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

FORM 10-QSB

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _______

Commission file number: 0-028259

DESTINY MEDIA TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

1055 West Hastings Street, Suite 1040, Vancouver,
British Columbia Canada V6E 2E9
(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (604) 609-7736

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months and (2) has been subject to the above filing requirements for the past 90 days.

Yes ý    No o

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 36,434,223 Shares of $0.001 par value common stock outstanding as of May 31, 2005.

Transitional small business disclosure format (check one):

Yes o     No ý

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

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Interim Consolidated Financial Statements
(Expressed in United States dollars)

DESTINY MEDIA TECHNOLOGIES INC.

Nine months ended May 31, 2005

(Unaudited)

See accompanying notes to interim consolidated financial statements.

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See accompanying notes to interim consolidated financial statements.

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See accompanying notes to interim consolidated financial statements.

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See accompanying notes to interim consolidated financial statements.

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Of the total options outstanding at May 31, 2005, 1,895,000 (August 31, 2004 – 2,525,000) were granted to employees and 492,000 (August 31, 2004 – 602,000) were granted to non-employees of the Company. The compensation expense related to options granted to non-employees was $10,535 for the nine months ending May 31, 2005 (May 31, 2004 – $70,361) and $6,321 for the 3 months ending May 31, 2005 (May 31, 2004 - $19,921), calculated in accordance with SFAS 123

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

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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-QSB. 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

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 innovative technologies which facilitate the distribution of digital media content. All four technologies discussed below are commercially mature and ready for market.

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

In October 2004, the company released an adapted version of MPE^TM which facilitates the transfer of music from the recording industry to radio stations and trusted users. We have begun recognizing revenue associated with this new version of MPE^TM during the first three quarters of fiscal 2005 during the pilot phase of implementation. Management anticipates that revenues will grow significantly as the system gains acceptance by the industry.

Pirate Radio sales are also expected to continue and management 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.

PLAN OF OPERATIONS

During our fiscal year ending August 31, 2005, management will focus on the introduction of our MPE^TM digital music distribution system into full time commercial use. We anticipate that our MPE^TM technology will be integrated into third party products. We will continue to market the MPE^TM digital rights management system to the recording industry.

We have entered into a pilot program and license agreement with the Universal Music Group (“UMG”). UMG will use the MPE^TM system to securely distribute new music tracks to radio and trusted users. We have completed the pilot phase of the agreement on May 31, 2005 and negotiations of our license agreement are on-going.

Historically our largest source of revenue has been our Clipstream^TM suite of products. Management believes that our Clipstream^TM suite of products has significant advantages over other competitors in the industry. Through increased expenditures on sales and marketing, management anticipates an increase in revenue as awareness of our products expands. We also anticipate the launch of new versions of various products in the Clipstream^TM Suite and are currently pursuing opportunities to expand the uses of our technology in association with existing technologies such as Java based cellular phones.

We will continue to sell the Pirate Radio suite online and through Amazon.com. We will also market this internet radio broadcast system to private radio networks and retail channels.

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OPERATING RESULTS

Nine Months Ended May 31, 2005

OPERATING RESULTS

Revenue

Revenue for the nine months ending May 31, 2005 has increased over the same period in the prior fiscal year by approximately 1%. Sales of Clipstream^TM have declined over the same period last year while our MPE^TM technology has resulted in the overall increase.

Revenue associated with our Clipstream ^TM suite of products continues to represent the majority our sales at approximately 85% for the quarter just ended while revenue associated with our MPE^TM technology will represent a significant growth area. During the quarter ending May 31, 2005, revenues decreased 32% from our second quarter ending February 28, 2005 due to a decrease in Clipstream^TM suite of products.

Operating Expenses

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

General and administrative expenses decreased to $299,098 for the nine months ended May 31, 2005 from $388,274 for same period in 2004. The decrease is due primarily to a one-time charge of approximately $80,000 for corporate initiatives relating to promotional and business development activities incurred in fiscal 2004.

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

Sales and marketing expenses remained relatively consistent with the same period in the prior year. The company has incurred travel expenses associated with negotiating contracts with various customers for use of our MPE^TM technology and remains committed to expanding the awareness of our Clipstream^TM suite of products. The decrease in salaries and wages corresponds to a decline in commission costs.

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 expenses remained relatively consistent for the same period in the prior year.

Increases in costs associated with less favorable US dollar exchange rate are offset by the capitalization of certain development costs associated with our MPE^TM technology.

Depreciation and Amortization. Depreciation and amortization expenses arose from equipment and other assets. Depreciation and amortization increased to $49,513 for the nine months ended May 31, 2005 as compared to $31,680 for the nine months ended May 31, 2004, an increase of $17,833 or 56%.

