU 2009-14 provides guidance on how a vendor should allocate
  arrangement consideration to deliverables in an arrangement that includes both
  tangible products and software that is not essential to the products functionality.
  ASU 2009-14 requires the same expanded disclosures that are included within
  ASU 2009-13. ASU 2009-14 is effective prospectively for revenue arrangements
  entered into or materially modified in fiscal years beginning on or after June
  15, 2010, with early adoption permitted. A company is required to adopt the
  amendments in both ASU 2009-13 and 2009-14 in the same period using the same
  transition method. The Companys adoption of this guidance did not have
  a material effect on the Companys consolidated financial statements.

8

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

Accounting Standards Not Yet Effective

In April 2010, the FASB issued Accounting Standards Update
2010-13, Compensation  Stock Compensation (Topic 718). The objective of this
Update is to address the classification of an employee share-based payment award
with an exercise price denominated in the currency of a market in which the
underlying equity security trades. Specifically, an employee share-based payment
award denominated in a currency of a market in which a substantial portion of
the entitys equity securities trades should not be considered to contain a
condition that is not a market, performance or service condition and therefore
would not classify the award as a liability if it otherwise qualifies as equity.
The amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2010. The
amendments in this Update should be applied by recording a cumulative-effect
adjustment to the opening balance of retained earnings. The Company is currently
evaluating the impact of this update on the consolidated financial statements.
This standard will be effective for the Company on September 1, 2011. The
Company does not expect the adoption of this new guidance will have a material
impact on its financial statements.

In May 2011, the FASB issued Accounting Standards Update
2011-14, Fair Value Measurement (Topic 820). This Update will improve the
comparability of fair value measurements presented and disclosed in financial
statements prepared in accordance with US GAAP and International Financial
Reporting Standards (IFRS). The amendments in this Update result in common
fair value measurement and disclosure requirements in U.S. GAAP and IFRSs and
they explain how to measure fair value and they do not require additional fair
value measurements and are not intended to establish valuation standards or
affect valuation practices outside of financial reporting. The amendments in
this Update apply to all reporting entities that are required or permitted to
measure or disclose the fair value of an asset, a liability, or an instrument
classified in a reporting entitys shareholders equity in the financial
statements. The amendments in this Update are to be applied prospectively. For
public entities, the amendments are effective during interim and annual periods
beginning after December 15, 2011. Early application by public entities is not
permitted. The Company is currently evaluating the impact of this update on the
consolidated financial statements.

9

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

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

In June 2011, the FASB issued Accounting Standards Update
2011-05, Presentation of Comprehensive Income (Topic 220). The objective of
this Update is to improve the comparability, consistency, and transparency of
financial reporting and to increase the prominence of items reported in other
comprehensive income. To increase the prominence of items reported in other
comprehensive income and to facilitate convergence of U.S. generally accepted
accounting principles (GAAP) and International Financial Reporting Standards
(IFRS), the FASB decided to eliminate the option to present components of other
comprehensive income as part of the statement of changes in stockholders
equity, among other amendments in this Update. The amendments require that all
nonowner changes in stockholders equity be presented either in a single
continuous statement of comprehensive income or in two separate but consecutive
statements. In the two-statement approach, the first statement should present
total net income and its components followed consecutively by a second statement
that should present total other comprehensive income, the components of other
comprehensive income, and the total of comprehensive income. The amendments in
this Update should be applied retrospectively. For public entities, the
amendments are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011. The Company is currently evaluating
the impact of this update on the consolidated financial statements.

3. PROPERTY AND EQUIPMENT

|                       |  |         |  |  | Accumulated  |  |  | Net book | 
|---------------------- |  | ------- |  |  | ------------ |  |  | -------- | 
|                       |  | Cost    |  |  | amortization |  |  | value    | 
|                       |  | $       |  |  | $            |  |  | $        | 
|                       |  |         |  |  |              |  |  |          | 
|2011                   |  |         |  |  |              |  |  |          | 
|Furniture and fixtures |  | 134,828 |  |  | 103,650      |  |  | 31,178   | 
|Computer hardware      |  | 432,570 |  |  | 321,720      |  |  | 110,850  | 
|Computer software      |  | 66,630  |  |  | 64,257       |  |  | 2,373    | 
|                       |  | 634,028 |  |  | 489,627      |  |  | 144,401  | 
|                       |  |         |  |  |              |  |  |          | 
|2010                   |  |         |  |  |              |  |  |          | 
|Furniture and fixtures |  | 122,119 |  |  | 89,037       |  |  | 33,082   | 
|Computer hardware      |  | 347,984 |  |  | 257,757      |  |  | 90,227   | 
|Computer software      |  | 59,372  |  |  | 53,202       |  |  | 6,170    | 
|                       |  | 529,475 |  |  | 399,996      |  |  | 129,479  | 

10

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

3. PROPERTY AND EQUIPMENT (contd.)

The gross amount of assets related to property and equipment
under capital lease was $33,136 and $30,779 for years ended August 31, 2011 and
2010, respectively. The accumulated depreciation and amortization related to
property and equipment under capital lease was $17,438 and $11,659 for the years
ended August 31, 2011 and 2010, respectively.

4. STOCKHOLDERS EQUITY

[a] Common stock issued and authorized

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

2011

During the year ended August 31, 2011, 50,625 shares were
issued in a cashless exercise of 135,000 options with an exercise price of
$0.25. 400,000 shares were issued in an exercise of 400,000 options with cash
proceeds of $100,000.

2010

During the year ended August 31, 2010, 336,000 shares were
issued in a cashless exercise of 600,000 warrants with an exercise price of
$0.22. 108,200 shares were issued in a cashless exercise of 289,000 options with
an exercise price of $0.25. 25,000 shares were issued in an exercise of 25,000
options with cash proceeds of $6,250.

