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U.S. SECURITIES AND EXCHANGE COMMISSION Washington,
D.C. 20549

FORM 10-KSB/A

(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, 2005

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

COMMISSION FILE NUMBER 000-28259

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

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

|1055 West Hastings Street, Suite 1040    |           
|---------------------------------------- | ----------
|Vancouver, British Columbia, Canada      | V6E 2E9   
|(Address of principal executive offices) | (Zip Code)

604-609-7736Issuer's telephone number

Securities registered under Section 12(b) of the Exchange Act:
NOT APPLICABLE

Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.001PER SHARE

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

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

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

State issuer's revenues for its most recent fiscal year:
$769,067

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.)
$6,253,885 as of November 25 ,2005

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.36,787,556
Shares of Common Stock as of November 25, 2005

Transitional Small Business Disclosure Format (check one): Yes
   ̈ No x

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

|           |                                                                       | PAGE
|---------- | --------------------------------------------------------------------- | ----
|PART I     |                                                                       |     
|Item 1.    | Description Of
      Business.                                        | 3   
|Item 2.    | Description Of Property.                                              | 21  
|Item 3.    | Legal Proceedings.                                                    | 21  
|Item 4.    | Submission Of Matters To A Vote
      Of Security Holders.            | 21  
|           |                                                                       |     
|PART II    |                                                                       |     
|Item 5.    | Market For Common Equity And
      Related Stockholder Matters.       | 22  
|Item 6.    | Management's Discussion And
      Analysis Or Plan Of Operation.      | 23  
|Item 7.    | Financial Statements.                                                 |     
|Item 8.    | Changes In And Disagreements
      With Accountants On Accounting     |     
|           | And Financial Disclosure.                                             | 30  
|           |                                                                       |     
|PART III   |                                                                       |     
|Item 9.    | Directors, Executive Officers,
      Promoters And Control Persons;   |     
|           | Compliance With Section 16(A)
      Of The Exchange Act               | 31  
|Item 10.   | Executive Compensation.                                               | 34  
|Item 11.   | Security Ownership Of Certain
      Beneficial Owners And Management. | 37  
|Item 12.   | Certain Relationships And Related
      Transactions                  | 39  
|Item 13.   | Exhibits And Reports On Form
      8-K.                               | 40  
|Item 14.   | Controls And Procedures.                                              | 41  
|Signatures |                                                                       | 42  

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PART I

FORWARD LOOKING STATEMENTS

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

CURRENCY

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

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

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

Destiny Software Productions is a software development and
marketing company that has developed three commercially available software
suites that facilitate the distribution of digital media content:

|1. | Clipstream:  | Software to embed streaming video in web pages
      and emails        
|-- | ------------- | -----------------------------------------------------------------------
|2. | MPE:         | Software for securely moving digital content
      through the Internet
|3. | Pirate Radio: | Software to broadcast and receive Internet
      radio signals         

These technologies rely on proprietary compression and
watermarking technologies that were developed internally.

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

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

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CORPORATE BACKGROUND

We were incorporated in August 1998 under the laws of the State
of Colorado.

We carry out our business operations through our wholly owned
subsidiary, Destiny Software Productions, Inc. (Destiny Software). Destiny
Software is a British Columbia company that was incorporated in 1992.

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

BUSINESS DEVELOPMENT

Mr. Vestergaard, our current CEO started the Destiny Software
business as a private partnership in January 1991. The business was sold to
Destiny Software Productions, Inc. the following year. Destiny Software
developed a dozen video games, marketing and branding them through outside
publishing companies. In 1995, Destiny began developing various Internet
technologies, releasing the Radio Destiny Internet radio broadcasting software
in May 1996. This software is still commercially available as part of the Pirate
Radio software suite.

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

Since then, the company has developed three broad product
lines: Clipstream playerless streaming video, the MPE media distribution
system and Pirate Radio Internet broadcasting software.

Clipstream and Pirate Radio are mature products with strong
brand recognition. MPE generated approximately 15% of our revenue this year, as
we continue to invest in this products development and marketing as we roll out
the system.

Along with our MPE marketing partner, we entered into an
agreement with Universal Music Group (UMG) in June 2004 to deliver their new
music to radio stations, media and other third parties digitally through the
Internet using our MPE system. This contract required significant customization
of our existing MPE system. The system was available for commercial use
beginning in October 2004.

In the spring of 2005, we launched a new version of the system
and began marketing to the other label groups. We have entered into a strategic
partnership with Mediabase, a subsidiary of the Clear Channel Communications,
Inc. radio group. Mediabase provides informational services to radio which
creates extensive exposure of the system.

By October of 2005, we were delivering music tracks for over
200 different record labels to over 4,200 unique radio station recipients. Our
focus will be to increase this penetration and replace the current practice of
physical delivery of CDs at a cost that provides savings to our clients. It is
hoped that these costs savings, in addition to other benefits of the system
(information, speed and security), will lead to wide spread utilization of the
system and provide the Company with a steady stream of income.

We are actively improving the system as we respond to requests
from both radio and label users. The most recent version includes full Spanish
support and the ability for us to easily add other languages as we move into new
markets. We are adding Mac support and support for video in fiscal 2006.

In fiscal 2005, we launched a new version of Clipstream Live.
We are now able to broadcast a live signal on a four second delay which compares
favorably to the typical 30 second delay. We also developed a scaleable repeater
system so Clipstream Live can be used to broadcast to up to 10,000 simultaneous
viewers. We hope that these benefits will increase the use of our system in the
webcasting market.

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Because Clipstream content can be locked down to a particular
server and actively defeats screen scraping programs, users can be confident
that sensitive content is secure. Our clients include large market research
companies which send out video questionnaires using our technology to test
commercials and new products on behalf of large corporate customers. It is in
this market where our products have been strongest and we are actively targeting
this vertical and expect it also to be an area of strong growth.

We have entered into a reseller agreement with the Inisia
Corporation to distribute localized version boxed copies of Clipstream and
Pirate Radio in the Japanese market. Inisia will have the right to market the
software directly, through retail software outlets and through other
distributors and OEM channels.

We sell Pirate Radio online via Internet credit card sales and
demand has been fairly consistent. We expect to sell Pirate Radio in retail
channels in Japan and we are planning a new version that includes a repeater to
allow small users to reach more listeners. This approach will generate monthly
recurring revenue and provide us an opportunity to upgrade existing users.

OUR PRODUCTS

ClipstreamSuitehttp://www.clipstream.com

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

|1. | Clipstream Audio    
|-- | ---------------------
|   |                      
|2. | Clipstream Video    
|   |                      
|3. | Clipstream Live     
|   |                      
|4. | Clipstream Audiomail

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

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

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

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

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Clipstream in the New Year to work on devices such as cell
phones that currently dont have the resources to play back content in our
format.

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

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

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

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

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receive a Radio Destiny Internet radio broadcast using our
Destiny Media Player. The Radio Destiny Broadcaster software has been designed
to be consumer friendly and is easy to use.

Our Radio Destiny software has been commercially available
since 1996.

Our Destiny Media Player software product is a combination
MP3/Music player and radio receiver that can be installed on a users personal
computer. This software features a radio mode and a music mode. In the radio
mode, a user is able to listen to radio broadcasts from any of stations on the
RadioDestiny Broadcast Network. The Destiny Media Player features a live
directory of stations with direct e-mail and web links to these broadcasters. In
the MP3 mode, a user can play MP3 files directly from the users library of MP3
files. The Destiny Media Player automatically scans the users hard drive for
existing music files and creates an MP3 library for access by the Destiny Media
Player. The Destiny Media Player also features a list of MP3 web sites that
allows a user to easily click a link to access MP3 sources. The Destiny Media
Player also supports playback of streaming MP3s, .wav and midi files, as well
as music CDs. The Destiny Media Player is a small, yet powerful, application
and can be downloaded from the Internet and can be installed by a user within
two minutes.

MPE http://www.destinympe.com

The MPE system enables a content owner to securely move
content through the Internet to a trusted end user. The current system is built
out for music, but it can be adapted to support any type of digital content. We
plan to build out video support in fiscal 2006.

The content owner uses our encoder tool to manage lists of
potential recipients. Because of the hierarchical organization of most record
labels consisting of independent label groups and sub-labels, list management is
top down, so that users with a higher authorization can see and manage lists
below, but cant see or manage lists from a label with a higher authorization
level.

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

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

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

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

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

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

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

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

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

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

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

The company has adapted key aspects of the MPE security
engine, including the watermarking and digital fingerprinting technologies to
develop other products for the music industry. As of September 2005, an online
store is in development. This store will offer music in Canada to commercial
users such as DJs, nightclubs and digital jukeboxes. The company also has
developed a consumer system that is compatible with distribution over peer to
peer networks, but that still ensures compensation to the originating seller of
the file. This consumer system is currently not commercially available.

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OUR TARGETED MARKETS

Clipstream Audio and Video

Clipstream Audio and Video on demand offer compelling
advantages to anyone with video content they want to put on the Internet.
Clipstream uses up to 90% less bandwidth because of our support for caching and
we reach significantly more users as there is no player to download or
configure. Even the Windows Media Player, which is packaged with Windows PCs
has a lower reach than Clipstream as it isnt compatible with older versions of
Windows or non Windows PCs and because it is common for users to not have the
correct codec installed to view the content. Finally, the security Clipstream
provides to content owners protects them from piracy.

Although any owner of video content is a potential Clipstream
customer, we tend to target the customers that most benefit from our core
advantages.

