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. was incorporated in August 1998 under the laws of the State of Colorado. We carry out our business operations through our wholly owned subsidiaries, 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. The "Company", "Destiny" or "we" refers to the consolidated activities of all three companies.

Our principal executive office is located at Suite 750, PO Box 11527, 650 West Georgia Street, Vancouver, British Columbia V6B 4N7. Our telephone number is
(604) 609-7736 and our facsimile number is (604) 609-0611.

Our common stock trades on TSX Venture Exchange in Canada under the symbol "DSY", on the OTCBB and OTCQX under the symbol "DSNY", and on various German exchanges (Frankfurt, Berlin, Stuttgart and Xetra) under the symbol DME, WKN 935 410.

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

OUR PRODUCTS AND SERVICES

Destiny develops and markets services that enable the secure distribution of digital media content over the internet. Destiny services are based around proprietary security, watermarking and playerless streaming media technologies.

The current offerings include the Play MPEŽ secure distribution network, which the recording industry uses to distribute new pre-release music, and the ClipstreamŽ instant play streaming media solutions.

Currently, more than 95% of the Company' s revenues come from the Play MPEŽ digital distribution service. The remaining revenue is derived from recurring revenues for secure ClipstreamŽ powered market research video questionnaires.

Play MPEŽ is a digital delivery service for securely moving broadcast quality audio, video, images, promotional information and other digital content securely through the internet. The system is currently used by the recording industry for transferring pre-release broadcast quality music, radio shows, and music videos to trusted recipients such as radio stations, media reviewers, VIP's, DJ's, film and TV personnel, sports stadiums and retailers. The system replaces the physical distribution (mail, courier or hand delivery) of CD's. As with traditional physical delivery, our fees are based on the size of the content and number of recipients.

More than 1,000 record labels, including all four major labels (Universal Music Group, Warner Music Group, EMI and Sony), are regularly using Play MPEŽ to deliver their content to radio.

ClipstreamŽ

ClipstreamŽ is an innovative "instant play" solution for playback of streaming audio and streaming video. Unlike Windows Media Player or Quicktime, there is no player that has to launch for the content to playback. The ClipstreamŽ software suite enables audio or video content to be "streamed" so that the media plays instantly and automatically when the user initiates playback. Creating streaming video content with other technologies can be a complicated process and in most cases, users are required to purchase and maintain streaming servers. With ClipstreamŽ, content owners simply encode the content into the ClipstreamŽ format, then upload to an existing website.

ClipstreamŽ encoded content plays instantly in most cases, without requiring the user to download CODECS or player software. This results in a much higher play rate for site owners and because there is no player executable, users are not exposed to viruses, trojan horses or unstable code that could crash their computer.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 2012

Revenue

Total revenue for the nine months ended May 31, 2012 declined slightly by approximately 1% over the same period in the prior year to $3,042,363 (May 31, 2011 - $3,074,183).

Revenue from the Play MPEŽ system represents over 95% of our total revenues. Play MPEŽ access fee revenue was $2,916,868 (May 31, 2011 - $2,930,782) for the nine months period ended May 31, 2012. The Play MPEŽ delivery service continues to see high growth in usage spread over Europe.

Quarterly total revenue for the three months ended May 31, 2012 declined by approximately 13% over the same period in the prior year to $1,022,921 (May 31, 2011 - $1,176,473). The Play MPEŽ system saw access fee revenue reduced to $985,397 (May 31, 2011 - $1,141,204) for the three months period ended May 31, 2012, representing a 14% decrease over the same period in the prior year. This decrease was largely attributable to the application of a one-time minimum annual fee applied during the comparative period. European revenue continues to grow and increased approximately 11% compared to the three months ended May 31, 2011. European revenue is currently concentrated in the United Kingdom and the Scandinavian countries.

Approximately 42% of our Play MPEŽ revenue is denominated in Euros for the nine months ended May 31, 2012. Play MPEŽ revenue from Europe for the nine months ended May 31, 2012 reached $1,280,659 (May 31, 2011 - $1,070,909) representing an increase of 20%. Approximately 54% of Play MPEŽ revenue is denominated in US Dollars and 4% of Play MPEŽ revenue is denominated in Australia Dollars for the nine months ended May 31, 2012.

Operating Expenses

Overview

As our technologies and products are developed and maintained in-house, the majority of our expenditures is on salaries and wages and associated expenses; office space, supplies and benefits. Our operations are primarily conducted in Canada and the majority of our costs are incurred in Canadian dollars while the majority of our revenue is in US dollars and Euros. As a result, our results of operations are impacted by fluctuations in the relevant exchange rates.

