FORWARD LOOKING STATEMENTS

The following discussion should be read in conjunction with the accompanying financial statements and notes thereto included within this Quarterly Report on Form 10-Q. In addition to historical information, the information in this discussion 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 the Company'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 described in this Quarterly Report, including the risk factors accompanying this Quarterly Report, and, from time to time, in other reports the Company files with the Securities and Exchange Commission. These factors may cause the Company's actual results to differ materially from any forward-looking statement. The Company 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.

OVERVIEW AND CORPORATE BACKGROUND

Destiny Media Technologies Inc. ("Destiny Media") is a holding company which owns 100% of the outstanding shares of Destiny Software Productions Inc. and MPE Distribution, Inc. The "Company", "Destiny" or "we" refers to the consolidated activities of all three companies.

Destiny develops software tools and provides services which enable content owners to distribute their digital media globally using the internet. All Destiny technologies are developed by internal staff, are proprietary and are owned by the company.

Content can be accessed in either a transient manner (TV, radio) or it can be owned locally by the consumer (DVD's, CD's). Destiny provides media owners both approaches over the internet through two product lines:

A) MPEŽ Suite of Products

MPEŽ products are powered by two patent pending technologies that give content owners a choice of either locking their content so securely to a recipient machine that it is impossible to copy or giving the end user the ability to copy, but putting a forensic trace into the content that tracks where illegal copies originate. The first patent was granted in December 2008. The second patent was published in April and is expected to be considered by the USPTO by the end of fiscal 2009.

The initial focus for MPEŽ has been on the music industry, but the security can be expanded to perform as "digital shrinkwrap" to secure other content types. Already, the music industry uses the system to deliver graphics, videos, documents and other non audio content types.

MPEŽ products include:

Play MPE™: over 1,000 record labels use this service to deliver pre-release music and music videos to trusted recipients including radio station program directors, music buyers, record label staff and the media. Over 100,000 songs have been sent through this system.

http://www.plaympe.com

http://www.myplaympe.com

PODDS: a complete software suite to set up to securely sell music online. Includes encoding modules, accounting modules and the player software. This software can be utilized in an OEM agreement to set up third party online music stores. In addition, Destiny has set up its own store to sell music to commercial users in Canada (DJ's, online jukeboxes, etc.) Destiny has an encoded catalog of 12,000 songs and album artwork under license from the four major record labels in Canada.

http://www.podds.ca

The Play MPEŽ system, which represented most of the Company's revenue in the three months ended November 2008, enables a content owner to securely move electronic files (song, videos etc.) through the Internet to a trusted end user.

B) ClipstreamŽ Suite of Products

ClipstreamŽ 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 ClipstreamŽ player is a Java applet and because Java is natively supported by most email and web browser clients, ClipstreamŽ content will play instantly for 98% of the audience. The content will play directly within an email or web page rather than in a separate window. This makes ClipstreamŽ uniquely well suited for applications where reach is important. For example, media companies can take video content intended for television and repurpose it in web pages and emails, and market research companies can get a much higher response rate.

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

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

ClipstreamŽ products and solutions include:

ClipstreamŽ: embeds high fidelity audio and video on demand into web pages and emails http://www.clipstream.com, http://www.streamingaudio.com

ClipstreamŽ Live: embeds live video stream into web pages and emails http://live.clipstream.com

ClipstreamŽ IPTV: users can view TV and change channels remotely http://live.clipstream.com

ClipstreamŽ Audiomail: converts audio left on a telephone answering machine into an audio clip http://www.audio-mail.com

ClipstreamŽ Survey Solutions: secure video questionnaires prevent piracy and feature high view rates http://www.surveyclip.com

ClipstreamŽ Advertising Solutions: TV style video commercials and rich media banner ads http://www.clipstreamad.com

ClipstreamŽ Server Solutions: servers to power hosted sites

Radio Destiny: Software and network to broadcast internet radio from a home computer http://www.radiodestiny.com, http://www.pirateradio.com, http://www.stationdirectory.com

Destiny Media Technologies, Inc. was incorporated in August 1998 under the laws of the State of Colorado.

We carry out our business operations through our wholly owned subsidiary, Destiny Software Productions Inc., a British Columbia company that was incorporated in 1992, and MPE Distribution, Inc. a Nevada company that was incorporated in 2007.

Our principal executive office is located at #800-570 Granville Street, Vancouver, British Columbia V6C 3P1. Our telephone number is (604) 609-7736 and our facsimile number is (604) 609-0611.

We are a publicly traded company. Our common stock trades on the OTC Bulletin board under the symbol "DSNY" and on various German exchanges (Frankfurt, Berlin, Stuttgart and Xetra) under the symbol "DME" 935 410.