These customers include:

|1. | Advertisers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Since an advertiser typically pays the web portal based
      on the number of times the advertisement is displayed, it is important to
      the advertiser that that user is technically able to see the
      advertisement. Web portal owners dont want their users being requested to
      install a player every time the ad is shown, so they like that Clipstream
      natively plays 98% of the time without any action on the part of the web
      visitor. Ad usage tends to be high volume, so our bandwidth savings
      because of caching can represent a significant savings to the
      advertiser.                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | Market Research Companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Market research companies will often test market video
      content that they dont want widely viewed. They appreciate that
      Clipstream content is more difficult to pirate as it can be locked to a
      particular host site. It is costly for them to identify people to answer
      video surveys, so the higher play rate means that more of those users will
      see the content without outside technical assistance.                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3. | Web Portals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Websites with a lot of video or audio content appreciate
      that the Clipstream encoding process can be automated in a batch process
      through our command line interface. It is common for these sites to host
      on a distributed caching network such as Akamai or Speedera. Clipstream
      content can be uploaded to these networks without requiring the dedicated
      streaming server infrastructure and expertise required by competing
      systems.                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4. | Distance Learning                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Clipstream has dozens of parameters that allows
      extensive customization to the video playback. In addition, the video
      applet is able to communicate with other components on the web page using
      Javascript. Finally, Clipstream content can be stored directly in a web
      database instead of in a remote streaming server. These combinations of
      features make it easy for educators to create interactive presentations
      where different snippets of video are streamed together depending on the
      users interactions. This results in a customized experience for each
      user. Besides traditional distance learning, there is demand for product
      video manuals and corporate training.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|5. | Email Marketing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Destiny has developed a send to a friend feature that
      allows marketers to send video content, such as                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|   | movie trailers or product advertisements by email to a
      list of users. If that content is interesting and users forward it to
      their friends, the marketer is able to capture email addresses of the
      people that the content is forwarded to. This application is less
      successful than in past years as increased email security has blocked
      Clipstream in some cases.                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|6. | Corporate Communications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Many companies only want a single video on their site,
      such as their company corporate video, annual meeting or a message from
      the CEO. Weve developed licensing for a small number of clips to target
      this market vertical.                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|7. | Audio Site Navigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Because of Clipstreams ability to interact with other
      web content using Javascript, site owners can tie specific audio
      information to different aspects of their site. For example, they can have
      a welcome message when the page loads, then more targeted messages as the
      user moves the mouse around the screen. If the mouse hovers over a
      product, the audio might direct them to the correct button to press. Some
      sites are under a mandate to become accessible to the blind and our audio
      navigation can help accomplish that goal.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|8. | Audio Previews                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Clipstream can be configured to begin playing instantly,
      so users can listen to previews of music or other content by clicking or
      hovering over album covers or play buttons. Site owners like that the
      streaming content can be seamlessly integrated into the website without
      popping up a large external player window.                                                                                                                                                                                                                                     

Clipstream Live

Clipstream Live requires server software to be installed on
the originating computer. That computer can support up to 400 simultaneous
viewers. To support more than that, repeater software is installed on other
computers, which grab the signal from the originating computer and forward it to
recipients. There is no limit to this process and the number of viewers that can
be reached, but there is a requirement for an investment in hardware and
bandwidth to reach more than a small number of viewers.

For that reason, we have targeted applications that require few
viewers, events where the customer rents existing equipment and large corporate
webcasts.

One application that has one or a small number of viewers is
surveillance and remote diagnostics. One technician or security analyst will
watch a screen which monitors a remote camera through the internet. Weve
targeted military users and security companies for this application. Another
common example is a consumer user who broadcasts to friends or family or a small
number of viewers as a hobby.

For events, we have targeted ISPs who can license our software
for a large number of simultaneous users, then resell access to our software and
their equipment and bandwidth at an hourly rate.

Large corporate users tend to be technology companies
communicating with their employees, investors and customers. They are willing to
incur a significant investment to showcase their early adoption of advanced
technology.

Other larger users include television stations that want to
make their live content web accessible.

We also offer an audio only version of live, which we are
targeting to commercial radio stations that would like to be web accessible.
They appreciate that our technology allows listeners to hear their content
without leaving their

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web page or switching to another internet radio station.

Clipstream Audiomail

This product allows a user to leave a message on a telephone
answering machine. Our server infrastructure instantly returns the content as a
Clipstream streaming audio clip by email. Users can forward this message to an
email mailing list rather than phoning each person on that list directly.

The system can also have that message embed automatically into
a pre-specified spot in their website. This allows someone who isnt technical
to update web content in real time. One example is providing a report on ski
conditions remotely from the ski hill. A person out on the hill can call in the
report by cell phone and have it instantly appear as a link in their website.
Other examples include users that provide daily commentary that they want to
include in their website without approaching a technical person for constant
updates.

We are also targeting large sites where users can call in to
market their own products. These applications run from classified sites that
include audio to dating sites where users can call in and talk about
themselves.

PirateRadio

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

MPE

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

We are setting up an online store which we will use to sell
music directly to Canadian commercial users such as DJs and club owners.

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OUR REVENUE MODEL

Clipstream

We license our Clipstream products to our customers and
recognize the revenue in accordance with SOP 97-2 as disclosed to the notes of
our financial statements. In addition, we offer annual maintenance contracts
whereby service revenues are recognized ratably over the term of the maintenance
contract. Other service revenue is recognized at the time services are performed
including all custom development work performed and integrated services
performed.

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

Web advertising requires a fixed set up fee per campaign and a
license per thousand impressions served. Market research surveys are priced per
survey. Each survey allows the user to include up to ten videos. Clipstream Live
is priced based on the number of recipient streams.

We charge web site portals an annual license fee that is based
on the number of clips that are used. We also offer a fixed license for 2 1⁄2
times the annual license price.

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

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

Pirate Radio

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

MPE

We are in the roll out phase for MPE and as of year end, a
number of our label customers were getting usage of the system for free. The
reason is that we need content in the system to drive radio adoption.

Beginning in Q1 of fiscal 2006, we anticipate a flat monthly
fee for the major labels until they are able to stop following up the digital
distribution with a physical CD. When they stop sending physical CDs (or
sooner), we will charge a transactional fee for each user each song is made
available to.

For independent labels and label verticals that have a high
enough installed base at radio, we are charging by transaction.

Music in the online store will be sold on a credit system. The
cost of a credit will depend on the number of credits purchased at once, in
advance. We recognize revenue when the credits are used to actually purchase
songs.

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OUR MARKETING PLAN

We generate the majority of our software sales through our
employee sales network and our reseller network. We employ sales staff in our
Vancouver, British Columbia office to market our software products to our
current customers and to our targeted potential customers. In addition, we have
established a network of resellers. We charge our reseller partners an annual
partner fee that buys them varying levels of support and service from Destiny
Media. In general, a higher level of support and a higher partner fee commitment
achieves a higher margin for the partners. Reseller partners receive a direct
commission, which varies and is in line with standard software commission
rates.

Clipstream

We advertise Clipstream in a variety of search engines
according to keywords associated with streaming. When the user searches for that
keyword, the corresponding advertisement is shown. We advertise with Looksmart,
Overture and Google.

The bulk of our incoming sales leads are generated via search
engine advertising and word of mouth. These leads are handled by our internal
sales team and our external partners, by email, telephone and face to face if
necessary.

Our larger recurring opportunities take more time to sell and
usually involve significant presales support and training and possible free
trials. We target these recurring revenue verticals via web and print
advertising, cold calls and attendance at industry specific trade shows.

Unless we are paid an additional white label fee, we require
that the Clipstream logo show before the video plays and that users place a
link to our site on their site. In addition, a right click on Clipstream
enabled content will provide a link back to our site. This word of mouth
advertising has been fairly effective for us.

Pirate Radio

Currently, all Pirate Radio sales are generated through word of
mouth and search engine marketing which drives customers to our online site.
Occasionally, customers will ask for distributor pricing so that they can resell
locally. We offer reseller discounts with a minimum purchase of ten units.

We have partnered with a Japanese reseller who will be offering
pirate radio through retail channels in Japan as a boxed product.

MPE

We have partnered with Promo Only to market our MPE system to
record labels and radio stations. Their existing business provides us with
access to decision makers and a high profile brand name.

We have also partnered with Mediabase to provide a higher
profile with radio stations. Weve also entered into a number of agreements with
other industry software providers to ensure our software is compatible with
their systems.

We are working to secure independent distribution of the system
to independent labels through a high profile partner.

We will sell credits for our online music store directly
through online credit card purchase and through our partner, Promo Onlys
distribution channels at retail.

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OUR BUSINESS OPERATIONS

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

We manage our own server infrastructure. We have ten servers,
thirty four RAID drives, one gigabit switch, two 100 BT switches. Applications
include our internal server, our web servers, our online store, the MPE system,
the IVR server, the backup server and our email systems. We have installed fiber
optic cabling directly from our server infrastructure to the Internet backbone
from our head office location. This fiber link provides us with the ability to
support our customers with extremely high bandwidth hosting capabilities.

COMPETITION

Our principal competitors in the development and distribution
of streaming media technology are RealNetworks, Micromedia Flash and Microsoft
Corporation. All are substantially larger than we are and have significantly
greater financial resources available and have increased their commitment to and
presence in the streaming media industry. We anticipate they will continue to
increase the competitive pressure in the overall market for streaming media
software. This increased competition could lead to increased pressure to
decrease the price of streaming media software. This pressure on price could
force us to reduce the price that we are able to charge our customers for our
software products.

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

Our main competitor for our MPE system is in-house hand
delivery of music CDs. We are unaware of a digital delivery competitor with a
significant presence in the US Market.

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

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

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

Clipstream:

There are several other playerless providers, but we are
generally the recognized leader in the playerless vertical as our product is
much more mature than the newer technologies. Our main competition is from the
four major player based solutions: Macromedia Flash, Real Networks, Windows
Media Player and Quicktime.

These principal competitors in the development and distribution
of streaming media technology are substantially larger than we are and have
significantly greater financial resources available. These companies have
increased their commitment to and presence in the streaming media industry. This
commitment has increased and we anticipate will continue to increase the
competitive pressure in the overall market for streaming media software. This
increased competition could lead to increased pressure to decrease the price of
streaming media software. This pressure on price could force us to reduce the
price that we are able to charge our customers for our software products.

It is possible that new companies will enter the market with
products and services that compete with our players and tools and the
competitive landscape could change significantly to the detriment of the Company
as consumers are faced with a broader array of products with similar
functionality.

Pirate Radio:

The main competition for broadcasting internet radio over the
Internet is Live 365 Network, Shoutcast, Icecast and other forms of MP3
streaming. The player based solutions also can be used to broadcast live audio
streams, but they arent targeted to the same hobbyist market that this product
is aimed at.

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MPE:

The current system of sending music by CDs that are mailed
individually to each radio station appears to be the most significant barrier to
the use of our system. Adoption of our system has progressed significantly in
fiscal 2005 as both radio and label users become familiar with the benefits and
use of the system. We are not aware of any digital distribution system, either
developed internally by the music labels or outside competitors, with any
significant presence in the US.

Though it appears that the barriers to the market are
significant, it is possible that new companies will enter the market with
products and services that compete with our MPE technology and the competitive
landscape could change significantly to the detriment of the Company.

TRADEMARKS AND INTELLECTUAL PROPERTY

We have been granted a trademark for Clipstream in Canada,
Japan and Europe in connection with our software products. In the UK, an
unrelated company called Clipstream Online Video Management
(http://clipstream.co.uk/) has been infringing on our trademark. In response to
a letter sent to them by Destiny, they have filed invalidity proceedings in
Europe. We have negotiated with them and they have decided to withdraw the
infringement proceeding. As of September 2005, this had not been finalized.

