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

FORM 10-QSB

(Mark One)

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

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

For the transition period from ________ to _______

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 x   No ¨  

State the number of shares outstanding of each of the issuer's classes of common stock, as of
the latest practicable date: 35,291,098 Shares of $0.001 par value common stock
outstanding as of June 21, 2004.

Transitional small business disclosure format (check one):
Yes ¨   No x  

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PART I - FINANCIAL INFORMATION

Item 1.            FINANCIAL STATEMENTS.

Consolidated Financial Statements
(Expressed in United States dollars)

DESTINY MEDIA TECHNOLOGIES INC.

Nine months ended May 31, 2004 and 2003
(Unaudited)

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

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

See accompanying notes to consolidated financial statements.

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

See accompanying notes to consolidated financial statements.

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

See accompanying notes to consolidated financial statements. 

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

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

Destiny Media Technologies Inc. (the "Company", "Destiny Media" or "we") develops and markets audio and video streaming and digital distribution software products for the Internet. Our software products are based on proprietary enabling technologies and other consumer friendly tools and processes that enable end users to receive high-quality digital audio and video streaming media through the Internet.

We have developed four distinct software products that incorporate our proprietary streaming and digital technology:

We have finished development of all our software products. Our primary business focus is currently on marketing and achieving sales of our Clipstream™ product line.

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 953 410".

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

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PLAN OF OPERATIONS

During our fiscal year ending August 31, 2004, our management plans on expanding awareness and sales for Clipstream™ by increasing expenditures on sales and marketing and by better supporting our reseller network. We will continue to sell the Pirate Radio suite online and through Amazon.com. We will launch the MPE(tm) digital rights management system to the recording industry.

MPE™ is currently being tested by the US and Canadian recording industry and subsequent to quarter end, we entered into a 2 1/2 year license agreement with the Universal Music Group. UMG will use the MPE system to securely distributed new music tracks to radio and trusted users. Destiny will receive a per track licensing fee when the system launches in July / August 2004.

The MPE™ system is uniquely suited for digital delivery of music. Songs are locked down so they will only play on authorized computers. If the songs are exported to CD, a digital watermark is invisibly embedded into the song, so the originating computer can be identified. We are also integrating our MPE™ technology into third party products, with the goal of selling music to DJ's utilizing our technology. We expect MPE™ revenues will increase significantly in fiscal 2005.

We will have to raise additional funds to complete our business plan due to our current 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 and there is no guarantee that we will be able to raise the capital necessary to complete our business plan or fund our working capital deficit.

OPERATING RESULTS

Revenue

Approximately 95% of our revenues continue to be derived from sales of our Clipstream™ software, with the balance being comprised of sales of our RadioDestiny Broadcaster™ software and sales of our PirateRadio™ software. For sales of our Clipstream™ software, our revenues are primarily attributable to revenue 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 decreased to $169,549 for the quarter ended May 31, 2004 from $241,033 for the quarter ended May 31, 2003, representing a decrease of $71,484 or 30%. Our revenues decreased to $568,172 for the nine months ended May 31, 2004 from $824,827 for the nine months ended May 31, 2003, representing a decrease of $256,655 or 31%. The decrease in our Clipstream revenues is directly attributed to the efforts involved in accelerating the development and deployment of MPE™ which we anticipate to increase revenues significantly.

Our revenues for the three months ended May 31, 2004 included $16,581 or 10% of deferred revenues under software sales completed in prior periods. Our revenues for the nine months ended May 31, 2004 included $59,075 or 10% of deferred revenues under software sales completed in prior periods. Accordingly, revenues from sales of new software products were $152,968 or 90% for our third quarter, compared to $509,097 or 90% for the first nine months. These deferred revenues represent revenues associated with maintenance obligations performed during the quarter under software sales completed in prior periods.

We plan to continue focusing our sales and marketing efforts on our Clipstreame software products during 2004. Our plan is to continue to work closely with both current 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 to earn revenues from our PirateRadioe software suite during the balance of 2004. In addition, we plan on continuing our development and commercialization of our MPEe software suite for the remainder of the fiscal year.

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However, in the absence of increased sales from operations, we may require additional funding from external sources in order to successfully launch the PirateRadioe and MPEe software suites into major retail and commercial outlets. Accordingly, there is no assurance significant sales will be achieved.

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 increased to $91,657 for the quarter ended May 31, 2004 from $77,717 for the quarter ended May 31, 2003, an increase of $13,940 or 18%. The increase is primarily due to an increase of $20,113 to office and miscellaneous expenditures, an increase to professional fees of $4,313 offset by a decrease to wages and benefits of $10,397. The increase to office and administration is due to corporate initiatives relating to promotional and business development activities. These additional expenditures were being incurred on a monthly basis this quarter compared to no funds being allocated to these specific initiatives in the prior year quarter. Professional fees increased slightly as we were required to incur additional legal fees for our Form S-8 filed with the SEC on April 27, 2004. Wages and benefits decreased due to the reduction of benefit costs incurred as well as reduced personnel costs incurred during the quarter compared to prior year quarter.