[b] Common stock cancelled

During the year ended August 31, 2011, the Company repurchased
1,106,895 shares at an open market, of which it paid $400,779 for 981,965 shares
and $50,076 for 124,930 shares. As of August 31, 2011, the 981,965 shares have
been cancelled and the 124,930 shares are being held for cancellation.

11

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

4. STOCKHOLDERS EQUITY (contd.)

[c] Stock option plans

The Company has two existing stock option plans (the Plans),
namely the Amended 1999 Stock Option Plan and the 2006 Stock Option Plan, under
which up to 3,750,000 and 5,100,000 shares of the common stock, respectively,
have been reserved for issuance. A total of 1,466,334 common shares remain
eligible for issuance under the plans. The options generally vest over a range
of periods from the date of grant, some are immediate, and others are 12 or 24
months. Any options that do not vest as the result of a grantee leaving the
Company are forfeited and the common shares underlying them are returned to the
reserve. The options generally have a contractual term of five years.

Stock-Based Payment Award Activity

A summary of option activity under the Plans as of August 31,
2011 and 2010, and changes during the years ended are presented below:

|                                          |  |               |   |  |                |  |  | Weighted    |  |  |           | 
|----------------------------------------- |  | ------------- | - |  | -------------- |  |  | ----------- |  |  | --------- | 
|                                          |  |               |   |  |                |  |  | Average     |  |  | Aggregate | 
|                                          |  |               |   |  | Weighted       |  |  | Remaining   |  |  | Intrinsic | 
|                                          |  |               |   |  | Average        |  |  | Contractual |  |  | Value     | 
|Options                                   |  | Shares        |   |  | Exercise Price |  |  | Term        |  |  | $         | 
|Outstanding at September 1, 2009          |  | 3,939,000     |   |  | 0.44           |  |  | 2.07        |  |  | 80,940    | 
|Granted                                   |  | 100,000       |   |  | 0.50           |  |  |             |  |  |           | 
|Exercised                                 |  | (314,000      | ) |  | 0.25           |  |  |             |  |  | 47,350    | 
|Repurchased and cancelled                 |  | (150,000      | ) |  | 0.25           |  |  |             |  |  |           | 
|Expired or forfeited                      |  | (350,000      | ) |  | 0.39           |  |  |             |  |  |           | 
|Outstanding at
      August 31, 2010      |  | 3,225,000     |   |  | 0.47           |  |  | 1.68        |  |  | 117,600   | 
|Granted                                   |  | -             |   |  | -              |  |  |             |  |  |           | 
|Exercised                                 |  | (535,000      | ) |  | 0.25           |  |  |             |  |  | 79,250    | 
|Expired or forfeited                      |  | (400,000      | ) |  | 0.63           |  |  |             |  |  |           | 
|Outstanding at
      August 31, 2011      |  | 2,290,000     |   |  | 0.50           |  |  | 0.99        |  |  | 25,500    | 
|Vested and exercisable at August 31, 2011 |  | **2,275,417** |   |  | 0.50           |  |  | 0.97        |  |  | 25,500    | 

12

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

4. STOCKHOLDERS EQUITY (contd.)

The following table summarizes information regarding the
non-vested stock purchase options outstanding as of August 31, 2011:

|                                            | Number of Options | 
|------------------------------------------- | ----------------- | 
|Non-vested options at
      August 31, 2010 | 42,708            | 
|Vested                                      | (28,125)          | 
|Non-vested options at August 31, 2011       | 14,583            | 

The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the quoted price of the
Companys common stock for the options that were in-the-money at August 31,
2011.

During the year ended August 31, 2011, total stock-based
compensation expense related to employees of $8,983 are reported in the
statement of operations as follows:

|                               | 2011  | 2010  
|------------------------------ | ----- | ------
|                               | $     | $     
|Stock-based compensation       |       |       
|General and administrative     | 3,276 | 14,238
|Sales and marketing            | 1,969 | 17,536
|Research and development       | 3,738 | 16,196
|Total stock-based compensation | 8,983 | 47,970

Valuation Assumptions

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

|                                       |  | 2011  |  |  | 2010     | 
|-------------------------------------- |  | ----- |  |  | -------- | 
|                                       |  | $     |  |  | $        | 
|Expected term of stock options (years) |  | 0.55  |  |  | 0.55-2.5 | 
|Expected volatility                    |  | 52%   |  |  | 76%-86%  | 
|Risk-free interest rate                |  | 0.06% |  |  | 0.2%-1%  | 
|Dividend yields                        |  |      |  |  |         | 

Expected volatilities are based on historical volatility of the
Companys stock. The Company uses historical data to estimate option exercise
and employee termination within the valuation model.

13

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

4. STOCKHOLDERS EQUITY (contd.)

The expected term of options granted represents the period of
time that options granted are expected to be outstanding. The risk-free rate for
periods within the contractual life of the options is based on US Treasury bill
rates in effect at the time of grant.

During the year ended August 31, 2011, there were no options
granted. 110,000 options were extended for one more year. The weighted-average
grant-date fair value of options granted and extended during the year ended
August 31, 2011 were $Nil and $0.029, respectively (August 31, 2010 - $0.21 and
$0.19) . As a result of the extension of the life of the 110,000 options, the
Company recorded an incremental value of $3,189 as part of the total stock-based
compensation of $8,983 on the statements of operations during the year ended
August 31, 2011.

During the year ended August 31, 2010, 150,000 options at an
exercise price of $0.25 were repurchased by the Company for a consideration of
$30,000. The consideration paid was charged to equity with no additional
compensation recorded.

As of August 31, 2011 there was $3,086 of unrecognized
stock-based compensation cost related to employee stock options granted under
the plans, which is expected to be fully recognized over the next 7 months.