We have filed for patent protection in the US for the MPE
distribution system. Patent protection is currently pending.

We have applied for trademark protection in the US for MPE.
This protection is currently pending.

We generally develop our own technologies and algorithms in
house and have a number of technologies that we rely on to maintain our
competitive advantage.

GOVERNMENT REGULATION

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

RISK FACTORS

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

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

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

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

We had a working capital deficit of $657,601 as of August 31,
2005. We had accounts payable and accrued liabilities in the amount of $369,085
as of August 31, 2005. We had a loss from operations of $547,464 for the year
ended August 31, 2005. As a consequence of these factors, we require additional
financing in order to maintain our existing business operations. We are pursuing
additional financing, including equity private placements of our common stock.
We currently do not have any arrangements for financing in place. There is no
assurance that we will be able to achieve additional financing to fund the
operating loss from our business operations and to pay our current liabilities.
If we do not raise additional capital, then our financial condition and our
ability to continue operations will be adversely affected. If we are successful
in completing equity private placements of our common stock, then existing
shareholders will experience dilution of their interests in Destiny Media.

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

Our revenues have increased to $769,067 for the year ended
August 31, 2005 from $751,914 for the year ended August 31, 2004. The small
increase in revenue is attributed to our internal focus on the commercial
deployment of MPE. The allocation of significant resources to the final stages
of the MPE development and customization has resulted in the reduction in
Clipstream revenues for fiscal 2005. Our operating expenses to date still
exceed our revenues. Accordingly, our ability to attain profitability and to
decrease our dependence on external financing is contingent upon our ability to
increase all product revenues. We are working to continue the increase in
revenues from sales of our Clipstream software. There is no assurance that we
will be able to continue to increase revenues from our Clipstream software or
that the MPE secure media distribution system will generate revenues in excess
of the expenses attributable to the marketing of this product. If we are not
successful in increasing revenues, then our ability to achieve profitable
operations will be adversely affected.

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

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

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

We have been successful in containing our operating expenses.
Operating expenses increased slightly to $1,301,691 for the year ended August
31, 2005 from $1,256,580 for the year ended August 31, 2004. Our ability to
achieve profitability is conditional upon our ability to maintain our operating
expenses. While we have been successful in containing our operating expenses,
there is a risk that we will have to increase our operating expenses in the
future. Factors that could cause our operating expenses to increase include our
determination to spend more on sales and marketing in order to increase product
sales or our determination that more research and development expenditures are
required in order to keep our current software products competitive or in order
to develop new products for the market. To the extent that our operating
expenses increase without a corresponding increase in revenue, our financial
condition would be adversely impacted.

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

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

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

We have had net losses since our inception in 1998. We have an
accumulated deficit of $4,635,958. In addition, our loss for the year ended
August 31, 2005 was $547,464. Our inability to increase our revenues while
maintaining reduced operating expenses will cause our history of losses to
continue.

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

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

Our Financial Results May Be Adversely Impacted By Currency
Fluctuations.

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

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

As a result of their complexity, our software products may
contain undetected errors or failures when first introduced or as new versions
are released. There can be no assurance that, despite testing we undertake and
testing and use by current and potential customers, errors will not be found in
new products after commencement of commercial shipments. The occurrence of such
errors could result in loss of or delay in market acceptance of our products,
which could have a material adverse effect on our business, financial condition
and results of operations. Our products also may be vulnerable to break-ins and
similar disruptive problems caused by Internet or other users.

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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

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contain undetected errors that could cause adverse publicity,
reduced market acceptance of the products, or lawsuits by customers.

Online Commerce Security Risks.

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

International Operations.

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

Dividend Policy.

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

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

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

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

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

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

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

ITEM 2. DESCRIPTION OF PROPERTY.

Our head office is located in leased premises at Suite 1040,
1055 West Hastings Street, Vancouver, British Columbia, Canada V6E 2E9. Our
principal business operations are carried out from head office. Our leased
premises consist of approximately 5,734 square feet. We pay rent of
approximately $14,000 Canadian (equal to approximately $12,000 US) per month.
The lease expires August 31, 2007. We consider our leased premises adequate for
our current business purposes.

ITEM 3. LEGAL PROCEEDINGS.

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

On September 14, 2004, a statement of claim was filed against
the Company by its former solicitor for fees of $122,784 [Cdn$145,978] relating
to legal services provided in connection with a failed transaction in 2001 and
other general corporate matters. It is the Companys position that a significant
portion of the fees being sought by its former solicitor are unwarranted and
that the fees should not be borne by the Company. The Company has engaged legal
counsel to defend itself. The Writ of Summons was filed in the BC Supreme Court
on September 14, 2004. As at August 31, 2003, the Company has accrued for
$117,319 of the disputed fees and will seek all options available to extinguish
this debt. Any adjustments to the amounts recognized will be recorded when
determinable.

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

No matters were submitted to our security holders for a vote
during the fourth quarter of our fiscal year ending August 31, 2005.

21 of 43

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PART II

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

Market Information

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

QUARTER
    HIGH ($)
    LOW ($)3rdQuarter 2000
    $1.56
    $0.594thQuarter 2000
    $0.62
    $0.141stQuarter 2001
    $0.62
    $0.142ndQuarter 2001
    $0.31
    $0.103rdQuarter 2001
    $0.17
    $0.074thQuarter 2001
    $0.19
    $0.071stQuarter 2002
    $0.26
    $0.112ndQuarter 2002
    $0.19
    $0.123rdQuarter 2002
    $0.18
    $0.084thQuarter 2002
    $0.14
    $0.071stQuarter 2003
    $0.14
    $0.082ndQuarter 2003
    $0.11
    $0.063rdQuarter 2003
    $0.11
    $0.064thQuarter 2003
    $0.22
    $0.061stQuarter 2004
    $0.35
    $0.082ndQuarter 2004
    $0.36
    $0.163rdQuarter 2004
    $0.66
    $0.374thQuarter 2004
    $0.69
    $0.281stQuarter 2005
    $0.63
    $0.312ndQuarter 2005
    $0.47
    $0.273rdQuarter 2005
    $0.45
    $0.304thQuarter 2005
    $0.37
    $0.19


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

Holders of Common Stock

As of November 25, 2005, we had 36,787,556 shares of our common
stock outstanding and there were 1,119 registered shareholders of our common
stock.

Dividends

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

22 of 43

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Recent Sales of Unregistered Securities

During our fiscal year ended August 31, 2005, we did not
complete any sales of securities that were not registered pursuant to the
Securities Act of 1933 (the Securities Act).

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

The following discussion of our financial condition and our
subsidiaries and our results of operations should be read together with the
consolidated financial statements and related notes that are included later in
this Annual Report on Form 10-KSB. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those set forth under Risk Factors or in
other parts of this Annual Report on Form 10-KSB.

RESULTS OF OPERATIONS

Revenue

Approximately 81% of our revenues continue to be derived from
sales of our Clipstream software, with the balance being comprised of sales of
our MPE secure distribution system and sales of our PirateRadio software. For
sales of our Clipstream software, our revenues are primarily attributable to
revenues from license fees. Revenues associated with maintenance agreements for
our Clipstream software, which include updates, upgrades, support and training
services, accounted for approximately 4% of Clipstream revenues.

Our revenues increased to $769,067 for the year ended August
31, 2005 from $751,914 for the year ended August 31, 2004, representing a
increase of $17,153 or 2%.

Operating Expenses

|General and administrative | August 31, | August 31, | $         | %       
|-------------------------- | ---------- | ---------- | --------- | --------
|                           | 2005       | 2004       | Change    | Change  
|                           |            |            |           |         
|Wages and benefits         | 184,899    | 159,689    | 25,210    | 15.79%  
|Consulting                 | 4,597      | -          | 4,597     | 100.00% 
|Rent                       | 28,545     | 24,045     | 4,500     | 18.71%  
|Telecommunications         | 12,086     | 9,996      | 2,090     | 20.91%  
|Bad debt                   | 24,699     | 31,745     | (7,046)   | (22.20%)
|Office and miscellaneous   | 75,832     | 198,363    | (122,531) | (61.77%)
|Professional fees          | 146,800    | 86,236     | 60,564    | 70.23%  
|                           | 477,458    | 510,074    | (32,616)  | (6.39%) 

General and Administrative. Our general and administrative
expenses consist primarily of salaries and related personnel costs including
overhead, professional fees, and other general office expenditures. General and
administrative costs decreased to $477,458 for the year ended August 31, 2005
from $510,074 for the year ended August 31, 2004, a decrease of $32,616 or 6.39%
.. The decrease in general and administrative costs is primarily due to a
decrease of $7,046 for bad debt expense and a decrease of $122,531 for office
and miscellaneous expenses. In fiscal 2004, a one time charge of $80,000 related
to business development activities did not exist in fiscal 2005. The decrease to
general and administrative costs was partially offset by an increase to
professional fees of approximately $60,000 and an increase to wages and benefits
of approximately $25,000

23 of 43

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|Sales and marketing       | August 31, | August 31, | $        | %       
|------------------------- | ---------- | ---------- | -------- | --------
|                          | 2005       | 2004       | Change   | Change  
|                          |            |            |          |         
|Wages and benefits        | 222,431    | 302,568    | (80,137) | (26.49%)
|Consulting                | 4,597      | -          | 4,597    | 100.00% 
|Rent                      | 28,546     | 32,664     | (4,118)  | (12.61%)
|Telecommunications        | 12,086     | 13,578     | (1,492)  | (10.99%)
|Meals and entertainment   | 1,594      | 4,174      | (2,580)  | (61.81%)
|Travel                    | 28,452     | 15,242     | 13,210   | 86.67%  
|Advertising and marketing | 86,102     | 77,281     | 8,821    | 11.41%  
|                          | 383,808    | 445,507    | (61,699) | (13.85%)

Sales and Marketing. Sales and marketing expenses consist
primarily of salaries and related personnel costs including overhead, sales
commissions, advertising and promotional fees, and travel costs. Sales and
marketing costs were $383,808 for the year ended August 31, 2005 compared to
$445,507 for the year ended August 31, 2004, representing a decrease of $61,699
or 13.85% . The decrease to sales and marketing is attributed to a decrease of
$80,137 to wages and benefits due to a smaller sales force and lower commissions
paid.

|Research and development | August 31, | August 31, | $       | %        
|------------------------ | ---------- | ---------- | ------- | ---------
|                         | 2005       | 2004       | Change  | Change   
|                         |            |            |         |          
|Wages and benefits       | 308,165    | 206,882    | 101,283 | 48.96%   
|Consulting               | 7,662      | -          | 7,662   | -        
|Rent                     | 47,576     | 33,461     | 14,115  | 42.18%   
|Telecommunications       | 20,144     | 13,910     | 6,234   | 44.82%   
|Repairs and maintenance  | -          | 4,108      | (4,108) | (100.00%)
|                         | 383,547    | 258,361    | 125,186 | 48.45%   

Research and Development. Research and development costs
consist primarily of salaries and related personnel costs including overhead,
and consulting fees with respect to product development and deployment. Research
and development costs increased to $383,547 for the year ended August 31, 2005
from $258,361 for the year ended August 31, 2004, representing an increase of
$125,186 or 48.45% . Research and development increased over prior year because
of an increase of $101,283 to wages and benefits and an increase of $14,115 to
rent.

