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) MPE® Suite of Products

MPE® products are powered by a patented technology that gives content owners the option to lock their content so securely to a recipient machine, and making the digital file impossible to copy. Additionally, MPE® has a patent pending on an additional security feature which permits the copying of the digital file 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 2008 and is expected to be considered by the USPTO sometime in the next fiscal year.

The initial focus for MPE® 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.

MPE® products include:

Play MPE™: over 1,000 record labels use this service to deliver pre-release music and music videos to trusted

http://www.plaympe.com

MyPlayMPE: a self service system for smaller independents to distribute music and music videos through Play MPE®

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 MPE® system, which represented most of the Company's revenue in the nine months ended May 31, 2009, enables a content owner to securely move electronic files (song, videos etc.) through the Internet to a trusted end user.

B) Clipstream® Suite of Products

Clipstream® enables users to experience internet audio and video directly inside an email or web page. Competing technologies require users to download, install and configure a player. Users that haven't downloaded the player can't access the content. Because the Clipstream® player is a Java applet and because Java is natively supported by most email and web browser clients, Clipstream® content will play instantly for 98% of the audience. The content will play directly within an email or web page rather than in a separate window. This makes Clipstream® uniquely well suited for applications where reach is important. For example, media companies can take video content intended for television and repurpose it in web pages and emails, and market research companies can get a much higher response rate.

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

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

Clipstream® products and solutions include:

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

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

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

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

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

Clipstream® Server Solutions: servers to power hosted sites http://www.clipstreamserver.com

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 NINE MONTHS ENDED MAY 31, 2009

Revenue

For the quarter, our revenues increased to $665,829 representing an increase of 80% over the same quarter in the prior year. Play MPE™ system access fees have more than doubled over the same period in fiscal 2008. Play MPE™ has grown sufficiently to realize positive income for quarter.

Total revenue for the nine month period ending May 31 2009 has grown by 56% over the prior year to $1,687,878 (2008 - $1,085,555). The growth in revenue is driven by the growth in our Play MPE® system, where access fees have grown by 87% over the same period last year.

The increases in revenue from Play MPE™ has been realized across the spectrum of our customer base and has continued since we ceased pilot usage of the Play MPE™ system at the beginning of the prior fiscal year. Over the course of fiscal 2009, we added Warner Music Group and Universal Music Group International to our major label agreements which already included EMI and Universal Music Group (US).

During the nine months ended May 31, 2009 we have expanded into Australia commenced with the commercial use of Play MPE® by Warner Australia, Universal Music Group (Australia) and EMI (Australia) as well as many additional independent clients in Australia.

The growth in third quarter revenue over our second quarter has been realized across formats, through existing clients, and through new clients in new geographic areas and includes; a 25% increase in North American Major Record Label revenue, a 35% increase in North American independent record label revenue, a 416% increase in European based revenue, and a 60% increase in Australasia revenue expansion.

The music industry has begun to use Play MPE® in some markets as the primary distribution method and Play MPE® is the world leader in secure digital distribution. We have seen the transition from traditional distribution methods to Play MPE® begin gradually and the growth seen in 2008 has continued into 2009.

Operating Expenses

Operating expenditures for the nine months ended May 31 2009 has decreased by 43% over the same period in the prior year to $1,855,140 (2008 - $3,237,460). The strengthening of the US dollar has some influence on our operating expenditures and has resulted in a decrease of approximately 12-14%.

The establishment of the Play MPE® product on a commercial basis and maturity of the product on a technical basis has also resulted in reduced staffing requirements. These reductions result in decreased operating expenses for the nine months ended May 31 2009.

Included in our expenses are non-cash amortization and stock compensation expense of $63,696 (2008 -$215,279) leading to a net loss before non-cash items of $15,248 for the nine months ended May 31 2009. Our current level of expenditures is sufficient to adequately service our North American revenue. The increases in revenue will come with added costs for support, marketing, servers and bandwidth. However we anticipate that these increases in costs will not be significant in relation to the anticipated revenue increase.

The rent expense of $206,153 is offset by our sub-lease rental income of $68,327 which is included in "Other income'' in the Statement of Operations.