[d] Employee Stock Purchase Plan

The Companys 2011 Employee Stock Purchase Plan (the Plan)
became effective on February 22, 2011. Under the Plan, employees of Destiny are
able to contribute up to 5% of their annual salary into a pool which is matched
equally by Destiny. Independent directors are able to contribute a maximum of
$12,500 each for a combined maximum annual purchase of $25,000. The maximum
annual combined contributions will be $400,000. All purchases are made through
the Toronto Stock Exchange by a third party plan agent. The third party plan
agent will also be responsible for the administration of the Plan on behalf of
Destiny and the participants.

During the year ended August 31, 2011, the Company recognized
  compensation expense of $61,141 (2010: $Nil) in salaries and wages on the statement
  of operations in respect of the Plan, representing the Companys employee
  matching of cash contributions to the plan. The shares were purchased on the
  open market at an average price of $0.36. The shares are held in trust by the
  Company for a period of one year from the date of purchase.

14

---

4. STOCKHOLDERS EQUITY (contd.)

[e] Warrants

As at August 31, 2011, the Company has the following common stock
  warrants outstanding:

Number of Common
    Exercise PriceShares Issuable
    $
    Date of Expiry$0.22 Warrants
    350,000
    0.22
    August 25, 2012$0.40 Warrants
    361,000
    0.40
    February 28, 2012$0.50 Warrants
    5,800,000*
    0.50
    February 28, 2012$0.70 Warrants
    500,000
    0.70
    April
      9, 20127,011,000


*5,400,000 of the $0.50 warrants have a forced conversion
feature by which the Company can demand exercise of the share purchase warrants
if the common shares trades at a price equal to or greater than $1.25 if certain
conditions are met. The warrant agreements also provide for a weighted average
down round provision whereby the exercise price will be reduced in the event the
Company issues options or warrants, excluding employee options, at a price per
shares less than the fair market value of the Companys shares at the date of
issuance.

The intrinsic value for these warrants is $77,220 as at August
31, 2011.

During the year ended August 31, 2011, 235,250 (2010:5,886)
warrants expired unexercised.

15

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

5. INCOME TAXES

The Company is subject to United States federal and state
income taxes at an approximate rate of 34.0% and to Canadian federal and British
Columbia provincial taxes in Canada at an approximate rate of 27.3% . The
reconciliation of the provision (recovery) for income taxes at the United States
federal statutory rate compared to the Companys income tax expense is as
follows:

|                                                                            |  | 2011         |       |  | 2010     |  
|--------------------------------------------------------------------------- |  | ------------ | ----- |  | -------- | -
|                                                                            |  | $            |       |  | $        |  
|                                                                            |  |              |       |  |          |  
|Tax at U.S. statutory rates                                                 |  | 276,000      |       |  | 275,000  |  
|                                                                            |  |              |       |  |          |  
|Permanent differences                                                       |  | 6,000        |       |  | 18,000   |  
|Effect of lower foreign tax in Canada                                       |  | (41,000      | )     |  | (32,000  | )
|Effect of research tax credits claims filed
      in respect of prior years |  | **(248,000** | **)** |  | (271,000 | )
|Other adjustments
      and change to valuation allowance                   |  | 180,000      |       |  | (868,000 | )
|Provision (recovery) for deferred income taxes                              |  | 173,000      |       |  | (878,000 | )

Included in other adjustments and change in valuation allowance
for the year ended August 31, 2011 is $35,000 (2010: ($19,000)) relating to the
effect of changes in statutory tax rates, ($82,000) (2010: ($25,000)) for the
effect of changes in foreign exchange rates, and $227,000 (2010: $(824,000)) in
respect of the change in valuation allowance, which includes the items noted
below.

During the year ended August 31, 2011, the Company recorded an
adjustment to future income tax assets of $486,000 in respect of amendments to
prior years tax return filings, as approved by Canada Revenue Agency, to
capitalize software development costs and eliminate the expiration of losses. As
a result, the cumulative tax benefit has increased. The Company has also
increased the valuation allowance against these benefits and the investment tax
credits approved.

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

During the year ended August 31, 2011, the Company decreased
future income tax assets by $159,000 in respect of a provision for cross border
tax issues.

16

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

5. INCOME TAXES (contd.)

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

|                                     |  | 2011       |   |  | 2010      |  
|------------------------------------ |  | ---------- | - |  | --------- | -
|                                     |  | $          |   |  | $         |  
|                                     |  |            |   |  |           |  
|Deferred tax assets:                 |  |            |   |  |           |  
|Net operating loss carryforwards     |  | 1,001,000  |   |  | 1,218,000 |  
|Excess of book over tax depreciation |  | 985,000    |   |  | 687,000   |  
|Tax Credits carry
      forward      |  | 571,000    |   |  | 271,000   |  
|Total deferred tax asset             |  | 2,557,000  |   |  | 2,176,000 |  
|Valuation
      allowance            |  | (1,402,000 | ) |  | (848,000  | )
|Net deferred tax asset               |  | 1,155,000  |   |  | 1,328,000 |  
|Less: current
      portion          |  | 286,000    |   |  | 380,000   |  
|Non-current                          |  | 869,000    |   |  | 948,000   |  

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

|              |  | 2011    |  |  | 2010    | 
|------------- |  | ------- |  |  | ------- | 
|              |  | $       |  |  | $       | 
|              |  |         |  |  |         | 
|United States |  | 208,945 |  |  | 179,091 | 
|Canada        |  | 602,563 |  |  | 628,982 | 
|              |  | 811,508 |  |  | 808,073 | 

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

|                    |  | Canada |  |  | United States | 
|------------------- |  | ------ |  |  | ------------- | 
|                    |  | $      |  |  | $             | 
|2020 and thereafter |  | 96,005 |  |  | 2,880,332*    | 
|                    |  | 96,005 |  |  | 2,880,332     | 

*In addition to the loss carryforward balance, there exists a
  taxed dividend pool in the United States of approximately $467,000.