Depreciation and amortization. Depreciation and amortization
expenses arose from fixed assets and other assets. Depreciation and amortization
decreased to $56,878 for the fiscal year ended August 31, 2005 from $92,638 for
the fiscal year ended August 31, 2004, an decrease of $35,760 or 39%.

Other earnings and expenses

Interest expense increased to $14,840 for the fiscal year ended
August 31, 2005 from $6,197 for an effective increase of $8,643. Interest and
other income decreased to $nil for the 12 months ended August 31, 2005 from
$12,206 for August 31, 2004. The change over prior year is primarily due to the
Company ceasing to earn rental income on excess space sublet during the
year.

24 of 43

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Losses

Our loss from operations increased to $532,624 for the year
ended August 31, 2005 from $504,666 for the year ended August 31, 2004,
representing an effective increase of $27,958. Our loss increased to $547,464
for the year ended August 31, 2005 from $419,436 for the year ended August 31,
2004, representing an effective increase of $128,028 or 31%.

For our fiscal year ending August 31, 2006, our management
plans on concentrating its efforts in the following areas in order to achieve
profitability:

|1. | Commercial deployment and full scale marketing of
      MPE.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2. | Increase sales of the Clipstream technology by focusing
      on our area of strength undertaking marketing the Clipstream java based
      streaming solution. Development has been completed and we are now
      embarking on a marketing and sales program to fully exploit and maximize
      revenue from this product. Our sales group includes both inside and
      outside sales and a network of ninety resellers in eleven countries.
      License agreements and partnership opportunities will be sought with
      larger content providers, aggregators and resellers.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3. | Strategic allocation of current resources to optimize
      overall ROI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $30,576 as at August 31, 2005 compared to cash
of $17,523 as at August 31, 2004. We had a working capital deficiency of
$657,601 as at August 31, 2005 compared to a working capital deficiency of
$407,872 as at August 31, 2004

Working Capital Deficiency

The increase in our working capital deficiency is attributed to
an increase to loans payable and a significant decrease to accounts receivable.
Loans payable increased as a result of requirements of operations.

Our accounts payable and accrued liabilities decreased to
$369,085 as at August 31, 2005 from $440,997 at August 31, 2004, representing a
decrease of $71,912 or 16%. Included in our accounts payable and accrued
liabilities balance as at August 31, 2005 is $182,967 of disputed payables,
$91,573 of accrued liabilities, $30,754 of advances and $63,793 trade accounts
payable. We are currently considering all options available to extinguish these
liabilities.

Our loans payable increased to $337,773 as at August 31, 2005
from $20,564 as at August 31, 2004.

Our current deferred revenues decreased to $32,329 as at August
31, 2005 from $62,305 as at August 31, 2004, representing a total decrease of
$29,978 or 48%.

Cash Flows

Net cash used in operating activities increased to $587,132 for
the year ended August 31, 2005 compared to $207,550, representing an increase of
$379,582 or 183%. The cash used in operating activities was off-set by net

25 of 43

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cash provided by financing activities in the amount of $599,530
for the year ended August 31, 2005 compared to $319,639 for the year ended
August 31, 2004.

We have financed our operations to date primarily through the
sale of equity securities and borrowings from shareholders. When possible, we
have issued common stock for services and debt settlement. We continued these
financing activities through the year ended August 31, 2005 as our revenues to
date have provided insufficient funding for our working capital requirements.
Accordingly, we anticipate that we will have to continue to rely on funding from
private placements, cash flows and other offerings in order to finance our
future operating costs.

We completed the following issuances of our common stock during
the year ended August 31, 2005 in respect of our financing activities:

|1. | We issued 1,118,125 common shares pursuant to option
      agreements exercised during the year at a weighted average exercise price
      of $0.29 for net proceeds of $293,177.                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                            
|2. | As at August 31, 2004, 100,000 common shares are issuable
      pursuant to an option agreement. Net proceeds of $25,000 at an exercise
      price of $0.25 were received prior to year end. We issued the required
      common shares September 2, 2004.

Going Concern

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

CRITICAL ACCOUNTING POLICIES

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

The following critical accounting policies affect our more
significant estimates and assumptions used in preparing our consolidated
financial statements.

- The consolidated financial statements have been prepared on the going
  concern basis, which assumes the realization of assets and liquidation of
  liabilities in the normal course of operations. If we were not to continue as
  a going concern, we would likely not be able to realize on our assets at
  values comparable to the carrying value or the fair value estimates reflected
  in the balances set out in the preparation of the consolidated financial
  statements. There can be no assurances that we will be successful in
  generating additional cash from equity or other sources to be used for
  operations. The consolidated financial statements do not include any
  adjustments relating to the recoverability of assets and classification of
  assets and liabilities that might be necessary should the Company be unable to
  continue as a going concern.

26 of 43

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- We recognize revenue when there is persuasive evidence of an arrangement,
  delivery has occurred, the fee is fixed or determinable, collection is
  reasonably assured, and there are no substantive performance obligations
  remaining. Our revenue recognition policies are in conformity with AICPAs
  Statement of Position No. 97-2, Software Revenue Recognition, as amended
  (SOP 97-2). We generate revenue from software arrangements involving multiple
  element sales arrangements. Revenue is allocated to each element of the
  arrangement based on the relative fair value of the elements and is recognized
  as each element is delivered and we have no significant remaining performance
  obligations. If evidence of fair value for each element does not exist, all
  revenue from the arrangement is recognized over the term of the arrangement.
  To-date, evidence of fair value for each element has not been available on
  sales arrangements. Changes in our business priorities or model in the future
  could materially impact our reported revenue and cash flow. Although such
  changes are not currently contemplated, they could be required in response to
  industry or customer developments.

27 of 43

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Restatement of Interim Financial Statements Contained in
Quarterly Reports for 2005

In connection with its preparation of the consolidated
financial statements for the fiscal year ended August 31, 2005, management of
the Company determined that the previously issued interim financial statements
contained in the Company's Quarterly Reports on Form 10-QSB for the quarters
ended November 30, 2004, February 28, 2005 and May 31, 2005 should be restated
to correct errors in those financial statements for the inappropriate
capitalization of software development costs which occurred after the product
was released to a customer.

The following table provides the cumulative amount and
cumulative restatement:

|                                            | 3 months ending   | 6 months ending   | 9 months ending
|------------------------------------------- | ----------------- | ----------------- | ---------------
|                                            | November 30, 2004 | February 28, 2005 | May 31, 2005   
|                                            | As                | As                | As             
|                                            | reported          | restated          | reported       
|Consolidated Balance Sheet                  |                   |                   |                
|Software development                        |                   |                   |                
|costs, net of
      accumulated             | 95,663            | 83,268            | 107,256        
|depreciation                                |                   |                   |                
|Total stockholders'                         |                   |                   |                
|deficiency                                  | (413,883)         | (426,278)         | (355,914)      
|                                            |                   |                   |                
|Total assets                                | 305,153           | 292,758           | 280,705        
|                                            |                   |                   |                
|Consolidated Statement of Operations        |                   |                   |                
|Research and                                |                   |                   |                
|development                                 | 59,068            | 71,578            | 175,485        
|                                            |                   |                   |                
|Depreciation                                | 12,595            | 11,901            | 30,172         
|                                            |                   |                   |                
|Net loss                                    | (103,024)         | (114,840)         | (196,453)      
|                                            |                   |                   |                
|Net loss per common                         | (0.00)            | (0.00)            | (0.01)         
|share, basic and
      diluted              |                   |                   |                
|                                            |                   |                   |                
|Comprehensive loss                          | (130,993)         | (143,388)         | (213,613)      
|                                            |                   |                   |                
|Consolidated Statements of Cash
      Flows |                   |                   |                
|Net cash used in operating                  |                   |                   |                
|activities                                  | (154,833)         | (167,343)         | (300,574)      
|Net cash used in investing                  |                   |                   |                
|activities                                  | (15,808)          | (3,298)           | (41,767)       

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|                                     | 3 months ending   | 3 months ending
|------------------------------------ | ----------------- | ---------------
|                                     | February 28, 2005 | May 31, 2005   
|                                     | As                | As             
|                                     | reported          | restated       
|Consolidated Statement of Operations |                   |                
|Research and                         |                   |                
|development                          | 116,417           | 141,423        
|                                     |                   |                
|Depreciation                         | 17,577            | 14,439         
|                                     |                   |                
|Net loss                             | (93,429)          | (115,297)      
|                                     |                   |                
|Net loss per
      common            | (0.01)            | (0.01)         
|share, basic and diluted             |                   |                

29 of 43

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ITEM 7. FINANCIAL STATEMENTS.

Index to Audited Consolidated Financial Statements for the Year
Ended August 31, 2005:

|1. | Auditors Report;                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                        
|2. | Consolidated Balance Sheets as at August
        31, 2005 and 2004;                                                                    
|   |                                                                                                                                        
|3. | Consolidated Statement of Operations
        for the Years ended August 31, 2005 and 2004;                                             
|   |                                                                                                                                        
|4. | Consolidated Statement of Stockholders
        Deficiency and Comprehensive Loss for the Years ended August 31, 2005
        and 2004;
|   |                                                                                                                                        
|5. | Consolidated Statement of Cash Flows
        for the Years ended August 31, 2005 and 2004;                                             
|   |                                                                                                                                        
|6. | Notes to Consolidated Financial Statements.                                                                                            

---

|Consolidated Financial Statements   
|------------------------------------
|                                    
|Destiny Media Technologies Inc.     
|August 31, 2005 and 2004            
|(Expressed in United States dollars)

F-1

---

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

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

We have audited the accompanying consolidated balance sheet of
  Destiny Media Technologies Inc. as of August 31, 2005 and the related
  consolidated statements of operations, stockholders deficiency and cash
  flows for the year 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 audit.