General and administrative        31-May         31-May          $            %
                                   2012           2011         Change      Change
                                (9 months)     (9 months)
                                    $              $
     Wages and benefits            293,310        270,764       22,546        8.3%
     Rent                           27,033         30,291       (3,258 )    (10.8% )
     Telecommunications             13,758         13,939         (181 )     (1.3% )
     Bad debt                       (4,958 )        9,773      (14,731 )   (150.7% )
     Office and miscellaneous      292,224        176,067      116,157       66.0%
     Professional fees            (181,793 )      421,178     (602,971 )   (143.2% )
                                   439,574        922,012     (482,438 )    (52.3% )

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

The increase in office and miscellaneous is related to increased expenditures on investor relations activities.

The increase in Professional fees is described in the following table.

                                 31-May         31-May          $            %
                                  2012           2011         Change      Change
                               (9 months)     (9 months)
                                   $              $
Professional fees
     Litigation costs             607,342        283,996      323,346      113.9%
     Other professional fees       69,752        137,182      (67,430 )    (49.2% )
     Recoveries                  (858,887 )            -     (858,887 )       N/A
     Sub-total                   (181,793 )      421,178     (602,971 )   (143.2% )

Our litigation costs primarily consist of fees associated with an Australian claim against a former marketing representative and a wrongful dismissal claim from a former employee. Both of these legal claims were successfully resolved during the third quarter and we expect our legal costs will dramatically decrease moving into our fourth quarter. Prior year costs were associated with litigation against a competitor in Canada which was also successfully resolved in the last quarter of fiscal 2011.

During the current quarter, we recorded a lump sum accrual of $858,887 ($825,000 AUD) receivable pursuant to a settlement reached with the former marketing representative. The wrongful dismissal claim was dismissed in its entirety and Destiny was awarded costs. No amount for this cost award has been reflected in the financial results.

Sales and marketing                31-May         31-May          $          %
                                    2012           2011        Change      Change
                                 (9 months)     (9 months)
                                     $              $
     Wages and benefits             323,179        303,825      19,354       6.4%
     Rent                            28,723         32,184      (3,461 )   -10.8%
     Telecommunications              14,618         14,810        (192 )    -1.3%
     Meals and entertainment          9,671          7,367       2,304      31.3%
     Travel                          56,037         34,880      21,157      60.7%
     Advertising and marketing      122,588        205,745     (83,157 )   -40.4%
                                    544,816        598,811     (43,995 )    -7.3%

Sales and marketing expenses consist primarily of salaries and related personnel costs including overhead, sales commissions, advertising and promotional fees, and travel costs. The decrease in advertising and marketing is mainly due to the termination of partnership with the former marketing representative.

Research and development          31-May         31-May          $           %
                                   2012           2011        Change      Change
                                (9 months)     (9 months)
                                    $              $
     Wages and benefits          1,264,904        988,613     276,291       27.9%
     Rent                          116,580        110,597       5,983        5.4%
     Telecommunications             59,333         50,893       8,440       16.6%
     Research and development       15,618          1,360      14,258     1048.4%
                                 1,456,435      1,151,463     304,972       26.5%

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 increase is mainly due to increased staffing due to an increased ongoing investment in building out the functionality of our Play MPEŽ and the development of our cross platform streaming video prototype. This video solution may substantially reduce the costs of transcoding and maintaining various video formats.

Amortization

Amortization expense arose from property and equipment. Amortization increased slightly to $54,987 for the nine months ended May 31, 2012 from $44,313 for the nine months ended May 31, 2011, an increase of $10,674 or 24.1% as a result of the development of new Play MPEŽ applications and applications made for various patents and trademarks.

Other earnings and expenses

Other income increased to $4,462 for the nine months ended May 31, 2012 from $3,073 for the nine months ended May 31, 2011, an increase of $1,389.

Interest income increased to $27,619 for the nine months ended May 31, 2012 from $6,527 for the nine months ended May 31, 2011, an increase of $21,092. This is a result of interest income earned on the amount receivable pursuant to the litigation settlement.

Interest expense increased to $1,186 for the nine months ended May 31, 2012 from $628 for the nine months ended May 31, 2011, an increase of $558.

During the nine months ended May 31, 2012, we have net income of $377,446 (May 31, 2011- net income of $260,556). The increase in net income during the period is the result of a net decrease in professional fees, offset by increased shareholder relations events and increased salaries and wages costs due to additional staff.

During the period, there was a net recovery of litigation costs of approximately $181,000, compared to litigation costs of approximately $420,000 in the same period in the prior year, a decrease in overall spending of $601,000.