17

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

6. COMMITMENTS

The Company is committed to make payments under its capital
leases for the remaining terms of the leases as follows:

|                                          |  | $     |  
|----------------------------------------- |  | ----- | -
|2012                                      |  | 4,143 |  
|Total lease payments                      |  | 4,143 |  
|Less: Amounts
      representing interest |  | (108  | )
|Current obligation                        |  | 4,035 |  

The Company entered into a sub-lease agreement for its premises
on September 15, 2010. It commenced on October 22, 2010 and will expire on
October 30, 2013. The Company is committed to payments as followed:

|     |  | $       | 
|---- |  | ------- | 
|     |  |         | 
|2012 |  | 235,031 | 
|2013 |  | 240,952 | 
|2014 |  | 40,323  | 

During the year ended August 31, 2011 the Company incurred rent
expense of $232,512 (2010: $307,907) which has been allocated between general
and administrative expenses, research and development and sales and marketing on
the statement of operations.

By a credit facilities agreement dated April 8, 2010 and
amended June 17, 2011, the Company arranged for credit facilities with the Royal
Bank of Canada which allows the Company to draw up to $450,000. These credit
facilities consist of a revolving facility of $400,000 bearing interest at prime
plus 3.5% and a commercial credit card facility to $50,000. Borrowings under the
facilities are repayable on demand. As of August 31, 2011, the Company has
received a letter of guarantee of $53,325 ($50,000 AUD) (2010: $Nil) on the
revolving demand facility and has available credit of $396,675 (2010: $450,000).
The letter of guarantee expires July 6, 2012. No amount had been drawn on these
facilities as at August 31, 2011 and 2010.

7. RELATED PARTY TRANSACTIONS

The Company entered into a consulting agreement with a Director
effective October 1, 2010. The Company will pay $2,000 per month, plus
authorized expenses. The Director will receive a 10% commission if related new
businesses are successfully closed. During the year ended August 31, 2011, the
Company paid $22,000 consulting fees.

18

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

8. CONTINGENCIES

| | a) | Destiny had commenced two outstanding Canadian lawsuits
      (Federal Court of Canada Court File No. T-413-06 and Ontario Superior
      Court Ontario Court File No. 07-CV-38068 as a result of certain activities
      undertaken by Yangaroo Inc., a Canadian competitor (Yangaroo). Destiny
      was a defendant by counterclaim. A third lawsuit was launched in the
      United States (US District Court for the Eastern District of Wisconsin
      Green Bay Division Case No. 1:09-CV-00462), in which Destiny was
      defendant. The US District Court lawsuit had previously dismissed
      Yangaroos claim in its entirety with the dismissal upheld on appeal
      during the year.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | On June 17, 2011 Destiny entered into a settlement
      agreement (the Settlement Agreement) with Yangaroo to settle all
      outstanding litigation. Pursuant to the Settlement Agreement, Yangaroo
      paid Destiny a lump sum amount totaling $606,540 ($600,000 Canadian
      Funds). The settlement payment was received and recorded during the year
      and has been credited against legal fees included in general and
      administrative expenses on the statements of operations for the year ended
      August 31, 2011.                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | As part of the settlement Destiny also acquired a cost
      and royalty free, non- exclusive, worldwide, irrevocable, license to two
      patents held by Yangaroo (US Patent No. 7,529,712 and Canadian Patent No.
      2,407,774). No value was assigned or recorded to the licenses to
      Yangaroos patents. Each party has agreed not to make any claim for costs
      against the other party.                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b) | On August 12, 2009 the Company received a statement of
      claim for wrongful dismissal. The claim is for approximately $184,000
      ($180,000 CDN) plus an award of stock options and unspecified damages. The
      Company believes the claim is without merit. The matter was heard at trial
      subsequent to year-end and management expects a decision shortly.
      Management believes it is unlikely that the outcome of this matter will
      have an adverse impact on its result of operations, cash flows and
      financial condition.                                                                                                                                              

19

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

8. CONTINGENCIES (contd)

| | c) | On June 10, 2011, the Company commenced proceedings in
      the Federal Court of Australia against Shooting Star Picture Company Pty
      Ltd, Peter Skillman and D-Star Music Delivery Pty Ltd. (collectively the
      respondents). The Company alleges various claims against the respondents
      including, amongst other things, breach of contract, misleading and
      deceptive conduct, breach of fiduciary duties, and breach of confidence.
      The company is presently seeking damages of AU$1.7 million, although this is subject to expert evidence which is currently
    being prepared.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The respondents have cross-claimed for approximately
      $155,000 (AU$145,000) plus a percentage of unspecified revenue the Company
      received from the Australian market in during a portion of the year ended
      August 31, 2011. Management believes it is unlikely that the outcome of
      this matter will have an adverse impact on its result of operations, cash
      flows and financial condition.                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | d) | Subsequent to August 31, 2011, the Company was served
      with a Notice of Civil Claim in the Supreme Court of British Columbia from
      Noramco Capital Corporation for $100,000 plus interest. The claim asserts
      that the Company has repudiated a subscription agreement entered into in,
      or around, August 2000. Management believes the claim is without merit and
      that it is unlikely that the outcome of this matter will have a material
      adverse impact on its result of operations, cash flows and financial
      condition                                                  

20

---

|Destiny Media Technologies Inc.           
|------------------------------------------
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|August 31, 2011 and 2010                  

9. CONCENTRATIONS AND ECONOMIC DEPENDENCE

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

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

|                                           |  | 2011      |  |  | 2010      | 
|------------------------------------------ |  | --------- |  |  | --------- | 
|                                           |  | $         |  |  | $         | 
|                                           |  |           |  |  |           | 
|MPE®                                       |  |           |  |  |           | 
|                                           |  |           |  |  |           | 
|United States                              |  | 2,200,306 |  |  | 2,117,650 | 
|Europe                                     |  | 1,415,797 |  |  | 1,204,920 | 
|Australia                                  |  | 214,922   |  |  | 187,733   | 
|Total MPE® Revenue                         |  | 3,831,025 |  |  | 3,510,303 | 
|                                           |  |           |  |  |           | 
|Clipstream ® and Radio Destiny             |  |           |  |  |           | 
|                                           |  |           |  |  |           | 
|United States                              |  | 176,205   |  |  | 261,079   | 
|Total Clipstream ® & Radio Destiny Revenue |  | 176,205   |  |  | 261,079   | 
|                                           |  |           |  |  |           | 
|Total Revenue                              |  | 4,007,230 |  |  | 3,771,382 | 

During the year ended August 31, 2011, three customers
represented 64% of the total revenue balance [2010 - three customers represented
61%].