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

In our opinion, the financial statements referred to above present
  fairly, in all material respects, the consolidated financial position of Destiny
  Media Technologies Inc. at August 31, 2005 and the consolidated results of its
  operations and its cash flows for the year then ended, in conformity with U.S.
  generally accepted accounting principles.

As discussed in Note 2 to the financial statements, the Companys
  recurring net losses from operations and working capital deficiency raise substantial
  doubt about its ability to continue as a going concern. Managements plans
  in regard to these matters are also described in Note 2. The 2005 financial
  statements do not include any adjustments that might result from the outcome
  of this uncertainty.

The comparative figures for the preceding year were audited by
  other auditors who expressed an opinion without reservation on those statements
  in their report dated October 8, 2004.

|                   | /s/ ERNST & YOUNG LLP
|------------------ | ---------------------
|                   |                      
|Vancouver, Canada, |                      
|October 21, 2005.  | Chartered Accountants

F-2

---

Destiny Media Technologies Inc.

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

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

|                                                           | 2005        | 2004       
|---------------------------------------------------------- | ----------- | -----------
|                                                           | $           | $          
|                                                           |             |            
|ASSETS                                                     |             |            
|Current                                                    |             |            
|Cash                                                       | 30,576      | 17,523     
|Short-term investments                                     |            | 8,661      
|Accounts and other receivables, net of allowance
      for |             |            
|doubtful accounts of $7,000 [2004 - $19,291]               | 46,437      | 67,484     
|Inventory                                                  | 2,246       | 3,480      
|Prepaid expenses                                           | 2,327       | 18,846     
|Total current assets                                       | 81,586      | 115,994    
|Software development costs, net of accumulated             |             |            
|amortization of $29,346 [2004
      - $nil]                | 58,693      | 81,857     
|Property and equipment, net of accumulated                 |             |            
|amortization of $216,202 [2004
      - $156,809] [note 4]  | 65,863      | 73,572     
|Other assets, net of accumulated amortization              |             |            
|of $86,697 [2004 - $73,306]                                |            | 5,198      
|Total assets                                               | 206,142     | 276,621    
|                                                           |             |            
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                   |             |            
|Current                                                    |             |            
|Accounts payable [note 10]                                 | 277,512     | 407,349    
|Accrued liabilities                                        | 91,573      | 33,648     
|Shareholder loans payable [note 5]                         | 337,773     | 20,564     
|Deferred revenue                                           | 32,329      | 62,305     
|Total current liabilities                                  | 739,187     | 523,866    
|Deferred leasehold inducements, net of accumulated         |             |            
|amortization of $22,104 [2004 - $nil]                      | 58,594      | 73,071     
|Obligation for share settlement [note 6]                   | 100,000     | 100,000    
|Total liabilities                                          | 897,781     | 696,937    
|                                                           |             |            
|Commitments and contingencies [notes 9 and 10]             |             |            
|Stockholders deficiency[note
      7]                     |             |            
|Common stock, par value $0.001                             |             |            
|Authorized: 100,000,000 shares                             |             |            
|Issued and outstanding: 36,434,223 shares                  |             |            
|August
      31, 2004 - 35,316,098 shares]                 | 36,436      | 35,318     
|Issued and held for settlement: 133,333 shares             |             |            
|Additional paid-capital                                    | 4,022,123   | 3,688,208  
|Stock issuable                                             |            | 25,000     
|Deficit                                                    | (4,635,958) | (4,088,494)
|Accumulated other
      comprehensive loss                 | (114,240)   | (80,348)   
|Total stockholders deficiency                             | (691,639)   | (420,316)  
|Total liabilities
      and stockholders deficiency       | 206,142     | 276,621    

See accompanying notes

F-3

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

|                                             | 2005       | 2004      
|-------------------------------------------- | ---------- | ----------
|                                             | $          | $         
|                                             |            |           
|Revenue                                      | 769,067    | 751,914   
|                                             |            |           
|Operating expenses                           |            |           
|General and administrative                   | 477,458    | 510,074   
|Sales and marketing                          | 383,808    | 445,507   
|Research and development                     | 383,547    | 258,361   
|Depreciation and amortization                | 56,878     | 42,638    
|                                             | 1,301,691  | 1,256,580 
|Loss before undernoted                       | (532,624)  | (504,666) 
|Other earnings (expenses)                    |            |           
|Gain on extinguishment of debt               |           | 79,221    
|Interest and other income                    |           | 12,206    
|Interest and other expense                   | (14,840)   | (6,197)   
|                                             | (14,840)   | 85,230    
|Net loss                                     | (547,464)  | (419,436) 
|                                             |            |           
|Net loss per common share, basic and diluted | (0.01)     | (0.01)    
|                                             |            |           
|Weighted average common shares outstanding,  |            |           
|basic and diluted                            | 36,183,543 | 34,704,896

See accompanying notes

F-4

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS DEFICIENCY

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

|                                           |              |        |            |          |             | Accumulated   |              
|------------------------------------------ | ------------ | ------ | ---------- | -------- | ----------- | ------------- | -------------
|                                           |              |        | Additional |          |             | other         | Total        
|                                           | Common stock |        | paid-in    | Stock    |             | comprehensive | stockholders
|                                           | Shares       | Amount | capital    | issuable | Deficit     | loss          | deficiency   
|                                           | #            | $      | $          | $        | $           | $             | $            
|                                           |              |        |            |          |             |               |              
|Balance, August 31, 2003                   | 33,003,598   | 33,005 | 3,245,214  |         | (3,669,058) | (54,905)      | (445,744)    
|Net loss                                   |             |       |           |         | (419,436)   |              | (419,436)    
|Foreign currency translation loss          |             |       |           |         |            | (25,443)      | (25,443)     
|Comprehensive loss                         |             |       |           |         |            |              | (444,879)    
|Common stock issued for services rendered  | 250,000      | 250    | 79,750     |         |            |              | 80,000       
|Common stock issued for cash on private    |              |        |            |          |             |               |              
|placement                                  | 2,000,000    | 2,000  | 268,000    |         |            |              | 270,000      
|Common stock issued on options exercised   | 62,500       | 63     | 15,562     |         |            |              | 15,625       
|Common stock issuable on options exercised |             |       |           | 25,000   |            |              | 25,000       
|Stock based compensation - employees       |             |       | 865        |         |            |              | 865          
|Stock based compensation - non-employees   |             |       | 78,817     |         |            |              | 78,817       
|Balance, August 31, 2004                   | 35,316,098   | 35,318 | 3,688,208  | 25,000   | (4,088,494) | (80,348)      | (420,316)    
|Net loss                                   |             |       |           |         | (547,464)   |              | (547,464)    
|Foreign currency translation loss          |             |       |           |         |            | (33,892)      | (33,892)     
|Comprehensive loss                         |             |       |           |         |            |              | (581,356)    
|Common stock issued on options exercised   | 1,118,125    | 1,118  | 317,059    | (25,000) |            |              | 293,177      
|Stock based compensation - non-employees   |             |       | 16,856     |         |            |              | 16,856       
|Balance, August
      31, 2005             | 36,434,223   | 36,436 | 4,022,123  |         | (4,635,958) | (114,240)     | (691,639)    

See accompanying notes

F-5

---

Destiny Media Technologies Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

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

|                                                       | 2005      | 2004     
|------------------------------------------------------ | --------- | ---------
|                                                       | $         | $        
|                                                       |           |          
|OPERATING ACTIVITIES                                   |           |          
|Net loss                                               | (547,464) | (419,436)
|Items not involving cash:                              |           |          
|Depreciation and amortization                          | 56,878    | 42,638   
|Shares issued for services rendered                    |          | 80,000   
|Deferred lease benefit                                 | (21,493)  | 50,531   
|Stock-based compensation - employees                   |          | 865      
|Stock-based compensation - non-employees               | 16,856    | 78,817   
|Interest accrued on term deposit                       |          | (121)    
|Changes in non-cash working capital:                   |           |          
|Short term investments                                 | 9,301     |         
|Accounts and other receivables                         | 27,315    | 109,767  
|Inventory                                              | 1,553     | 1,049    
|Prepaid expenses                                       | 17,975    | (16,805) 
|Accounts payable and accrued liabilities               | (112,579) | (129,675)
|Deferred revenue                                       | (35,474)  | (5,180)  
|Net cash used in
      operating activities            | (587,132) | (207,550)
|                                                       |           |          
|INVESTING ACTIVITIES                                   |           |          
|Purchase of equipment                                  | (7,591)   | (10,904) 
|Purchase of other assets                               |          | (1,782)  
|Software development costs                             |          | (81,857) 
|Net cash used in
      investing activities            | (7,591)   | (94,543) 
|                                                       |           |          
|FINANCING ACTIVITIES                                   |           |          
|Net proceeds on shareholder loans payable              | 306,353   | 9,014    
|Proceeds from exercise of stock options                | 293,177   | 40,625   
|Proceeds from issuance of commons tock                 |          | 270,000  
|Net cash provided
      by financing activities        | 599,530   | 319,639  
|                                                       |           |          
|Effect of foreign exchange rate changes on cash        | 8,246     | (6,146)  
|                                                       |           |          
|Net increase in cash                                   | 4,807     | 17,546   
|Cash, beginning of year                                | 17,523    | 6,123    
|Cash, end of year                                      | 30,576    | 17,523   
|                                                       |           |          
|Supplementary disclosure                               |           |          
|Cash paid for interest                                 | 5,254     | 6,197    
|Non-cash transactions
      for leasehold improvements |          | 22,540   

See accompanying notes

F-6

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

1. ORGANIZATION

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

2. GOING CONCERN UNCERTAINTY

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

The Company incurred a net loss of $547,464 for the year ended
  August 31, 2005 [2004 -$419,436], has incurred cumulative losses of $4,635,958
  at August 31, 2005, has a working capital deficiency of $657,599, and has a
  stockholders deficiency of $691,639 that raises substantial doubt about
  its ability to continue as a going concern. Management has been able, thus far,
  to finance the operations through a series of equity financings and shareholder
  loans. Management plans to continue to seek sources of financing on favorable
  terms; however, there are no assurances that any such financing can be obtained
  on favorable terms, if at all. Management expects to keep its operating costs
  to a minimum until cash is available through financing or operating activities.
  There are no assurances that the Company will be successful in achieving these
  goals.

In view of these conditions, the ability of the Company to continue
  as a going concern is in substantial doubt and dependent upon achieving a profitable
  level of operations and on the ability of the Company to obtain necessary financing
  to fund ongoing operations. These financial statements do not give effect to
  any adjustments which would be necessary should the Company be unable to continue
  as a going concern and therefore be required to realize its assets and discharge
  its liabilities in other than the normal course of business and at amounts different
  from those reflected in the accompanying financial statements.