General and administrative expenses increased to $388,274 for the nine months ended May 31, 2004 from $248,494 for the nine months ended May 31, 2003, and increase of $139,780 or 56%. The increase to general and administrative expenses was due primarily to an increase of $98,992 to office and miscellaneous expenditures, an increase of $60,622 to professional fees, an increase of $12,807 to bad debt expense offset by a reduction of $34,969 to consulting expenses. The increase to office and

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miscellaneous expenditures resulted from us incurring a one-time charge of approximately $80,000 as well as monthly fees relating to corporate initiatives for promotional and business development activities. During the nine months ended May 31, 2004, we incurred significant legal fees to conclude the settlement of an outstanding lawsuit filed by a former employee as well as additional legal fees for the filing of our Form S-8 document with the SEC. During the same period ended May 31, 2003, we received a credit on services previously provided by our former auditors for approximately $40,000 resulting in a credit balance at period end.

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 increased to $117,431 for the quarter ended May 31, 2004 from $93,792 for the quarter ended May 31, 2003, an increase of $23,639 or 25%. The increase was due primarily to an increase of $24,729 to wages and benefits partially offset by a decrease of $3,731 to travel expenditures. The increase to wages and benefits was due to the recognition of non-cash charges resulting from stock compensation to non-employees. The decrease to travel is a result of our efforts to contain all costs and being selective regarding the meetings, events and conferences attended by our employees.

Sales and marketing expenses decreased to $317,294 for the nine months ended May 31, 2004 from $359,556 for the nine months ended May 31, 2003, a decrease of $42,262 or 12%. The decrease is attributable to a decrease in consulting costs of $59,341, a decrease in telecommunications of $8,933 offset by an increase of $23,587 to advertising and marketing expenses. Consulting was lower for the period ended May 31, 2004 as we incurred a significant non-recurring consulting charge in prior year for sales and marketing purposes that was not required in Fiscal 2004. Telecommunications decreased compared to prior year as we were able to negotiate new rates with new carriers and received credits on

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disputed charges from prior periods with our former vendors. We increase our advertising and marketing spending during the nine months ended May 31, 2004 in anticipation of future business 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 expenses decreased to $69,491 for the quarter ended May 31, 2004 from $86,082 for the quarter ended May 31, 2003 a decrease of $16,591 or 19%. The decrease was primarily attributable to a $17,330 decrease to wages and benefits, a $3,196 decrease to consulting expenses partially offset by an increase of $3,928 to telecommunications. Wages and benefits decreased due to the reduction of benefit costs incurred as well as reduced personnel costs being incurred during the quarter compared to prior year. Consulting decreased as we maintained our efforts to internalize all R&D projects where feasible. Telecommunications increased slightly due to the general basis of allocation during the quarter.

Research and development expenses decreased to $249,459 for the nine months ended May 31, 2004 from $301,717 for the nine months ended May 31, 2003, a decrease of $52,258 or 17%. The decrease is primarily attributable to a decrease to consulting fees offset by increases to wages and benefits as well as repairs and maintenance. We also had comparable offsetting increases and decreases to rent and telecommunications respectively. Consulting was lower for the period ending May 31, 2004 as we incurred a significant non-recurring consulting charge in prior year for research and development purposes that was not required in Fiscal 2004. Wages and benefits increased slightly due to the increase in benefit costs incurred during the nine months ending May 31, 2004. Repairs and maintenance costs increased as we performed standard maintenance work on our servers during the period.

Depreciation and Amortization. Depreciation and amortization expenses arose from equipment and other assets. Depreciation and amortization increased to $17,752 for the quarter ended May 31, 2004 from $13,328 for the quarter ended May 31, 2003, an increase of $4,424 or 33%. Depreciation and amortization increased to $31,680 for the nine months ended May 31, 2004 from $31,016 for the nine months ended May 31, 2003, an increase of decrease of $664 or 2%. The increase in depreciation and

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amortization is due to a slight increase to net book value from the acquisition of certain fixed assets and the investment in intellectual property during the first nine months of fiscal 2004.

Gain on extinguishment of debt amounted to $11,385 and $79,215 for the quarter and nine months ended May 31, 2004 respectively. We were successful in negotiating the extinguishment of $79,215 of liabilities relating to past services provided by various accountants, lawyers and telecommunication carriers. Interest and other income amounted $779 for the quarter ended May 31, 2004 compared to $4,498 for the same quarter ended May 31, 2003. Interest and other income amounted to $12,205 for the nine months ended May 31, 2004 compared to $4,498 for the same period ended May 31, 2003. These balances consist primarily of rental revenue realized on vacant office space sublet during the period. Interest and other expense decreased to $839 for the period ended May 31, 2004 compared to $2,943 for the period ended May 31, 2003, a decrease of $2,104. Interest and other expense decreased to $5,289 for the nine months ended May 31, 2004 compared to $8,366 for the nine months ended May 31, 2003, a decrease of $3,077.

Income (loss) from operations

Loss from operations for the quarter ended May 31, 2004 was $126,782 compared to a loss from operations of $29,886 for the same quarter ended May 31, 2003 for an increase of $96,896. The change was a direct result of our revenues decreasing by $71,484 or 30% while our operating expenses increased by $25,412 or 9%. Net loss for the quarter ended May 31, 2004 was $115,457 compared to a net loss of $28,331.