As at August 31, 2011, two customers represented $215,747 (56%)
of the trade receivables balance [2010  three customers represented 61%].

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

21

---

|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
  DISCLOSURE
|------- | --------------------------------------------------------------------------------------

Not applicable.

|ITEM 9A. | CONTROLS
AND PROCEDURES
|-------- | -----------------------

Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Company are responsible for evaluating the effectiveness of the Company’s disclosure controls and procedures as at August 31, 2011.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our management, with the participation of our principal executive officer and our principal financial officer concluded that as of the end of the period covered by this annual report, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses described below.

Internal Controls Over Financial Reporting

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

Using the framework provided by the Committee of Sponsoring Organizations (“COSO”), the Company conducted an evaluation of the effectiveness of the internal controls over financial reporting as at August 31, 2011 and concluded that there are material weaknesses in internal controls over financial reporting, which are discussed below. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

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

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

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

Changes in Internal Control Over Financial Reporting

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

|ITEM 9B. | OTHER
  INFORMATION
|-------- | -------------------

None.

---

PART III

|ITEM 10. | DIRECTORS,
  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|-------- | ---------------------------------------------------------

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

Name
      Position Held with the Company
      Age
      Date First Elected or AppointedSteven Vestergaard(1)
    Chief Executive Officer and Director
    45
    January 1999Frederick Vandenberg
    Chief Financial Officer and Corporate
      Secretary
    43
    July 2007Edward Kolic(1)
    Director
    50
    February 1999Lawrence J. Langs
    Director
    50
    November 2000Yoshitaro Kumagai
    Director
    65
    August 2001


(1) Members of our Audit Committee

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

Steven Vestergaard. Mr. Vestergaard has been our
President, Chief Executive Officer, Chairman and a Director since 1999. Mr.
Vestergaard's responsibilities include strategic planning and coordinating
strategic planning, marketing and product development. Mr. Vestergaard obtained
a B.Sc. from the University of British Columbia in 1989. He founded Tronic
Software in 1981 and Destiny Software in 1991, both as video game development
companies. In 1995, Destiny changed its focus to internet technologies, going
public in 1999 with streaming video and media security technology.

Fred Vandenberg, B. Comm. MBA, CA. Mr. Vandenberg has
been our Chief Financial Officer and Corporate Secretary since July 2007. Mr.
Vandenberg's core responsibilities include leading the accounting, treasury,
strategic planning, financial controls and financial reporting functions of the
Company. Mr. Vandenberg has over 17 years of public accounting experience in tax
advisory services, mergers and acquisitions, and financial reporting. Mr.
Vandenberg completed the Canadian Institute of Chartered Accountant's "In-depth"
taxation program while with Ernst & Young in 1998. Mr. Vandenberg obtained a
Bachelor of Commerce from McMaster University in 1991 and a Master of Business
Administration (Finance) from McMaster University in 1993. In 1996, Mr.
Vandenberg was designated as a Chartered Accountant in Ontario.

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

Lawrence J. Langs.Mr. Langs has been a director of the
Company since August 2000. Currently, Mr. Langs is an attorney at Feldman LLP
and practices in the areas of intellectual property, entertainment and corporate
law. Since January 1991, Mr. Langs has also served as managing director of
iBusiness Partners, a private company primarily engaged in providing venture
capital advice for small to mid sized digital companies. Previously, Mr. Langs
served EVP of Sale & Business Development at ACD Systems International Inc.,
a company formerly listed on the TSX, from July 2004 to April 2005. Mr. Langs
has also served as an officer of a number of private entities, including as EVP
at Musician.com for Guitar Center, SVP of business development at MP3.com, VP of
business development for Sybase
New Media, Investment Banker for JPMorgan/Chase/Chemical Bank in New York, and Senior Consultant for Arthur D. Little in Boston. Mr. Langs obtained a Master of Science from MIT in 1986 and a Juris Doctorate of Law from Boston University in 1986. Mr.
Langs has been a member of the New York bar since 1989.

---

Yoshitaro Kumagai. Since 1981, Mr. Kumagai has held positions with Singer, the Imaging Division of Mead Corporation, and IDEC Corporation, where he was responsible for Japanese and US sales and operations. Subsequently, he served as President
of DPA Technology and as Chairman and CEO of Vivitar Corporation, a major distributor of various camera and computer peripheral devices. Mr. Kumagai currently serves as SVP/Business Development for GestureTek, a company proving camera-enabled
gesture-recognition software for presentation and entertainment systems. Mr. Kumagai holds a BS in Mechanical Engineering from Hosei University and a BS in Information Systems and Mathematics from Georgia State University.

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, one of which are independent. Our board of directors has determined that it does not have an audit committee member that qualifies as an
"audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K. We believe that the audit committee members are collectively capable of analyzing and evaluating our financial statements and understanding internal
controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our
circumstances.

FAMILY RELATIONSHIPS

There are no family relationships among our officers and directors.

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

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than ten percent of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based on its review of the copies of such forms received by us, we believe that
during the fiscal year ended August 31, 2011 all such filing requirements applicable to our officers and directors were complied with.

