UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

(Mark One)

x  Annual Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange Act Of 1934
For the fiscal year ended August 31, 2003

¨  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)

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

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

State issuer's revenues for its most recent fiscal year: $1,133,098

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)
$4,620,504 as of October 29, 2003

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

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

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DESTINY MEDIA TECHNOLOGIES INC.
FORM 10-KSB

INDEX

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PART I

FORWARD LOOKING STATEMENTS

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

CURRENCY

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

ITEM 1.            DESCRIPTION OF BUSINESS.

OVERVIEW

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

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

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

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

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

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

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

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

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

CORPORATE BACKGROUND

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

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

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

BUSINESS DEVELOMENT

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

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

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

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

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

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

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

OUR PRODUCTS

Clipstream™ Suite
http://www.clipstream.com

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

1.         Clipstream Audio™

2.         Clipstream Video™

3.         Clipstream Live™

4.         Clipstream Audiomail™.

5.         Clipstream IVR Server

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

Clipstream™ enables users to experience internet audio and video directly inside an email or web page. Competing technologies require users to download, install and configure a player. Users that haven’t downloaded the player can’t access the content. Because the Clipstream™ player is a Java applet and because Java is natively supported by most email and web browser clients, Clipstream™ content will play instantly for 97% of the audience. The content will play directly within an email or web page rather than in a separate window. This makes Clipstream™_uniquely well suited for advertising. Media companies can take video content intended for television and repurpose it in web pages and emails.

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

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

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

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

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

Radio Destiny Broadcaster and Destiny Media Player
http://www.pirateradio.com
http://www.stationdirectory.com

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

Our Radio Destiny software has been commercially available since 1996.

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

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

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

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

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

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

OUR TARGETED MARKETS

Clipstream™

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

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

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

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

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

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

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

PirateRadio

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

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

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

MPE

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

OUR REVENUE MODEL

Clipstream™ Products

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

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

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

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

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

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

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

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

Pirate Radio

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

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

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

MPE™

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

OUR MARKETING PLAN

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

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

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

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

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

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

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

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

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

OUR BUSINESS OPERATIONS

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

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

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COMPETITION

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

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

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

Our main competitor for MPE is Musicrypt.

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

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

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TRADEMARKS AND INTELLECTUAL PROPERTY

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

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

GOVERNMENT REGULATION

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

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RISK FACTORS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our Financial Results May Be Adversely Impacted By Currency Fluctuations.

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

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

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

Our Ability to Manage Growth.

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

Risk of System Failure and/or Security Risks.

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

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

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

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

Product Delays and Errors.

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

Online Commerce Security Risks.

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

International Operations.

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

Dividend Policy.

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

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

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

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

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

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

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

ITEM 2.            DESCRIPTION OF PROPERTY.

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

ITEM 3.            LEGAL PROCEEDINGS.

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

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

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

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

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

No matters were submitted to our security holders for a vote during the fourth quarter of our fiscal year ending August 31, 2003.

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PART II

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

Market Information

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

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

Holders of Common Stock

As of October 29, 2003, we had 33,003,598 shares of our common stock outstanding and there were 111 registered shareholders of our common stock.

Dividends

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

Recent Sales of Unregistered Securities

During our fiscal year ended August 31, 2003, we completed the sales of the following securities that were not registered pursuant to the Securities Act of 1933 (the “Securities Act”):

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

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

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

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

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

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

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

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

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

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

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

RESULTS OF OPERATIONS

Revenue

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

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

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

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

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

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Operating Expenses

General and Administrative. Our general and administrative expenses consist primarily of salaries and related personnel costs including overhead, professional fees, and other general office expenditures. General and administrative costs decreased to $370,189 for the year ended August 31, 2003 from $456,827 for the year ended August 31, 2002, a decrease of $86,638 or 19%. The decrease is primarily due the concerted efforts of our management to reduce all unnecessary expenditures. We have encouraged all departments to scrutinize expenditures and pursue favorable arrangements with key suppliers where possible.

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

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

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

Other earnings and expenses

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

Losses

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

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

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

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

LIQUIDITY AND FINANCIAL CONDITION

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

Working Capital Deficiency

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

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

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

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

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

Cash Flows

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

We have financed our operations to date primarily through the sale of equity securities and borrowings from shareholders. When possible, we have issued common stock for services and debt settlement. We continued these financing activities through the year ended August 31, 2003 as our revenues to date have provided insufficient funding for our working capital requirements. Accordingly, we anticipate that we will have to continue to rely on funding from private placements, cash flows and other offerings in order to finance our future operating costs.

