Steven Vestergaard – President & Chief Executive Officer Fred Vandenberg – Chief Financial Officer

Jim Kennedy - Marathon Capital Management Hubert Mak – Cormark Securities Jeff Terry - Aberdeen Investment Management Robert Kecseg - Las Colinas Capital Management

Good afternoon, ladies and gentlemen, and welcome to the Destiny Media Technologies, Inc. Second Quarter Fiscal 2013 Earnings and Release Conference Call. (Operator instructions.) I would like to remind everyone that this call is being recorded on Tuesday July, 16 2013. Before we begin I would like to remind everyone that today’s call will contain forward-looking statements which represents management’s outlook on the business. As of the time this conference call is being held. These statements involves risks and uncertainties which may cause actual results to differ materially and the company is under no obligation to revise the statements and the future. Additional information containing risk factors can be found in our 10-K filing dated August 31st 2012 which is available on our website or at www.sec.com. I would now like to turn the conference over to Fred Vandenberg. Please go ahead.

Thank you and thank you to everyone who has joined the call and I will talk on the presumption that everyone and the background of the products and simply jump right into the results. I’m sure that you’ve all noticed that revenue has taken a step back. Revenue for Play MPE in Q3 fell by 14%, this occurred entirely as a result of renewed agreement with UMG, Universal Music Group under this agreement well the volume of the transaction is growing what is considered chargeable it has changed. Steve can provide better insight into these discussions. But in general we're competing with lower quality divestiture systems and we have to typically bounce the promotion people, promotion people interests and various record labels with higher functionality aspect of Play MPE thus when entering new markets when the value of Play MPE systems design with Play MPE system is not well understood and they are the cheaper competitor at this pricing model should smooth that transition over. With this agreement we believe UMG is now more easily able to expand the use of Play MPE into new market and where we typically see that use of the system encourages greater use of the system that is with a snowball effect. On the positive side non-UMG Play MPE revenue for the quarter actually increased by 5%. This growth is seen in Europe and on the smaller percentage basis in United States and in both locations this growth is seen in, with both major labels and independent labels. We also know that revenue for the quarter from UMG is that at its contractual minimum and that means it only has a capacity increase going forward. So while this is isn’t ideal and it appears we have taken a step back and I believe this actually opens doors for Play MPE that has remained closed in the past. And as long as we continue to invest in the resources appropriately I believe we will see growth in Play MPE, revenue and profitability. For example we have just begun the development of a web-based encoder and that encoder is the software that is used to send out our music. We believe that this will give us access to new clients. It's a simplified version so the easier we make it to buy the greater capacity we have to service our customers. It will be easier to translate and open the door to Mac users or the customers that lack the technical proficiency to use a very sophisticated encoder. Now the question is how to (inaudible) revenue has always been a potential question. And that is the answer depends on which market you are talking about. We approach markets generally geographically and by the type of customer, whether that's a major label or an independent or whether that revenue is digital distribution or something ancillary to what is typically thought of as Play MPE. I should make one last comment about our revenue. If you refer to the segmented revenue in note 10 of our financial statements, this note shows the decrease in revenue in North America. That decrease is the result of all of the Universal Music Group's USA revenue coming under the umbrella of the global agreement. Thus all UMG's revenue in United States is now reported under the European revenue amount. Moving on to expenses, while there are fluctuations in the variety of expenses they're generally consistent from period-to-period. In Q3 of last year, 2012 we recognized a large recovery from litigation in Australia. So now that most, almost all of the litigation is resolved, if we exclude the cost of all litigation and the corresponding recovery that we realized last year our expenses have actually reduced by 7%, while staffing has stayed consistent in terms of the numbers of people we have replaced staff as they have departed a bit more efficiently. So in summary of our results we are still profitable. We've been able to use those profits to develop a new version of Clipstream and revenue should grow from here. So that's the major results highlights. I will be on the call to answer any more detailed questions at the end of the call. But I will turn it over to Steve Vestergaard who will discuss some business development activities for the year.