---

CODE OF ETHICS

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

ITEM
11.             EXECUTIVE
COMPENSATION

The particulars of compensation paid to the following persons:

(a) our principal executive officer;

(b) each of our two most highly compensated
  executive officers who were serving as executive officers at the end of the
  year ended August 31, 2011; and

(c) up to two additional individuals
  for whom disclosure would have been provided under (b) but for the fact that
  the individual was not serving as our executive officer at the end of the year
  ended August 31, 2011,

who we will collectively refer to as our named executive
officers, of our company for the years ended August 31, 2011 and 2010, are set
out in the following summary compensation table, except that no disclosure is
provided for any named executive officer, other than our principal executive
officer, whose total compensation does not exceed $100,000 for the respective
fiscal year:

Name and Principal
      Position
    Year
    Salary ($)
    Bonus ($)
    Stock Awards
      ($)
    Option Awards
      ($)(1)
    Other Annual
      Compen- sation ($)(2)
    Total ($)Steven Vestergaard (3)President, Chief Executive Officer and Director
    2011 2010
    265,798 148,211
    Nil Nil
    Nil Nil
    Nil Nil
    13,290 Nil
    279,088 148,211Frederick Vandenberg (4)Chief
      Financial Officer, Treasurer and Secretary
    2011 2010
    214,683 119,525
    Nil Nil
    Nil Nil
    Nil Nil
    10,734 Nil
    225,417 119,525


|(1) | For a description of the methodology and assumptions used
      in valuing the option awards granted to our named executive officers and
      directors during the year ended August 31, 2011, please review Note 4 to
      the financial statements included herein.                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The value of perquisites and other personal benefits,
      securities and property for the individuals included in the summary
      compensation table that does not exceed $10,000 is not reported herein.
      Other compensation for Mr. Vestergaard and Mr. Vandenberg includes
      participation in the employee share purchase plan described below under
      long term incentive plans.
|(3) | All salaries paid to Mr. Vestergaard are paid in Canadian
      dollars.                                                                                                                                                                                                                                                                                                                             
|(4) | All salaries paid to Mr. Vandenberg are paid in Canadian
      dollars.                                                                                                                                                                                                                                                                                                                              
|(5) | Compensation is stated in United States dollars and is
      based on an exchange rate of $1.0223 US dollars for each $1.00 Canadian
      dollar during the fiscal year of 2011. Compensation is stated in United
      States dollars and is based on an exchange rate of $0.9562 US dollars for
      each $1.00 Canadian dollar during the fiscal year of
  2010.                                

EMPLOYMENT AGREEMENT WITH OUR NAMED EXECUTIVE
OFFICERS

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

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

---

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table summarizes equity awards granted to our
named executive officers that were outstanding as of August 31, 2011.

Option Awards
      Stock AwardsName
      Number of 
        Securities 
        Underlying 
        Exercisable 
        Options 
        (#)
      Number of 
        Securities 
        Underlying 
        Unexercisable 
        Options 
        (#)
      Equity 
        Incentive 
        Plan 
        Awards: 
        Number of 
        Securities 
        Underlying 
        Unexercised 
        Unearned 
        Options 
        (#)
      Option 
        Exercise 
        Price 
        ($)
      Option 
        Expiration 
        Date
      Number 
        of 
        Shares 
        of 
        Units of 
        Stock 
        that have 
        not 
        Vested 
        (#)
      Market 
        Value of 
        Shares or 
        Units of 
        Stock that 
        have not 
        Vested 
        ($)
      Equity 
        Incentive 
        Plan 
        Awards: 
        Number 
        of 
        Unearned 
        Shares, 
        Units or 
        Other 
        Rights 
        that have 
        not 
        Vested 
        (#)
      Equity 
        Incentive 
        Plan 
        Awards: 
        Market or 
        Payout 
        Value of 
        Unearned 
        Shares, 
        Units or 
        Other 
        Rights that 
        have not 
        Vested 
        ($)Steven 
        Vestergaard
      300,000
      0
      N/A
      0.50
      Jan 29/2012
      N/A
      N/A
      N/A
      N/AFrederick 
        Vandenberg
      150,000 
        150,000 
        150,000
      0 
        0 
        0
      N/A
      0.50 
        0.50 
        0.25
      Jan 31/2015 
        Jan 29/2012 
        Jun 02/2014
      N/A
      N/A
      N/A
      N/A


LONG-TERM INCENTIVE PLANS

Employees of the Company are able to contribute up to 5% of
their annual salary into a pool which is matched equally by Destiny. Independent
directors are able to contribute a maximum of $12,500 each for a combined
maximum annual purchase of $25,000. The maximum annual combined contributions
will be $400,000. Money in the pool will be used to purchase shares out of the
market on a biweekly basis. All purchases will be made through the Exchange by a
third party plan agent and no purchases will be made on the OTC or German
exchanges. The third party plan agent will also be responsible for the
administration of the Plan on behalf of Destiny and the participants.
Additionally, we have registered stock option plans.

COMPENSATION OF DIRECTORS

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

The following table summarizes compensation paid to all of our
  directors:

Name
    Fees Earned or Paid in Cash
      ($)
    Stock Awards ($)
    Option Awards
      ($)
    Other Annual Compensation
      ($)(1)
    Total ($)Yoshitaro Kumagai
    22,000
    Nil
    Nil
    521
    22,521Larry Langs
    Nil
    Nil
    Nil
    10,938
    10,938Ed Kolic
    Nil
    Nil
    Nil
    Nil
    Nil


|(1) | Other annual compensation for Mr. Kumagai and Mr. Langs
      includes participation in the employee share purchase plan described above
      under long term incentive plans.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.
|-------- | -----------------------------------------------------------------------------------------------------------

The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially as of November 25,
2011 by: (i) each person (including any group) known to us to own more than five
percent (5%) of any class of our voting securities, (ii) each of our directors
and each of our named executive officers, and (iii) officers and directors as a
group. Unless otherwise indicated, the shareholders listed possess sole voting
and investment power with respect to the shares shown.