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

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2008

Revenue

Total revenue has grown by 55% over the same quarter in the prior year to $554,561 (2007 - $356,648), by 12% over the previous quarter, and represents the eighth consecutive quarter of revenue growth. This is the 5th consecutive quarter in which revenue is the highest in the Company's history.

Our growth in revenue is driven by the growth in our Play MPEŽ system, where access fees have grown by 80% over the same period last year and by 17% over the previous quarter to a total of approximately $470,000 for the quarter.

In fiscal 2008, we ceased pilot usage of the Play MPEŽ system and have continued to see an increase in revenue reaching our thirteenth straight quarter of revenue growth for the Play MPEŽ system access. Over the course of fiscal 2008, we entered into and expanded our commercial agreements, adding EMI and Warner Music Group (our second and third US Major Record Labels respectively), several sub-labels of Sony BMG and hundreds of independent record labels in the US. Additionally we renewed our agreement with Universal Music Group and have several sub-labels of Sony BMG on a 'pay-as-you-go' basis.

Also during fiscal 2008 we expanded the commercial use of Play MPEŽ into Europe with the addition of contracts with Universal Music Group, Warner and Sony BMG in Sweden. Warner Sweden was subsequently expanded to include Finland and Norway.

The increase in Play MPEŽ revenue during the first quarter of 2009 was the result of increases across the spectrum of our client base. The growth has been realized across formats, through existing clients, and through new clients in new geographic areas and includes; a 17% increase in North American Major Record Label revenue, a 40% increase in North American independent record label revenue, a 53% increase in Northern European revenue, expansion into Australia, and revenue from two Major Record Labels rolling out international pilots in new territories.

The expansion into Australia commenced with the commercial use of Play MPEŽ by Warner Australia. It is anticipated that agreements with Universal Music Group (Australia) and EMI (Australia) as well as additional independent clients in Australia will be added to our revenue base in the second quarter.

We anticipate revenue from Play MPEŽ to continue to increase into the foreseeable future as the system becomes established in additional countries worldwide and increases in use by existing customers are realized. The music industry has begun to use Play MPEŽ in some markets as the primary distribution method and Play

Management expects to expand usage of video distribution through Play MPEŽ in 2009 and to provide video streaming capabilities to the industry through our new automated ClipstreamŽ hosted solution, anticipated to launch in March. Approximately 14% of our revenues are derived from sales of our ClipstreamŽ software. Sales of our Clipstream software have improved marginally over the average quarterly sales in the prior year.

Operating Expenses

Operating expenditures have decreased over the previous quarter by approximately 11% and by 44% over the previous year. The strengthening of the US dollar has some influence on our operating expenditures and has resulted in a decrease of approximately 8-10%. We anticipate the favorable exchange rates to result in further reductions to expenses into our second quarter.

The establishment of the Play MPEŽ product on a commercial basis and maturity of the product on a technical basis has also resulted in reduced staffing requirements. These reductions do not currently impact the first quarter operating expense but it is anticipated these changes will result in decreased operating expenses in our second quarter.

Included in our expenses are non-cash amortization and stock compensation expense of $38,752 (2007 - $117,879) leading to a net loss before non-cash items of $44,791. It is anticipated that the trend of increasing revenue and declining expenditures realized in each of the past several quarters will continue through our second quarter and will result in positive cash flow and positive net income.

At the end of fiscal 2007 we moved offices due to a proposed rent increase and to accommodate anticipated growth in staff. We were able to secure approximately double the square footage for approximately the same cost as the proposed rent increase. The new space is sufficiently large and efficient to accommodate our growth while providing some space to sub-lease. The rent expense of $70.811 is offset by our sub-lease rental income of $18,188 which is included in "Other income'' in the Statement of Operations.

General and administrative    November 30 November 30        $     %
                                 2008        2007      Change    Change
                              (3 months)  (3 months)
     Wages and benefits            99,522      97,768     1,754     1.8%
     Rent                          17,703      13,435     4,268    31.8%
     Telecommunications             4,829       5,687     (858)  (15.1%)
     Bad debt                      20,847       4,956    15,891   320.6%
     Office and miscellaneous     (5,673)     100,426 (106,099) (105.6%)
     Professional fees             45,156      96,614  (51,458)  (53.3%)
                                  182,384     318,886 (141,611)  (42.8%)

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

The decrease in office and miscellaneous is due to the reduction in investor relations fees, and due to a one time application fee paid in the prior year. Additionally, foreign exchange gains were realized on various balances which are denominated in Canadian dollars.

A reduction in professional fees is due to a reduction of the volume of legal work associated with securities, litigation, contracts, and patents and trademarks work.