F-7

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

3. SIGNIFICANT ACCOUNTING POLICIES

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

Principles of consolidation

The accompanying consolidated financial statements include the
  accounts of the Company and its wholly owned subsidiary, Destiny Software Productions
  Inc. (Destiny). All inter-company balances and transactions have
  been eliminated on consolidation.

Use of estimates

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

Revenue recognition

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

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

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

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

F-8

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

3. SIGNIFICANT ACCOUNTING POLICIES (contd.)

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

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

Allowance for doubtful accounts

The Company establishes an allowance for doubtful accounts through
  review of open accounts, and historical collection and allowance amounts. The
  allowance for doubtful accounts is intended to reduce trade accounts receivable
  to the amount that reasonably approximates their fair value due to their short-term
  nature. The amount ultimately realized from trade accounts receivable may differ
  from the amount estimated in the financial statements based on collection experience.

Inventory

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

Research and development costs

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

F-9

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

3. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Property and equipment

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

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

Translation of foreign currencies

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

Advertising

Advertising costs are expensed as incurred and totaled $83,253
  and $65,488 during the years ended August 31, 2005 and 2004, respectively.

Income taxes

The Company follows the liability method of accounting for income
  taxes. Under this method, the deferred tax assets and liabilities are determined
  based on the difference between the financial reporting and tax bases of assets
  and liabilities using enacted tax rates that will be in effect for the year
  in which the differences are expected to reverse.

Capital stock issued for consideration other than cash

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

F-10

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

3. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Stock based compensation

The Company accounts for stock-based employee compensation arrangements
  using the intrinsic value method in accordance with the provisions of Accounting
  Principles Board Opinion No. 25 Accounting for Stock Issued to Employees
  (APB 25) and complies with the disclosure provisions of Statement
  of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation
  (FAS 123), as amended by Statement of Financial Accounting Standards
  No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure-
  an amendment of FASB Statement No. 123 (FAS 148). The pro-forma
  disclosure of stock based compensation is included in note 7[d].

The Company accounts for stock issued to non-employees at fair
  value in accordance with FAS 123. The Company uses the Black-Scholes option
  pricing model to determine the fair value of stock options granted to non-employees.

Deferred leasehold inducements

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

Earnings per share

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

Comprehensive loss

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

F-11

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

3. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Recent accounting pronouncements

In December 2004, the FASB issued Statement of Financial Accounting
  Standards 123R Share-Based Payment, a revision to FAS 123. FAS 123R
  replaces existing requirements under FAS 123 and APB 25, and requires public
  companies to recognize the cost of employee services received in exchange for
  equity instruments, based on the grant-date fair value of those instruments,
  with limited exceptions. FAS 123R also affects the pattern in which compensation
  cost is recognized, the accounting for employee share purchase plans, and the
  accounting for income tax effects of share-based payment transactions. For small-business
  filers, FAS 123R will be effective for annual periods beginning after December
  15, 2005. Early adoption is permitted in periods in which financial statements
  have not yet been issued. The Company expects to adopt FAS 123R on September
  1, 2006. As permitted by FAS 123, the Company currently accounts for share-based
  payments to employees using APB 25s intrinsic value method. Accordingly,
  the adoption of FAS 123Rs fair value method will have a significant impact
  on the Companys statement of earnings, although it will have no impact
  on the Companys overall financial position. The impact of adoption of
  FAS 123R cannot be predicted at this time because it will depend on levels of
  share-based payments granted in the future. However, had the Company adopted
  FAS 123R in prior periods, the impact of that standard would have approximated
  the impact of FAS 123 as described in the disclosure of pro-forma net loss and
  loss per share in note 7[d] to these consolidated financial statements.

4. PROPERTY AND EQUIPMENT

|                       |  |         |  |  | Accumulated      |  |  |          | 
|---------------------- |  | ------- |  |  | ---------------- |  |  | -------- | 
|                       |  |         |  |  | depreciation and |  |  | Net book | 
|                       |  | Cost    |  |  | amortization     |  |  | value    | 
|                       |  | $       |  |  | $                |  |  | $        | 
|                       |  |         |  |  |                  |  |  |          | 
|2005                   |  |         |  |  |                  |  |  |          | 
|Furniture and fixtures |  | 67,956  |  |  | 50,108           |  |  | 17,848   | 
|Computer hardware      |  | 159,919 |  |  | 127,955          |  |  | 31,964   | 
|Computer software      |  | 19,829  |  |  | 19,829           |  |  |         | 
|Leasehold improvements |  | 34,361  |  |  | 18,310           |  |  | 16,051   | 
|                       |  | 282,065 |  |  | 216,202          |  |  | 65,863   | 
|                       |  |         |  |  |                  |  |  |          | 
|2004                   |  |         |  |  |                  |  |  |          | 
|Furniture and fixtures |  | 61,533  |  |  | 41,690           |  |  | 19,843   | 
|Computer hardware      |  | 137,735 |  |  | 105,841          |  |  | 31,894   | 
|Leasehold improvements |  | 31,113  |  |  | 9,278            |  |  | 21,835   | 
|                       |  | 230,381 |  |  | 156,809          |  |  | 73,572   | 

F-12

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

5. SHAREHOLDER LOANS PAYABLE

|                                               |  | 2005    |  |  | 2004   | 
|---------------------------------------------- |  | ------- |  |  | ------ | 
|                                               |  | $       |  |  | $      | 
|                                               |  |         |  |  |        | 
|Loans payable, due to shareholders, unsecured, |  |         |  |  |        | 
|due on demand, non-interest bearing            |  | 328,357 |  |  | 20,564 | 
|Loans payable, due to shareholder, unsecured,  |  |         |  |  |        | 
|due on demand, interest bearing at 18.9%       |  | 9,416   |  |  |       | 
|                                               |  | 337,773 |  |  | 20,564 | 

6. OBLIGATION FOR SHARE SETTLEMENT

During the fiscal year ended August 31, 2003, the Company issued
  133,333 common shares to be delivered in settlement for proceeds of $100,000
  received in respect of a private placement that was not completed in August
  of 2000. As the private placement was not completed and although management
  expects that the amount ultimately will be settled through the release of the
  shares, the obligation for share settlement is recorded as a liability until
  a settlement is finalized between the Company and parties involved in the August
  2000 private placement.

7. SHARE CAPITAL

[a] Authorized

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

[b] Common stock issued

2005

During the year ended August 31, 2005, the Company issued 1,118,125
  common shares pursuant to the exercise of employee stock options for gross proceeds
  of $318,177. Included in this amount is $25,000 for 100,000 common shares that
  remained issuable at August 31, 2004 so that the net cash proceeds received
  by the Company during the year was $293,177.

F-13

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

7. SHARE CAPITAL (contd.)

2004

|[a] | Common shares issued for services rendered:                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                  
|    | On February 24, 2004, the Company issued 250,000 common
        shares to a third party pursuant to a consulting agreement. The common
        shares issued have been valued at their market value of $80,000 on the
        date the services were provided.                                                   
|    |                                                                                                                                                                                                                                                                                                                  
|[b] | Common shares issued for cash:                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                  
|    | On November 21, 2003, the Company completed a series
        of private placements, which consisted of the issuance of 2,000,000 common
        shares at a price of $0.15 per share for gross proceeds of $300,000. In
        connection with this offering the Company paid an agents fee of
        $30,000.
|    |                                                                                                                                                                                                                                                                                                                  
|[c] | Common shares issued on options exercised:                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                  
|    | During the year ended August 31, 2004, 62,500 employee
        stock options at $0.25 were exercised for net proceeds of $15,625.                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                  
|[d] | Common shares issuable on options exercised:                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                  
|    | On August 31, 2004, 100,000 employee stock options at
        $0.25 were exercised for net proceeds of $25,000. The Company issued the
        required common shares September 2, 2004.                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                  
|[c] | Stock options                                                                                                                                                                                                                                                                                                    

Pursuant to a stock option plan amended March 29, 2004, the Company
  has reserved 3,750,000 common shares for future issuance under its stock option
  plan. The options generally vest over a range of periods from the date of grant,
  some are immediate, 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.

F-14

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

7. SHARE CAPITAL (contd.)

Stock option activity is presented below:

|                             |  |            |   |  | Options outstanding |  
|---------------------------- |  | ---------- | - |  | ------------------- | -
|                             |  | Shares     |   |  |                     |  
|                             |  | available  |   |  | Number of           |  
|                             |  | for grant  |   |  | shares              |  
|                             |  | #          |   |  | #                   |  
|                             |  |            |   |  |                     |  
|Outstanding, August 31, 2003 |  | 1,869,500  |   |  | 1,880,500           |  
|Granted                      |  | (1,597,750 | ) |  | 1,597,750           |  
|Exercised                    |  |           |   |  | (162,500            | )
|Forfeited                    |  | 188,750    |   |  | (188,750            | )
|Outstanding, August 31, 2004 |  | 460,500    |   |  | 3,127,000           |  
|Granted                      |  | (658,125   | ) |  | 658,125             |  
|Exercised                    |  |           |   |  | (1,018,125          | )
|Forfeited                    |  | 663,000    |   |  | (663,000            | )
|Outstanding, August 31, 2005 |  | 465,375    |   |  | 2,104,000           |  

The following table summarizes information concerning outstanding
  and exercisable options at August 31, 2005:

|         |             | Options outstanding |            
|-------- | ----------- | ------------------- | -----------
|         |             | weighted average    |            
|Exercise | Options     | remaining           | Options    
|prices   | outstanding | contractual life    | exercisable
|$        | #           | (in years)          | #          
|         |             |                     |            
|0.25     | 1,509,000   | 1.92                | 1,498,167  
|0.50     | 520,000     | 4.24                | 257,500    
|1.80     | 50,000      | 5.08                | 50,000     
|2.50     | 25,000      | 0.08                | 25,000     
|         | 2,104,000   | 2.54                | 1,830,667  

Of the total options outstanding at year end, 1,630,000 [2004
  - 2,525,000] were granted to employees and 474,000 [2004 - 602,000] were granted
  to non-employees of the Company. The compensation expense related to employees
  was $nil [2004 - 865]. The compensation expense related to options granted to
  non-employee was $16,856 [2004 - $78,817].

F-15

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

7. SHARE CAPITAL (contd.)

[d] Pro-forma disclosure of stock based compensation

Pro-forma information regarding results of operations and loss
  per share is required by FAS 123, as amended by FAS 148, for stock-based awards
  to employees as if the Company had accounted for such awards using the fair
  value method.