Loss from operations for the nine months ended May 31, 2004 was $418,535 compared to a loss from operations of $115,956 for the same period ended May 31, 2003 for a total increase to losses of $302,579. The change was a direct result of our revenues decreasing by $256,655 or 31% while our operating expenses increased slightly by $45,924 or 5%. Net loss for the nine months ended May 31, 2004 was $332,404 compared to net loss of $119,824 for the same period ended May 31, 2003.

We had cash of $18,361 as at May 31, 2004 compared to cash of $6,123 as at August 31, 2003. We had a working capital deficiency of $319,643 as at May 31, 2004 compared to a working capital deficiency of $428,486 as at August 31, 2003. We had a shareholders' deficiency of $358,281 as at May 31, 2004 compared to a shareholders' deficiency of $445,744 as at August 31, 2003. The change to shareholders' deficiency is directly attributable to the private placement completed November 21, 2003 and the results of the period ended May 31, 2004.

The decrease in our working capital deficiency is directly attributable to decreases to our accounts payable and accrued liabilities, loans payable and our deferred revenue, as discussed below.

Our accounts payable and accrued liabilities decreased to $381,645 as at May 31, 2004 from $543,281 at August 31, 2003, representing a decrease of $161,636 or 30%. The decrease resulted from the successful extinguishment of approximately $79,000 in past liabilities, from the collection and application of accounts receivable to the current liabilities, operations and the improvement to working capital from the private placement completed November 21, 2003. Our inability to further reduce our accounts payable and accrued liabilities reflects our current limitations to finance our operations completely from current product revenues.

Our loans payable increased to $19,803 as at May 31, 2004 from $10,825 as at August 31, 2003 representing an increase of $8,978. Loans payable represent funds temporarily advanced for certain initiatives. These funds will be repaid in full from funds earned in operations.

Our current deferred revenues decreased to $29,938 as at May 31, 2004 from $64,013 as at August 31, 2003, representing a decrease of $34,075 or 53%. We anticipate that our deferred revenues will

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continue to decrease as sales for post-delivery maintenance and support packages continues to decline. We continue to 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

Net cash used in operating activities increased to $264,453 for the nine months ended May 31, 2004 compared to $114,381 for the nine months ended May 31, 2003 representing an increase of $150,072. Net cash used by investing activities decreased from $9,060 as at May 31, 2003 to $8,400 for May 31, 2004, representing a decrease of $660. The cash used in operating and investing activities was off-set by net cash provided by financing activities in the amount of $288,388 for the nine months ended May 31, 2004 compared to $101,941 for the nine months ended May 31, 2003.

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 nine months ended May 31, 2004 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 entered into private placement agreements for the purchase of an aggregate of 2,000,000 common shares at a price of $0.15 per unit for total gross proceeds of $300,000 on November 21, 2003. A finder's fee of $30,000 was paid by us.

On May 31, 2004, 37,500 employee stock options with a strike price of $0.25 were exercised for net proceeds of $9,375.

We have incurred recurring losses from operations and we have a working capital deficiency. As a result, substantial doubt exists about its 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 may need additional capital through public or private financings that may not be available on reasonable terms. Accordingly, we will required 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 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 our Annual Report on Form 10-KSB for our fiscal year ended August 31, 2003.

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.

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• The consolidated financial statements have been prepared on the going concern basis, whichassumes 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 assetsat values comparable to the carrying value or the fair value estimates reflected in the balancesset out in the preparation of the consolidated financial statements. There can be no assurancesthat we will be successful in generating additional cash from equity or other sources to be usedfor operations. The consolidated financial statements do not include any adjustments relating tothe recoverability of assets and classification of assets and liabilities that might be necessaryshould the Company be unable to continue as a going concern.
  
  
• We recognize revenue when there is persuasive evidence of an arrangement, delivery hasoccurred, the fee is fixed or determinable, collection is reasonably assured, and there are nosubstantive performance obligations remaining. Our revenue recognition policies are inconformity with AICPA's Statement of Position No. 97-2, "Software Revenue Recognition", asamended ("SOP 97-2). We generate revenue from software arrangements involving multipleelement sales arrangements. Revenue is allocated to each element of the arrangement basedon the relative fair value of the elements and is recognized as each element is delivered and wehave no significant remaining performance obligations. If evidence of fair value for each elementdoes not exist, all revenue from the arrangement is recognized over the term of the arrangement.
  
  

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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PART II – OTHER INFORMATION

Item 1.            Legal Proceedings

Except as described below, there 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, 2003, during the quarter ended February 29, 2004 and there have been no material developments since May 31, 2004.

Item 2.            Changes in Securities and Use of Proceeds

During our fiscal quarter ended May 31, 2004, we completed the sales of the following 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, 2004.

Item 5.            Other Information

None.

Item 6.            Exhibits and Reports on Form 8-K

(a)            Exhibits.

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No reports on Form 8-K were filed during the quarter ended May 31, 2004.

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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.