General and administrative        31-May         31-May          $           %
                                   2009           2008         Change      Change
                                (9 months)     (9 months)
     Wages and benefits            271,166        312,260      (41,094 )   (13.2% )
     Rent                           52,773         42,973        9,800      22.8%
     Telecommunications             15,880         14,041        1,839      13.1%
     Bad debt                       15,804          6,748        9,056     134.2%
     Office and miscellaneous       45,945        186,459     (140,514 )   (75.4% )
     Professional fees             139,086        275,904     (136,818 )   (49.6% )
                                   540,654        838,385     (297,731 )   (35.5% )

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.

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                28-Feb         29-Feb          $           %
                                    2009           2008         Change      Change
                                 (9 months)     (9 months)
     Wages and benefits             288,532        510,775     (222,243 )   (43.5% )
     Rent                            53,699         67,460      (13,761 )   (20.4% )
     Telecommunications              16,159         22,041       (5,882 )   (26.7% )
     Meals and entertainment            658         17,805      (17,147 )   (96.3% )
     Travel                          36,895         66,805      (29,910 )   (44.8% )
     Advertising and marketing      238,313        560,034     (321,721 )   (57.4% )
                                    634,256      1,244,920     (610,664 )   (49.1% )

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 nine months ended May 31, 2008, we significantly expanded our marketing and advertising efforts for Play MPE®. During the nine months ended May 31, 2009, Play MPE® has received significant support from the world's largest record labels resulting in cost effective and organic marketing efforts and the need for higher cost 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          28-Feb         29-Feb          $           %
                                   2009           2008         Change      Change
                                (9 months)     (9 months)
     Wages and benefits            512,203        947,779     (435,576 )   (46.0% )
     Rent                           99,682        130,433      (30,751 )   (23.6% )
     Telecommunications             29,996         42,617      (12,621 )   (29.6% )
     Research and development       10,942              -       10,942       100%
                                   652,823      1,120,829     (478,948 )   (42.7% )

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 MPE® product.

Amortization

Amortization expense arose from fixed assets and other assets. Amortization decreased to $27,407 for the nine months ended May 31, 2009 from $33,326 for the nine months ended May 31, 2008, a decrease of $5,919 or 18%.

Other earnings and expenses

Other income decreased to $72,877 for the nine months ended May 31, 2009 from $73,499 for the nine months ended May 31, 2008, an decrease of $622.

Interest income decreased to $2,964 for the nine months ended May 31, 2009 from $15,451 for the nine months ended May 31, 2008, a decrease of $12,487.

Gain on settlement of debt increased to $15,008 for the nine months ended May 31, 2009 from $0 for the nine months ended May 31, 2008, an increase of $15,008.

Net income (loss)

During the quarter, we began to realize positive net income from operations and began to generate surplus cash. Management believes this is an inflection point for the Company and represents the beginning of profitability and positive cash flow. The current quarter's profit was not sufficient yet for the positive income for the nine months ended May 31, 2009. Our net loss for this period has decreased by 96% from the same period in the previous year.

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $150,684 as at May 31, 2009 compared to cash of $91,369 as at August 31, 2008. We had a working capital deficiency of $125,967 as at May 31, 2009 compared to a working capital deficiency of $192,772 as at August 31, 2008. During the quarter, the Company was required to pay a retainer to counsel in respect of the new litigation that was served on May 12, 2009 and outlined in Note 7 to the financial statements. Our third quarter resulted in positive cash flow from operations, and positive net income after considering costs and cash disbursements associated with our US litigation. The Company anticipates that both our cash position and our working capital deficiency will continue to improve during the fourth quarter as a result of anticipated increases to revenue.

CASHFLOWS

Operating

Net cash generated from operations during the quarter was $93,082 which has partially reversed the amount used in operations during the first half of the year, reducing the total amount used in the nine month period ending May 31, 2009 to $38,125 compared to $1,542,910 for the nine months ended May 31, 2008.

Investing

Net cash used in investing activities during the nine months ended May 31, 2009 was $18,280, as compared with $43,861 used in investing activities for the nine months ended May 31, 2008.

Financing

Net cash provided from financing activities decreased to $119,565 during the nine months ended May 31, 2009, as compared to $434,007 used in financing activities over the same period in the prior year.

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.

º 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.

º 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.