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

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

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Going Concern

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

CRITICAL ACCOUNTING POLICIES

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

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

• The consolidated financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. If we were not to continue as a going concern, we would likely not be able to realize on our assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the consolidated financial statements. There can be no assurances that we will be successful in generating additional cash from equity or other sources to be used for operations. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
   
• We recognize revenue when there is persuasive evidence of an arrangement, delivery has occurred, the fee is fixed or determinable, collection is reasonably assured, and there are no substantive performance obligations remaining. Our revenue recognition policies are in conformity with AICPA’s Statement of Position No. 97-2, “Software Revenue Recognition”, as amended (“SOP 97-2). We generate revenue from software arrangements involving multiple element sales arrangements. Revenue is allocated to each element of the arrangement based on the relative fair value of the elements and is recognized as each element is delivered and we have no significant remaining performance obligations. If evidence of fair value for each element does not exist, all revenue from the arrangement is recognized over the term of the arrangement. To-date, evidence of fair value for each element has not been available on sales arrangements. Changes in our business priorities or model in the future could materially impact our reported revenue and cash flow. Although such changes are not currently contemplated, they could be required in response to industry or customer developments.

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ITEM 7.            FINANCIAL STATEMENTS.

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

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

Not applicable.

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PART III

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

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

DIRECTORS:

EXECUTIVE OFFICERS:

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

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

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

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

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

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

Wayne Koshman. Mr. Koshman was appointed as one of our directors on May 29, 2002. Mr. Koshman has been a director and the chief executive officer of Terrawest Management Inc., a company engaged in mining and exploration in China, from June 2002 to present. Mr. Koshman was the director of GIS

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Technologies, a company engaged in the development of smartcard technology, from November 2000 to March 2002. Mr. Koshman was a project consultant for Zaatec Technologies Inc., a Japanese hard disk technology firm, from March 1999 to April 2000. Mr. Koshman was the head of corporate development for international sales for Moduline Industries Ltd., a subsidiary of Champion Industries, a large home manufacturer, from March 1998 to June 1999. Mr. Koshman was the international sales manager for Asia for Nortec Design group from November 1996 to February 1998. Mr. Koshman is a founder of Skytech Bio Conversion Inc., a biotechnology company working with the National Research Council of Canada and the University of British Columbia on phase one trials of microbial technology for treating organic solids.

SIGNIFICANT EMPLOYEES

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

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

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

ELECTION OF DIRECTORS AND OFFICERS

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

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

AUDIT COMMITTEE

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

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COMPENSATION OF DIRECTORS

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

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

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ITEM 10.            EXECUTIVE COMPENSATION.

COMPENSATION OF EXECUTIVE OFFICERS

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

Notes to Summary Compensation Table:

STOCK OPTION GRANTS

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

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EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

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

LONG-TERM INCENTIVE PLANS

We do not have any long-term incentive plans.

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OUTSTANDING STOCK OPTIONS

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

COMPENSATION ARRANGEMENTS

We currently pay to Mr. Vestergaard a salary of $96,315 Canadian (equal to approximately $73,537 US) per year. We are not party to any written employment agreement with Mr. Vestergaard. We do not have any agreements with Mr. Vestergaard regarding the payments of bonus or other performance incentives. Mr. Vestergaard is eligible to receive stock options as and when approved by our board of directors.

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

The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of October 29, 2003 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors and each of our named executive officers, and (iii) officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.

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CHANGE IN CONTROL

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

EQUITY COMPENSATION PLAN INFORMATION

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

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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:

ACQUISITIONS OF BUSINESS ASSETS

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

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

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

SHARE ISSUANCES

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

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

MANAGEMENT AGREEMENTS

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

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

(a) Exhibits

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

(b)       Reports on Form 8-K.

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

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

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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.

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.

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F-1

Grant Thornton LLP
Chartered Accountants

MANAGEMENT CONSULTANTS

Independent Auditors' Report

The Shareholders
Destiny Media Technologies Inc.

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

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

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

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the financial statements, the Company has incurred recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Destiny Media Technologies Inc.

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

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

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

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the financial statements, the Company has incurred recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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

signed “KPMG LLP”

Chartered Accountants

Vancouver, Canada
October 11, 2002

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

August 31, 2003 and 2002

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

See accompanying notes to consolidated financial statements.

F-4

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

Years ended August 31, 2003 and 2002

See accompanying notes to consolidated financial statements.

F-5

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

See accompanying notes to consolidated financial statements.

F-6

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

Years ended August 31, 2003 and 2002

See accompanying notes to consolidated financial statements.

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