The increase in depreciation and amortization is due to the capitalization (and subsequent amortization) of development costs associated with our MPE^TM technology. We began depreciating the development costs in the first quarter of 2005, as this digital transmission system was ready for use in our pilot program with UMG and was generating income.

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Other Income and Expenses

In the prior year, a gain on extinguishment of debt amounted to $79,215 for the nine months ended May 31, 2004. In 2004, we were successful in negotiating a reduction in fees associated with past services provided by various professionals and our telecommunications carrier. Interest and other income amounted to $12,205 for the nine months ended May 31, 2004 compared to $67 for the same period ended May 31, 2005. In 2004 we had rented part of our office space while in 2005 this space was used by the Company. These balances consisted primarily of rental revenue realized on vacant office space sublet during the prior period. No rental revenue was realized in the period ending May 31, 2005.

Income (loss) from operations

Loss from operations for the quarter ended May 31, 2005 was $143,737 compared to $115,457 for the same quarter ending May 31, 2004.

Loss from operations for the nine months ended May 31, 2005 was $340,190 compared to a loss of $332,404 for the same period ending May 31, 2004. Revenue associated with MPE^TM has begun to grow but is still at preliminary levels and was insufficient to generate a positive net income for the period.

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $664 as at May 31, 2005 compared to cash of $17,523 as at August 31, 2004. We had a working capital deficiency of $482,862 as at May 31, 2005 compared to $407,872 as at August 31, 2004. We had a shareholders’ deficiency of $468,554 as at May 31, 2005 compared to a shareholders’ deficiency of $420,316 as at August 31, 2004.

CASHFLOWS

Operating

Net cash used in operating activities increased to $394,599 for the nine months ending May 31, 2005, compared to $264,453 for the nine months ended May 31, 2004.

Investing

The company invested $56,993 in the purchase of equipment and software development for the nine months ending May 31, 2005 compared to $8,400 for the same period ending May 31, 2004. The increase is due to the development of our music digital delivery system.

Financing

During the first nine months of fiscal 2005, we received $293,177 from the exercise of 1,018,125 options. Additionally, the company received net proceeds of $138,330 from shareholder loans.

Going Concern

We have incurred recurring losses from operations and we have a working capital deficiency. As a result, substantial doubt exists about the company’s ability to continue as a going concern. Operations to date have been primarily financed by equity transactions. Depending on our ability to continue to grow sales and related cash flows, we will need additional capital through public or private financings that may not be available on reasonable terms. Accordingly, we will require the continued financial support from 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 predecessor auditors have referred to the substantial doubt about our ability to continue as a going concern in their audit report on

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our financial statements included with our Annual Report on Form 10-KSB for our fiscal year ended August 31, 2004.

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.
   
• Costs incurred internally to develop computer software products and the costs to acquire externally developed software products (which have no alternative future use) to be sold, leased or otherwise marketed are charged to expense until the technological feasibility of the product has been established. After technological feasibility is established and until the product is available for general release, software development, product enhancements and acquisition costs are capitalized and amortized on a product-by-product basis.
   
• We account for stock-based employee compensation arrangements using the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and comply with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”) as amended by Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation Transition and Disclosure – an amendment of FASB Statement No. 123". The pro forma disclosure of stock-based compensation is included in Note 1 our audited consolidated financial statements for the year ended August 31, 2004. Under APB 25, compensation expense for employees is based on the difference between the fair value of our stock and the exercise price if any, on the date of the grant. We account for stock issued to non-employees at fair value in accordance with FAS 123. We use the Black-Scholes option pricing model to determine the fair value of stock options granted to non-employees.

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ITEM 3. CONTROLS AND PROCEDURES.

As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures as of the end of the period covered by this quarterly report, being May 31, 2005. This evaluation was carried out under the supervision and with the participation of our company's management, including our company's chief financial officer and chief executive officer. Based upon that evaluation, our company's chief financial officer and chief executive officer concluded that our company's disclosure controls and procedures are effective. There have been no significant changes in our company's internal controls or in other factors, which 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 in our company's 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 company's reports filed under the Exchange Act is accumulated and communicated to management, including our company's president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The were no material developments in any of the legal proceedings to which we are a party, as disclosed in our Annual Report on Form 10-KSB for the year ended August 31, 2004, during the quarters ended November 30, 2004 or February 28, 2005 or May 31, 2005.

Item 2. Changes in Securities and Use of Proceeds

During our fiscal quarter ended May 31, 2005, there were no sales of securities that were not registered pursuant to the Securities Act of 1933 (the “Securities Act”).

Item 3. Default Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Securities Holders

No matters were submitted to a vote of securities holders during the quarter ended May 31, 2005

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

(1) Filed as an exhibit to this Quarterly Report on Form 10-QSB

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended May 31, 2005.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.