For pro-forma purposes, the estimated value of the Companys
  stock-based awards to employees is amortized over the vesting period of the
  underlying options. The effect on the Companys net loss and loss per share
  of applying FAS 123 to the Companys stock-based awards to employees would
  approximate the following:

|                                                |  | 2005     |   |  | 2004     |  
|----------------------------------------------- |  | -------- | - |  | -------- | -
|                                                |  | $        |   |  | $        |  
|                                                |  |          |   |  |          |  
|Net loss as reported                            |  | (547,464 | ) |  | (419,436 | )
|Compensation expense included in net loss       |  |         |   |  | 865      |  
|Compensation expense based on fair value method |  | (13,189  | ) |  | (210,446 | )
|Pro-forma net loss                              |  | (560,653 | ) |  | (629,017 | )
|                                                |  |          |   |  |          |  
|Net loss per common share, basic and diluted:   |  |          |   |  |          |  
|As reported                                     |  | (0.01    | ) |  | (0.01    | )
|Pro-forma                                       |  | (0.01    | ) |  | (0.02    | )

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

|                                           |   | 2005       |  |   | 2004       | 
|------------------------------------------ | - | ---------- |  | - | ---------- | 
|                                           |   |            |  |   |            | 
|Expected dividend yield                    |   |           |  |   |           | 
|Risk-free interest rate                    |   | 5.5%       |  |   | 5.5%       | 
|Volatility                                 |   | 99%        |  |   | 180%       | 
|Expected lives                             |   | 2.42 years |  |   | 2.00 years | 
|Per share weighted - average fair value of |   |            |  |   |            | 
|stock
      options granted                | $ | 0.09       |  | $ | 0.27       | 

F-16

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

8. INCOME TAXES

|                                           |  | 2005       |   |  | 2004       |  
|------------------------------------------ |  | ---------- | - |  | ---------- | -
|                                           |  | $          |   |  | $          |  
|                                           |  |            |   |  |            |  
|Deferred tax assets:                       |  |            |   |  |            |  
|Net operating loss carryforwards           |  | 1,567,650  |   |  | 1,473,282  |  
|Excess of book over
      tax depreciation |  | 51,663     |   |  | 41,577     |  
|                                           |  | 1,619,313  |   |  | 1,514,859  |  
|Valuation allowance                        |  | (1,619,313 | ) |  | (1,514,859 | )
|                                           |  |           |   |  |           |  

Based on historical operations, management is not able to demonstrate
  that it is more likely than not that the results of future operations will generate
  sufficient taxable income to realize the net deferred tax assets.

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

|                                                                                                  |  | 2005     |   |  | 2004     |  
|------------------------------------------------------------------------------------------------- |  | -------- | - |  | -------- | -
|                                                                                                  |  |          |   |  |          |  
|Tax at U.S. statutory rates                                                                       |  | 34.0%    |   |  | 34.0%    |  
|Change in valuation
      allowance                                                               |  | (34.0%   | ) |  | 34.0%    |  
|Tax recovery (expense)                                                                            |  |         |   |  |         |  
|                                                                                                  |  |          |   |  |          |  
|The reconciliation of (losses) earnings from operations
      by geographic region is as follows: | 
|                                                                                                  |  |          |   |  |          |  
|                                                                                                  |  | 2005     |   |  | 2004     |  
|                                                                                                  |  | $        |   |  | $        |  
|                                                                                                  |  |          |   |  |          |  
|United States                                                                                     |  | (360,777 | ) |  | (60,486  | )
|Canada                                                                                            |  | (206,687 | ) |  | (358,950 | )
|                                                                                                  |  | (547,464 | ) |  | (419,436 | )

F-17

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

8. INCOME TAXES (contd.)

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

|                    | Canada    | United States
|------------------- | --------- | -------------
|                    | $         | $            
|                    |           |              
|2007                | 646,462   |             
|2008                | 729,309   |             
|2009                | 152,376   |             
|2012 and thereafter | 173,908   | 2,887,084    
|                    | 1,702,055 | 2,887,084    

9. COMMITMENTS

The Company is committed to payments under its premises lease,
  which expires on September 1, 2007 as follows:

|     | $      
|---- | -------
|     |        
|2006 | 132,009
|2007 | 136,832
|     | 268,841

10. CONTINGENCIES

|[a] | A subsidiary of the Company commenced legal proceedings
        against Impatica.com Inc. (Impatica) for payment of approximately
        $512,500 in unpaid technology licensing fees. It is the Companys
        position that Impatica repudiated the licensing agreement and that the
        unpaid license fees totaling $512,500 are a debt owing by Impatica to
        the Company.                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The defendant has denied liability to the Company on
        the basis that the license agreement was not formalized. The defendant
        has filed a counterclaim against the Company seeking return of $162,500
        advanced to the Company on an alleged good faith agreement
        based on the allegation that the technology did not perform as represented.
        These funds were recorded as revenues earned in accordance with the Companys
        revenue recognition policy in fiscal 2001. At August 31, 2005 the outcome
        of this claim and counterclaim is not determinable. As such, no amounts
        have been accrued at the year end.

F-18

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

10. CONTINGENCIES (contd.)

|[b] | On September 14, 2004, a statement of claim
        was filed against the Company by its former solicitor for fees and accrued
        interest of US $122,784 (Cdn$145,978) relating to legal services provided
        in connection with a failed transaction in 2001 and other general corporate
        matters. It is the Companys position that a significant portion
        of the fees being sought by its former solicitor are unwarranted and that
        the fees should not be borne by the Company. The Company has engaged legal
        counsel to defend itself and has launched a counterclaim. The Writ of
        Summons was filed in the B.C. Supreme Court on September 14, 2004. As
        at August 31, 2004 and August 31, 2005, the company has accrued for the
        disputed fees, but not the accrued interest and will seek all options
        available to extinguish this debt. Any adjustments to the amounts recognized
        will be recorded when determinable.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|

11. RELATED PARTY TRANSACTIONS AND BALANCES

Related party transactions are in the normal course of operations
  and are recorded at amounts established and agreed between the related parties.
  Related party transactions not disclosed elsewhere in these consolidated financial
  statements are as follows:

|[a] | Commissions of $nil [2004 - $2,867] were paid to directors
        and officers.                                                                                                                                                           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                            
|[b] | During the year, the Company earned $nil [2004 - $4,785]
        in rental revenue from space sublet to a director.                                                                                                                        
|    |                                                                                                                                                                                                                                            
|[c] | During the year, the Company earned $nil [2004 - $7,549]
        in rental revenue from space sublet to a company in which an officer is
        a significant shareholder.                                                                
|    |                                                                                                                                                                                                                                            
|[d] | As at August 31, 2005, accounts payable include $nil
        [2004 - $463] owing to directors and officers of the Company. Accounts
        receivable include $nil [2004 - $542] owing from directors and officers
        of the Company.

F-19

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

12. FINANCIAL INSTRUMENTS

Fair value disclosures

The carrying value of cash, short-term investments, accounts
  receivable, accounts payable and accrued liabilities approximate their fair
  values due to the relatively short periods to maturity of the instruments. Due
  to the related party nature of the shareholder loans payable and amounts owing
  to related parties, it is not practicable to estimate their fair value.

Foreign currency risk

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

13. SEGMENTED INFORMATION 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 location of customer, is
  as follows:

|              |  | 2005    |  |  | 2004    | 
|------------- |  | ------- |  |  | ------- | 
|              |  | $       |  |  | $       | 
|              |  |         |  |  |         | 
|United States |  | 414,396 |  |  | 568,209 | 
|Canada        |  | 112,900 |  |  | 65,622  | 
|Other         |  | 241,771 |  |  | 118,083 | 
|Total revenue |  | 769,067 |  |  | 751,914 | 

During the year ended August 31, 2005, one customer represented
  15% of the total revenue balance [2004 - no single customer represented more
  than 10%].

As at August 31, 2005, two customers represent 71% of the trade
  receivables balance of $46,437 [2004  three customers representing 38%].

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

F-20

---

Destiny Media Technologies Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2005

14. SUBSEQUENT EVENTS

Following the year end, the Company issued 200,000 shares of
  common stock from the exercise of stock options for gross proceeds of $40,000.

F-21

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

Not applicable.

30 of 43

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PART III

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

Our executive officers and directors and their respective ages
as of September 20, 2005 are as follows:

DIRECTORS:

|Name of Director   | Age
|------------------ | ---
|Steven Vestergaard | 39 
|Edward Kolic       | 44 
|Lawrence J. Langs  | 44 
|Yoshitaro Kumagai  | 59 
|Wayne Koshman      | 43 

EXECUTIVE OFFICERS:

|Name of Officer    | Age | Office Held                                 
|------------------ | --- | --------------------------------------------
|Steven Vestergaard | 39  | President, Chief Executive Officer and Chief
|                   |     | Financial Officer                           
|Edward Kolic       | 44  | Secretary                                   

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

Steven Vestergaard.Mr. Vestergaard is our president,
chief executive officer and chief financial officer and is one of our directors.
Mr. Vestergaard has been our chief executive officer from May 1999, when we
began negotiations to purchase our operating subsidiary, Destiny Software, from
Mr. Vestergaard, to January 2001 and then again from February 2002 to present.
Mr. Vestergaards responsibilities include overall management of our business
and coordinating strategy, planning, and product development. Mr. Vestergaard
started Destiny Software as a private company owned by Mr. Vestergaard in 1991
and developed its business through to 1999 when it was acquired by us. At
Destiny Software, Mr. Vestergaard was responsible for overall business
management and supervision of the development of computer games. During this
period, Destiny Software was successful in the production of a dozen successful
video games, including Blood Bowl, Creepers and Dark Seed II, for major
publishers, including Microleague, Sony and MGM. In addition, Destiny Software
completed work under contract for innovative computer software projects,
including the development of the prototype for the first Internet casino and a
high performance HTTP server/ client test software suite for use in the
development of a proprietary web page caching machine. Mr. Vestergaard has been
involved in the software development industry since 1982 when he founded a
private company called Tronic Software. Tronic Software was a developer of
computer games which were sold by mail order. In 1990 he became employed as a
software engineer by Distinctive Software Inc., a company that later changed its
name to Electronic Arts Canada, where he was involved in developing game
products. Mr. Vestergaard holds an International Baccalaureate Degree and a
Bachelor of Science Degree in Computer Science from the University of British
Columbia.