Title of class
      Name and address 
        of beneficial owner
      Number of Shares of 
        Common Stock
      Percentage of Common 
        Stock(1)DIRECTORS AND OFFICERS:Common Stock
      Steven Vestergaard 
        President, Chief Executive Officer 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      11,588,422(6)
      22.82%Common Stock
      Frederick Vandenberg 
        Chief Financial Officer and 
        Corporate Secretary 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      955,700(2)
      1.87%Common Stock
      Edward Kolic 
        Director 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      411,300 (3)
      0.81%Common Stock
      Lawrence J. Langs 
        Director 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      365,242 (4)
      0.72%Common Stock
      Yoshitaro Kumagai 
        Director 
        c/o 800-570 Granville St. 
        Vancouver, BC, V6C 3P1
      553,173 (5)
      1.09%Common Stock
      All Officers and Directors as a 
        Group (5 persons)
      13,873,837
      27.31%


| | (1) | Under Rule 13d-3 of the Securities Exchange Act of 1934,
      a beneficial owner of a security includes any person who, directly or
      indirectly, through any contract, arrangement, understanding,
      relationship, or otherwise has or shares: (i) voting power, which includes
      the power to vote, or to direct the voting of shares; and (ii) investment
      power, which includes the power to dispose or direct the disposition of
      shares. Certain shares may be deemed to be beneficially owned by more than
      one person (if, for example, persons share the power to vote or the power
      to dispose of the shares). In addition, shares are deemed to be
      beneficially owned by a person if the person has the right to acquire the
      shares (for example, upon exercise of an option) within 60 days of the
      date as of which the information is provided. In computing the percentage
      ownership of any person, the amount of shares outstanding
  is deemed to include the amount of shares beneficially owned
      by such person (and only such person) by reason of these acquisition
      rights. As a result, the percentage of outstanding shares of any person as
      shown in this table does not necessarily reflect the persons actual
      ownership or voting power with respect to the number of shares of common
      stock actually outstanding on November 25, 2011. As of November 25, 2011,
      there were 50,487,577 shares of our common stock issued and
outstanding.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | (2) | Consists of 468,200 shares held by Mr. Vandenberg and
      450,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Vandenberg within 60 days of November 25, 2011 and
      37,500 shares that are immediately acquirable upon the exercise of
      warrants held by Mr. Vandenberg within 60 days of November 25,
  2011.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                         
| | (3) | Consists of 261,300 shares held by Mr. Kolic and 150,000
      shares that are immediately acquirable upon the exercise of stock options
      held by Mr. Kolic within within 60 days of November 25, 2011.                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                         
| | (4) | Consists of 215,242 shares held by Mr. Langs and 150,000
      shares that are immediately acquirable upon the exercise of stock options
      held by Mr. Langs within 60 days of November 25, 2011.                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                         
| | (5) | Consists of 403,173 shares held by Mr. Kumagai and
      150,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Kumagai within 60 days of November 25, 2011.                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                         
| | (6) | Consists of 11,288,422 shares held by Mr. Vestergaard and
      300,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Vestergaard within 60 days of November 25,
  2011.                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                         

EQUITY COMPENSATION PLAN INFORMATION

We have two equity compensation plans, namely our Amended 1999
Stock Option Plan and our Amended 2006 Stock Option Plan, under which up to
3,750,000 and 5,100,000 shares of our common stock, respectively, have been
authorized for issuance to our officers, directors, employees and consultants.
Our plans have been approved by the Companys stockholders. The following
summary information is presented for our plans on an aggregate basis as of
August 31, 2011.

Number of Securities to be
      Issued Upon Exercise of Outstanding Options, Warrants and
      Rights
    Weighted-Average Exercise
      Price of Outstanding Options, Warrants and Rights
    Number of Securities 
      Remaining Available
      for Future Issuance Under Equity Compensation Plans (Excluding
      Securities Reflected in column (a))Plan Category
    (a)
    (b)
    (c)Equity Compensation Plans 
      Approved By Security Holders
    2,290,000 Shares 
      of Common Stock
    $0.50 per Share
    1,466,334 Shares of 
      Common StockEquity Compensation Plans 
      Not Approved By Security Holders
    Not Applicable
    Not Applicable
    Not Applicable


---

ITEM
13.             CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Except as described under Item 12 and under the title of
executive compensation, and under note 5 of the financial statements, none of
the following persons has any direct or indirect material interest in any
transaction to which we were or are a party during the past two years, or in any
proposed transaction to which the Company proposes to be a party:

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

SHARE ISSUANCES

None

ITEM
14.             PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Audit Fees

Our current sole principle independent registered public
accountant BDO Canada LLP, provided audit and other services during the year
ended August 31, 2011 and the year ended August 31, 2010 as follows:

BDO Canada LLP

2011
    
    
    2010Audit Fees
    $
    96,389
    
    $
    87,794Audit Related Fees
    
    -
    
    
    -Tax Fees
    
    4,617
    
    
    2,773All Other Fees
    
    -
    
    
    -Total Fees
    $
    101,006
    
    $
    90,567


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

Audit Related Fees. There were
no audited related fees paid to BDO Canada LLP.

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

All Other Fees. There were no
other fees paid to BDO Canada LLP.

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

---

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

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

The audit committee has considered the nature and amount of the
fees billed by BDO Canada LLP, and believes that the provision of the services
for activities unrelated to the audit is compatible with maintaining BDO Canada
LLP's independence.