Adjusted EBITDA is not defined under generally accepted accounting principles ("GAAP") and it may not be comparable to similarly titled measures reported by other companies. We used Adjusted EBITDA, along with other GAAP measures, as a measure of profitability because Adjusted EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments and the effect of non-cash stock-based compensation expense. We believe Adjusted EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to Adjusted EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based compensation from our earnings which can vary based on share price, share price volatility and expected life of the equity instruments we grant. In addition, this stock-based compensation expense does not result in cash payments by us. Adjusted EBITDA has limitations as a profitability measure in that it does not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets, the effect of non-cash stock-based compensation expense and the effect of asset impairments. The following is a reconciliation of net income from operations to Adjusted EBITDA:

                                 2011 Q3      2011 Q4      2012 Q1      2012 Q2      2012 Q3
                                    $            $            $            $            $
Net Income                        230,720      377,952       12,555     (286,250 )    651,138
Amortization and stock             14,943       18,625       15,785       57,485       24,513
compensation
Net Interest expense               (1,302 )     (4,918 )     (2,178 )     (1,613 )    (22,642 )
Income tax                         94,000       67,000        5,000       (5,000 )    190,000
Adjusted EBITDA                   338,361      458,659       31,162     (235,378 )    843,009

LIQUIDITY AND FINANCIAL CONDITION

We had cash of $1,139,576 as at May 31, 2012 (August 31, 2011 - $1,238,173). The decrease in our cash was mainly due to an increase in accounts receivable, an increase in a long term receivables, and the purchase of property and equipment. We had working capital of $1,463,187 as at May 31, 2012 compared to working capital of $1,354,115 as at August 31, 2011.

CASHFLOWS

Net cash used in operating activities was $162,978 for the nine months ended May 31, 2012, compared to net cash generated of $330,786 for the nine months ended May 31, 2011. Although our revenue was consistent with the comparative period in 2011, the main decrease in net cash flows in the operating activities was primarily due to an increase in accounts receivable and an increase in a long term receivables arising from a legal settlement, the proceeds of which are being received over a period of several years. As of the date of this report, we have collected more than 90% of the accounts receivable at May 31, 2012.

The cash used in investing activities was $145,576 for the nine months ended May 31, 2012. The net cash used in investing activities was $56,928 for the nine months ended May 31, 2011. The increase is attributable to the development of new Play MPEŽ applications and applications made for various patents and trademarks.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In April 2010, the FASB issued Accounting Standards Update 2010-13, " Compensation - Stock Compensation (Topic 718)" . The objective of this Update is to address the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Specifically, an employee share-based payment award denominated in a currency of a market in which a substantial portion of the entity' s equity securities trades should not be considered to contain a condition that is not a market, performance or service condition and therefore would not classify the award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. This standard is effective for the Company on September 1, 2011. The Company' s adoption of this guidance did not have a material effect on the Company' s consolidated financial statements.

Accounting Standards Not Yet Effective

In May 2011, the FASB issued Accounting Standards Update 2011-04, " Fair Value Measurement (Topic 820)" . This Update will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with US GAAP and International Financial Reporting Standards (" IFRS" ). The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs and they explain how to measure fair value and they do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this Update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity' s shareholders' equity in the financial statements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company is currently evaluating the impact of this update on the consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, " Presentation of Comprehensive Income (Topic 220)" . The objective of this Update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity, among other amendments in this Update. The amendments require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update 2011-12, " Comprehensive Income (Topic 220)" . The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-5 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the consolidated financial statements.

We prepare our interim consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, 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.

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board' s (" FASB" ) Accounting Standards Codification (" ASC" ) 985-605, Revenue Recognition. Accordingly, revenue is recognized when there is persuasive evidence of an arrangement, delivery to the customer has occurred, the fee is fixed and determinable, and collectability is considered probable.

The majority of our revenue is generated from digital media distribution service. The service is billed on usage which is based on the volume and size of distributions provided on a monthly basis. All revenues are recognized on a monthly basis as the services are delivered to customers, except where extended payment terms exist. Such revenues are only recognized when the extended payment term expires.

At present, the Company does not have yet have a standard business practice for contracts that contain extended payment terms, and therefore recognizes revenue from such contracts when the payment terms lapse and all other revenue criteria have been met.

Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If we made different judgments or utilized different estimates for any period material differences in the amount and timing of revenue recognized could result.

Stock-Based Compensation

We recognize the costs of employee services received in share-based payment transactions according to the fair value provisions of the current share-based payment guidance. The fair value of employee services received in stock-based payment transactions is estimated at the grant date and recognized over the requisite service period. Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life.

We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards. The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of share-based awards, including the option' s expected term and the price volatility of the underlying stock. Our current estimate of volatility is based on historical and market-based implied volatilities of our stock price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost recognized in future periods. We derive the expected term assumption primarily based on our historical settlement experience, while giving consideration to options that have not yet completed a full life cycle. Stock-based compensation cost is recognized only for awards ultimately expected to vest. Our estimate of the forfeiture rate is based primarily on our historical experience. To the extent we revise this estimate in the future, our share-based compensation cost could be materially impacted in the quarter of revision, as well as in the following quarters. In the future, as empirical evidence regarding these input estimates is available to provide more directionally predictive results, we may change or refine our approach of deriving these input estimates.

. . .