Sales and marketing            November 30 November 30     $        %
                                  2008        2007      Change   Change
                               (3 months)  (3 months)
     Wages and benefits            143,094     167,501  (24,407) (14.6%)
     Rent                           20,498      22,128   (1,630)  (7.4%)
     Telecommunications              5,591       9,367   (3,776) (40.3%)
     Meals and entertainment           553       4,639   (4,086) (88.1%)
     Travel                          9,950      17,556   (7,606) (43.3%)
     Advertising and marketing      75,234     264,603 (189,369) (71.6%)
                                   254,920     485,794 (230,874) (47.5%)

Sales and marketing expenses consist primarily of salaries and related personnel costs including overhead, sales commissions, advertising and promotional fees, and travel costs.

The majority of this decrease was due to the decrease in marketing expenditures. During the first quarter of last year, we significantly expanded our marketing and advertising efforts for Play MPEŽ. During our first quarter of fiscal 2009, Play MPEŽ has received significant support from the world's largest record labels resulting in cost effective and organic marketing efforts and demand on higher costs marketing efforts has decreased.

With the addition of partnering opportunities, advertising and marketing costs could decrease or be reallocated to new markets on an as needed basis.

Research and development November 30 November 30     $         %
                            2008        2007      Change     Change
                         (3 months)  (3 months)
     Wages and benefits      183,330     316,309 (132,979)    (42.0%)
     Rent                     32,610      43,465  (10,855)    (25.0%)
     Telecommunications        8,895      18,399   (9,504)    (51.7%)
                             224,835     378,173 (153,338)    (40.5%)

Research and development costs consist primarily of salaries and related personnel costs including overhead and consulting fees with respect to product development and deployment. The decrease is mainly due to decreased staffing and consulting requirements due to the technical maturity of the Play MPEŽ product.

Amortization

Amortization expense arose from fixed assets and other assets. Amortization decreased to $7,937 for the three months ended November 30, 2008 from $9,801 for the three months ended November 30, 2007, a decrease of $1,864 or 19%.

Other earnings and expenses

Other income increased to $32,137 for the three months ended November 30, 2008 and reflects rent collected from sub-leases of our office space.

Interest income decreased to $791 for the three months ended November 30, 2008 from $10,266 for the three months ended November 30, 2007, a decrease of $9,475.

Interest expense decreased to $956 for the three months ended November 30, 2008 from $4,048 for the three months ended November 30, 2007, a decrease of $3,092.

Our net loss decreased by 90% from the same quarter in the previous year. With continued growth in revenue and anticipated reductions in costs mentioned above it is anticipated that this trend will continue.

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $151,636 as at November 30, 2008 compared to cash of $91,369 as at August 31, 2008. We had a working capital deficiency of $106,770 as at November 30, 2008 compared to a working capital deficiency of $192,772 as at August 31, 2008. Both our cash position and our working capital deficiency have improved during the quarter and this trend is expected to continue as a result of anticipated increases to revenue and anticipated decreases to operating expenses.

CASHFLOWS

Operating

Net cash used in operating activities decreased to $13,008 for the three months ending November 30, 2008, compared to $512,889 for the three months ended November 30, 2007 as a result of increasing revenues, and efficiencies pursued by management which has resulted in declining costs.

Investing

There was no net cash used in investing activities during the three months ended November 30, 2008, as compared with $22,330 used in investing activities for the three months ended November 30, 2007.

Financing

Net cash provided from financing activities increased to $85,226 during the three months ended November 30, 2008, as compared to $96,521 used in financing activities over the same period in the prior year.

Going Concern

During the three month ended November 30, 2008, the Company has continued to implement its business plan of increasing revenue through the expansion of our products into new geographic areas and through increased usage by existing customers for its Play MPEŽ system. The Company is pursuing transaction fee based agreements with other large record labels, and has also developed an "Indie Uploader" system for smaller labels available on www.myplaympe.com.

The Company is encouraged by its revenue growth through fiscal 2008 and into the first quarter of fiscal 2009. Management expects revenues and cashflows to continue to improve and to extend the Company's trend of eight consecutive quarters of revenue growth throughout fiscal 2009 as its customers incorporate Play MPEŽ into their work flow and as Play MPEŽ expands globally. Management is expanding the use of Play MPEŽ globally and has established commercial agreements on a global basis with two of the four largest record labels in the world, and anticipates the trend of increased revenue to continue through increased revenue from new and existing customers in North America and in overseas markets. Management also anticipates further reductions in expenditures from favorable foreign exchange rates and previously reduced staffing levels which have not yet resulted in reduced expenses on the financial statements. The Company is also currently negotiating a partnering agreement which could result in a significant reduction in current marketing expenditures and act as a catalyst to worldwide expansion.

The Company will need to raise additional funds to complete its business plan due to its significant working capital deficiency. The Company's goal is to obtain these funds through internal and external financing sources including cash flows from operations, strategic partnerships, equity financings and shareholder loans. There are no assurances that the Company will be successful in achieving these goals.

In view of these conditions, the ability of the Company to continue as a going concern is in doubt. The accompanying financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.

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.

ē 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.

ē 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. 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.