PART IV

ITEM
15.             EXHIBITS,
FINANCIAL STATEMENT SCHEDULES

LIST OF DOCUMENTS FILED AS PART OF THE REPORT

The following documents are filed as part of this report:

(a)(1) Financial Statements:

| | 1. | Report of Independent
      Registered Public Accounting Firm  BDO Canada LLP;
| | -- | -------------------------------------------------------------------------------
| |    |                                                                                
| | 2. | Consolidated Balance
      Sheets;                                             
| |    |                                                                                
| | 3. | Consolidated Statements
      of Operations and Comprehensive Loss;            
| |    |                                                                                
| | 4. | Consolidated Statements
      of Cash Flows;                                   
| |    |                                                                                
| | 5. | Consolidated Statement
      of Changes in Stockholders Equity; and           
| |    |                                                                                
| | 6. | Notes to the Consolidated
      Financial Statements.                          

(a)(2) Financial Statement Schedules:

None.

(a)(3) Exhibits:

|3.1 | Amended Articles Of Incorporation (incorporated by
      reference from our Registration statement on Form 10SB12G filed on
      November 23, 1999).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                      
|3.2 | Bylaws (incorporated by reference from our Registration
      Statement on Form 10SB12G filed on November 23, 1999)                                  
|    |                                                                                                                                                      
|4.1 | 1999 Stock Option Plan (Incorporated by reference from
      our Registration Statement on Form S-8 filed on November 17,
  2000).                   
|    |                                                                                                                                                      
|4.2 | Amended 1999 Stock Option Plan (Incorporated by reference
      from our Registration Statement on Form S-8 filed on April 27,
    2004).            
|    |                                                                                                                                                      
|4.3 | 2006 Stock Option Plan (Incorporated by reference from
      our Registration Statement on Form S-8 filed on April 26,
  2006)                       

---

|4.4  | 2006 Amended And Restated Stock Option
        Plan (Incorporated by reference from our Registration Statement on Form
        S-8 filed on May 18, 2007)                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                      
|10.1 | Stock Purchase Agreement among Steve
        Vestergaard And Euro Industries Ltd. And Destiny Software Productions
        Inc. dated on June 15, 1999(incorporated by reference from our Registration
        Statement on Form 10SB12G filed on November 23, 1999).
|     |                                                                                                                                                                                                                                                                      
|10.2 | Consulting Agreement dated August 26,
        2002 between Destiny Media Technologies Inc. and Charles Van Musscher
        (Incorporated by reference from our Registration Statement on Form S-8
        filed on September 27, 2002).                             
|     |                                                                                                                                                                                                                                                                      
|10.3 | Rule 506 Subscription Agreement dated
        February 24, 2006 between Destiny Media Technologies Inc. and Global Equity
        Trading & Finance Ltd. (Incorporated by reference from our Current
        Report on Form 8-K filed on March 3, 2006               
|     |                                                                                                                                                                                                                                                                      
|10.4 | Rule 506 Subscription Agreement dated
        February 3, 2006 between Destiny Media Technologies Inc. and Global Equity
        Trading & Finance Ltd. (Incorporated by reference from our Current
        Report on Form 8-K filed on March 3, 2006)               
|     |                                                                                                                                                                                                                                                                      
|10.5 | Unregistered Sales of Equity Securities
        with various investors dated on February 26, 2007 (Incorporated by reference
        from our Current Report on Form 8-K filed on March 1, 2007)                                                                     
|     |                                                                                                                                                                                                                                                                      
|14.1 | Code of Ethics (Incorporated by reference
        from our Annual Report on Form 10-KSB filed on November 30, 2006)                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                      
|21.1 | Subsidiaries of Destiny Media Technologies
        Inc.                                                                                                                                                                                                              
|     | Destiny Software Productions Inc. (incorporated
        in the Province of British Columbia, Canada) 
        MPE Distribution, Inc. (incorporated in Nevada, United States)                                                                                         
|     |                                                                                                                                                                                                                                                                      
|23.2 | Consent of
        Independent Registered Public Accounting Firm - BDO CANADA LLP (filed
        herewith)                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                      
|31.1 | Section 302
        Certification of Chief Executive Officer (filed herewith)                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                      
|31.2 | Section 302
        Certification of Chief Financial Officer (filed herewith)                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                      
|32.1 | Section 906
        Certification of Chief Executive Officer (filed herewith)                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                      
|32.2 | Section 906
        Certification of Chief Financial Officer (filed herewith)                                                                                                                                                                                        

---

SIGNATURES

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

DESTINY MEDIA TECHNOLOGIES, INC.

|By: | /s/Steven Vestergaard                               | 
|--- | --------------------------------------------------- | 
|    | Steven Vestergaard, President                       | 
|    | Chief Executive Officer                             | 
|    | Director                                            | 
|    | Date: November 29, 2011                             | 
|    |                                                     | 
|    |                                                     | 
|    | /s/Frederick Vandenberg                             | 
|    | Frederick Vandenberg, Chief
      Financial Officer | 
|    | Date: November 29, 2011                             | 

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

|By: | /s/Steven Vestergaard                                                | 
|--- | -------------------------------------------------------------------- | 
|    | Steven Vestergaard, President                                        | 
|    | Chief Executive Officer                                              | 
|    | (Principal Executive Officer)                                        | 
|    | Director                                                             | 
|    | Date: November 29, 2011                                              | 
|    |                                                                      | 
|    |                                                                      | 
|By: | /s/Frederick Vandenberg                                              | 
|    | Frederick Vandenberg, Chief
      Financial Officer                  | 
|    | (Principal Financial Officer and
      Principal Accounting Officer) | 
|    | Date: November 29, 2011                                              | 
|    |                                                                      | 
|    |                                                                      | 
|By: | /s/Edward Kolic                                                      | 
|    | Edward Kolic                                                         | 
|    | Director                                                             | 
|    | Date: November 29, 2011                                              | 
|    |                                                                      | 
|    |                                                                      | 
|By: | /s/Yoshi Kumagai                                                     | 
|    | Yoshi Kumagai                                                        | 
|    | Director                                                             | 
|    | Date: November 29, 2011                                              | 

---