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Edward Kolic. Mr. Edward Kolic has been one of our
directors since February 1999 and is our secretary. Mr. Kolic served as our
chief operating officer from February 1999 to October 2001 during which time he
was responsible for our overall product strategy and development of our core
technologies. Mr. Kolic currently consults to senior management of companies
developing Internet media technologies and distributing digital content. Mr.
Kolic has served as our secretary since February 1999. From 1997 until June of
1999, Mr. Kolic was the president of WonderFall Productions Inc., a computer
game development company built by Mr. Kolic and which we purchased in June 1999.
From 1993 until 1997, Mr. Kolic was a partner in a private company called
Jacqueline Conoir Designs Ltd. which is a fashion design house. At Jacqueline
Conoir Designs Ltd., Mr. Kolic was general manager and vice-president of
marketing and developed all of the marketing, communications and image
strategies for the company. From 1988 until 1995, Mr. Kolic was employed as the
president of Target Canada Production Ltd., a company engaged in the development
and distribution of educational video resources to the North American schools
market His experience includes the production of documentary television,
educational and information programming for the Canadian Educational Television
Networks, large screen interactive presentation media for international
conferences and a range of communication programs for corporate, government and
institutional clients.

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

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

Wayne Koshman. Mr. Koshman was appointed as one of our
directors on May 29, 2002. Mr. Koshman has been a director and the chief
executive officer of Terrawest Management Inc., a company engaged in mining and
exploration in China, from June 2002 to present. Mr. Koshman was the director of
GIS Technologies, a company engaged in the development of smartcard technology,
from November 2000 to March 2002. Mr. Koshman was a project consultant for
Zaatec Technologies Inc., a Japanese hard disk technology firm, from March 1999
to April 2000. Mr. Koshman was the head of corporate development for
international sales for Moduline Industries Ltd., a subsidiary of Champion
Industries, a large home manufacturer, from March 1998 to June 1999. Mr. Koshman
was

32 of 43

---

the international sales manager for Asia for Nortec Design
group from November 1996 to February 1998. Mr. Koshman is a founder of Skytech
Bio Conversion Inc., a biotechnology company working with the National Research
Council of Canada and the University of British Columbia on phase one trials of
microbial technology for treating organic solids.

SIGNIFICANT EMPLOYEE

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

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

ELECTION OF DIRECTORS AND OFFICERS

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

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

AUDIT COMMITTEE

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

COMPENSATION OF DIRECTORS

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

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

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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, 2005 all such filing requirements applicable to our officers and
directors were complied with.

ITEM 10. EXECUTIVE

COMPENSATION.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth certain compensation information
as to Mr. Steven Vestergaard, our chief executive officer. Mr. Vestergaard is
our sole named executive officer. None of our executive officers earned more
than $100,000 during our last fiscal year ended August 31, 2005. No person other
than Mr. Vestergaard acted as our chief executive officer during our last fiscal
year ended August 31, 2005. No other compensation was paid to Mr. Vestergaard
other than the compensation set forth below.

SUMMARY COMPENSATION
        TABLEANNUAL COMPENSATION
      LONG TERM COMPENSATIONName
      Title
      Year
      Salary
      Bonus
      Other Annual 
        Compensation
      AWARDS
      PAYOUTS
      All Other Compen-
        sationRestricted  Stock
        Awarded
      Options/
        SARs * (#)
      LTIP payouts 
        ($)Steven Vestergaard 
        (1), (2)
      Director 
        President 
        CEO, CFO
      2005
        2004
        2003
      $78,508$78,506$72,537
      0 
        0
        0
      0 
        0 
        0
      0 
        0 
        0
      0 
        0 
        0
      0
        0
        0
      0
        0
        0


Notes to Summary Compensation Table:

|(1) | All salaries paid to Mr. Vestergaard are paid in Canadian
      dollars.                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                   
|(2) | Compensation is stated in United States dollars and is
      based on an exchange rate of $0.8178 US dollars for each $1.00 Canadian
      dollar.

STOCK OPTION GRANTS

We granted 258,125 stock options to Mr. Vestergaard, our sole
named executive officers, during our most recent fiscal year ended August 31,
2005.

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EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION
VALUES

Mr. Vestergaard, our sole named executive officer, exercised
533,125 stock options but did not sell any common shares during our most recent
fiscal year ended August 31, 2005. The following is a summary of the share
purchase options exercised by our named executive officers during the financial
year ended August 31, 2005 and the year end values of outstanding options held
by our named executive officers:

AGGREGATED OPTION/SAR
      EXERCISES DURING THE LAST           
       FINANCIAL YEAR END AND FINANCIAL YEAR-END OPTION/SAR
      VALUESName (#)
      Common Shares Acquired on Exercise ($)
      Value Realized ($)
      Unexercised Options at Financial Year-End (#) exercisable /
      unexercisable
      Value of Unexercised
      In-The-Money Options/SARs at Financial Year-End ($)
      exercisable / unexercisableSteven Vestergaard 
        President CEO and CFO
      Director
      $172,000
      $226,979
      NIL
      NIL


LONG-TERM INCENTIVE PLANS

We do not have any long-term incentive plans.

35 of 43

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OUTSTANDING STOCK OPTIONS

The following table shows the issued and outstanding stock
options held by our officers and directors. No person known by us to
beneficially own more than 5% of our common stock as of November 25, 2005 holds
any stock options.

OUTSTANDING STOCK
      OPTIONSName
    Exercise Price
    No. of Options
    Date of Grant
    Vesting Date
    Expiry DateEdward Kolic Secretary Director
    $0.25 $0.25
    73,903 76,097
    Dec. 21, 2000Dec. 21, 2000
    Dec. 21, 2000Apr. 21, 2000
    Dec. 21, 2005 Dec. 21,
2005Wayne Koshman Director
    $0.25
    150,000
    May 29, 2002
    Vesting Monthly over 24 Month
      Period
    May 29, 2007Yoshitaro Kumagai Director
    $2.50$0.25$0.25
    25,000 100,00025,000
    Oct. 1,
      2000Aug. 23,
      2001Jan. 1,
      2004
    Nov. 1,
      2002Vesting Monthly
      over 25-Month PeriodImmediately
    Oct. 1,
      2005Sept. 23,
      2006Dec 31,
      2009Lawrence J. Langs Director
    $0.25 $0.25
    27,123 122,877
    Dec. 21, 2000 Dec. 21, 2000
    Dec. 21, 2000 May 21, 2001
    Dec. 21, 2005 Dec. 21, 2005


COMPENSATION ARRANGEMENTS

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

36 of 43

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

The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially as of November 25,
2005 by: (i) each person (including any group) known to us to own more than five
percent (5%) of any class of our voting securities, (ii) each of our directors
and each of our named executive officers, and (iii) officers and directors as a
group. Unless otherwise indicated, the shareholders listed possess sole voting
and investment power with respect to the shares shown.

Title of class
    Name and address of beneficial
      owner
    Number of Shares of Common
      Stock
    Percentage of Common
      Stock(1)DIRECTORS AND
      OFFICERS:Common Stock
    Steven Vestergaard President
      Chief Executive Officer and Chief Financial Officer
    9,038,155
    24.8%Common Stock
    Edward Kolic Secretary
      Director
    582,310 (2)
    1.6%Common Stock
    Lawrence J. Langs Director
    150,000 (3)
    0.4%Common Stock
    Yoshitaro Kumagai Director
    250,000 (4)
    0.7%Common Stock
    Wayne Koshman Director
    150,000 (5)
    0.4%Common Stock
    All Officers and Directors as a
      Group (5 persons)
    10,170,465
    27.9%5% SHAREHOLDERSNot applicable
    Not applicable
      Not applicable
      Not applicable


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

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|    | 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, 2005. As of November 25, 2005, there were 36,787,556shares of
      our common stock issued and outstanding.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(2) | Consists of 432,310 shares held by Mr. Kolic and 150,000
      shares that are immediately acquirable upon the exercise of stock options
      held by Mr. Kolic within 60 days of November 25, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(3) | Consists of 150,000 shares that are immediately
      acquirable upon the exercise of stock options held by Mr. Langs within 60
      days of November 25, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(4) | Consists of 100,000 shares held by Mr. Kumagai and
      150,000 shares that are immediately acquirable upon the exercise of stock
      options held by Mr. Kumagai within 60 days of November 25, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(5) | Consists of 150,000 shares that are immediately
      acquirable upon the exercise of stock options held by Mr. Koshman within
      60 days of November 25, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

CHANGE IN CONTROL

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

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EQUITY COMPENSATION PLAN INFORMATION

We have one equity compensation plan, namely our Amended 1999
Stock Option Plan, under which up to 3,750,000 shares of our common stock have
been authorized for issuance to our officers, directors, employees and
consultants. Our Amended 1999 Stock Option Plan has been approved by the
Companys stockholders. The following summary information is presented for our
1999 Stock Option Plan on an aggregate basis as of August 31, 2005.

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
    2,104,000 Shares of Common
      Stock
    $0.38 per Share
    415,375 Shares of Common StockEquity Compensation Plans Not Approved By
      Security Holders
    Not Applicable
    Not Applicable
    Not Applicable


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Except as described below, none of the following persons has
any direct or indirect material interest in any transaction to which we were or
are a party during the past two years, or in any proposed transaction to which
the Company proposes to be a party:

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

ACQUISITIONS OF BUSINESS ASSETS

No acquisitions occurred during the year.

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SHARE ISSUANCES

During the year ended August 31, 2005, other than shares issued
on exercise of options, no common shares were issued to any officers or
directors of the Company.

MANAGEMENT AGREEMENTS

As at August 31, 2005, no agreements existed with any member of
the management team.

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

(a) Exhibits

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

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(b) Reports on Form 8-K.

No reports on Form 8-K have been filed during the year ended
August 31, 2005.

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ITEM 14. CONTROLS AND PROCEDURES.

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

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

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SIGNATURES

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

DESTINY MEDIA TECHNOLOGIES, INC.

|By: | /s/ Steven Vestergaard                                   
|--- | ---------------------------------------------------------
|    | Steven Vestergaard, President                            
|    | Chief Executive Officer and Chief Financial
      Officer
|    | Director                                                 
|    | Date: November 29, 2005                                  

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

|By: | /s/ Steven Vestergaard                                              
|--- | --------------------------------------------------------------------
|    | Steven Vestergaard, President                                       
|    | Chief Executive Officer and Chief Financial
      Officer           
|    | (Principal Executive Officer)                                       
|    | (Principal Financial Officer and Principal
      Accounting Officer)
|    | Director                                                            
|    | Date: November 29, 2005                                             

|By: | /s/ Edward Kolic       
|--- | -----------------------
|    | Edward Kolic           
|    | Director               
|    | Date: November 29, 2005

|By: | /s/ Wayne Koshman      
|--- | -----------------------
|    | Wayne Koshman          
|    | Director               
|    | Date: November 29, 2005

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