Okay, thanks Fred. So I see there is plenty of new investors on the line. So I'd just like to remind everybody what we do here. Our Play MPE secure delivery system is used by the major record labels to send their pre-release music through the Internet to trusted industry recipients, such as radio stations. And this automated system bills them based on transaction usage and it represents almost all of our current revenue today. So when Fred is referencing the Universal contract it was in reference to that product. Our second product line, Clipstream is a brand new cross-platform streaming video product that we are launching this fall. As a product it disrupts $5 billion in existing streaming business. We are pretty excited about we think there is a lot of opportunity there. So it doesn't come through in the numbers. And when you read the MD&A it's not really that clear, but this has been a real pivotal quarter for us as we put the strategies in place to grow both of our businesses in the coming months. So this is one of the most important quarters in the company's history. This has been a big transitional quarter and we expect it will catapult us across the chasm to become a much larger company. So as some examples we are finishing several years of development on MPE initiatives and we just signed the global deal with Universal to expand usage. That contract is set up to really incent Universal to come into new markets and -- be the leader to establish business then and we can sell to the other majors independence, Universal just merged with EMI and the combination of Universal and EMI is about 45% of the major label record business. So it's a great company to kind of take us under their umbrella or under their wings. And we are also watching our first Clipstream products, we are expecting that to come out next quarter. And thirdly we've kind of given up on that introverted thing that we've been doing. We're ready to come out of our shell, we've intentionally been really quiet about our technologies and what we have been up to mainly because we haven’t been ready, never ready to start telling the world about what we have. So, most people heard Moore's law, Moore's law is the computing power doubles and the cost halves every 24 months. In another words, computers get cheaper and they get faster as time goes on. So we are beneficiaries of that law, our server and infrastructure cost go down overtime as our capacity grows, so our margins only get better as time goes on. But what most people haven't heard of is Metcalfe's law. – Metcalfe is credited with being a co-inventor of the Ethernet, that's a network technology we are all using today on our corporate networks. And (inaudible) networks value, network has its value other than the software people that are using it, the network’s value grows to the square of the number of nodes on the network. So you know as it gets bigger grows, value grows faster and faster. So our plan to use these system is becoming increasingly more complicated, we now have five server facilities around the world with proprietary software monitoring for intrusion detection, while checking for network faults, we have real time back up if fail over, we have software that does collaborate in coding, we've got the new web based decoder that Fred alluded to, we have eight different players that people can use to access the system. And we are integrated into partner systems. And also we are trying everything is been translated into 27 languages. Behind all these complexities, we have one big growing offering and one big piece of value and that's our network. If you think about the $15 billion music industry is trusting us with their crown jewels, their cherished proprietary content, or music and their music videos. They are trusting us with their content when it is most vulnerable during the critical prerelease period. And the more content becomes through the systems, the more valuable the network becomes and the more interesting it becomes and more new labels who want to use it. So Fred just kind of mentioned this snowball effect, that's a really good analogy, the figure of the snowball grows, faster it grows and the same applies to the network. So if the architects steward and owner of the network, we don't own the content that flows through it, but we still own something that's pretty unique. Over time we are building the largest network of industry recipients, all of their email addresses are on our system for example, all their contact information. We see who is downloading and accessing what music globally in real time, so we are in a position to generate the most accurate real time charts in the industry. We're getting all the music through our system first. And then we are building the most accurate data base ph [meditated] data for music all over the world. So we've already have main brands, as Fred kind of mentioned that there is non-traditional MPE revenue opportunities, we already have main brand companies coming to us with interest in purchasing some of that data. So, $1.1 million individual unique songs are gone through our system, and sit on our servers. So currently we have $1.1 million individual unique songs, think about that. We have 66,000 registered recipients around the world. Even the last seven days alone we've done three quarters or million deliveries. These deliveries, they are used to involve physical CDs and couriers and not going through the system digitally. So, the nature of the systems that are fixed costs are high, or a variable cost are negligible, making incremental margins of new business near 100%. Besides this, our growing network is creating derivative business opportunities and a captive audience to whom we can sell our Clipstream offering into. So, against this backdrop and this strategy that industry needs to understand where we're coming from, what will be when we sign these new contracts. So, on April we signed the Global agreement with UMG, that locks and guaranteed minimum revenues for two years. So, the revenues you see start from UMG is the lowest that is ever going to be because they are at the minimum. The new agreements protect our existing pricing and it rewards the labels to accelerate a global rollout so the more they use it-- the reward, the better the savings for the month on that last cent. So as I mentioned Universal EMI brands represents 45% of the major market and they’re locked to us for two years. As they enter into new markets in brand new recipient types they pave the way for us to sell to other majors and to independent music markets and to expand existing usage. So that is kind of where the strategy comes from, so one of the clauses in the contract means that we can’t charge for some transactions we used to charge for. So despite the increased usage this year versus last year across our MPE network we had a small revenue hit versus last year because of this contract. But the small short-term paying for big long-term gain. We see this as a good news agreement, this is going to mean expanded usage and higher profits in quarters going forward. So we're expecting the impact of these contracts will be rapid growth in our network globally in future quarters. So this has been a transitional quarter for MPE and we've invested fairly heavily and watching new initiatives even getting ready for the big growth in the future quarters. So for example we launched the new Play MPE gold play branded website which allows accesses from all html file compliant browsers without a need for plugins. So by doing this, this opened up the network up to all phones and tablets which dropped the need for java plugins. Secondly, we launched the Daily Play MPE site for people who aren’t familiar with it, you should go check it out daily.plaympe.com. The site is completely automated with labels that opt genre music is automatically featured on this site. And we provide feedback in terms of real time charts, you can see what music is being accessed the most in real time. And, so to this site, we’re going to be adding extreme previews shortly. So, this site features music that can’t be found anywhere on the internet and its driving social media marketing network system which is creating a demand for labels to use the system. So far this site has been a great success. We launched a new player for the iPhone, with the previous iPhone app with this complete rewrites has been really well received by the industry and works a lot better especially for some recipient types such as journalists. Responding to huge recipient demand, we also launched a new android app on Google play, we're in the process of launching new apps for the Blackberry tablet and iPads these projects are not quite ready, but they are nearing completion. So the pieces are all in place for high margin growth to Play MPE, we continue to invest heavily in the system. So then there is Clipstream, so of course we're all familiar with YouTube videos they just work, you go to the site click and they just play. What you don’t see is the behind the scene headaches that are required to make them play. There is no standard format, so videos have to be converted into at least three formats behind the scenes to reach all devices and because there is no recycling of streams, huge investments have been made in server bandwidth infrastructure. By comparison, videos in the Clipstream format just play everywhere, there is no streaming server and for viewers there is no need to install or maintain player plugins. Videos in the Clipstream format can be locked at source websites, they can be locked being what the specific recipient computers and they can be watermarked. None of the other solutions provide any [viewer ever] security at all. Clipstream videos never need to be upgraded and the expectation is that a video encoded in the Clipstream format today will still play browsers 15 years from now. So it’s a huge disruptive technology we're really excited, but we're taking a slow and steady wins the race approach, that I know can be frustrating to investors in the short-term, but it is going to build the biggest long term shareholder value. So at the end of the last quarter we announced that we would begin paid commercial trials on mark research industry, a good way to think of Clipstream is that currently we have an engine that works well and plays really well. But currently we're the only ones who are able to use it and we haven’t launched any encoder software yet. So we started selling Clipstream to a small number of trial market research companies actually agreed with three so that they could pay us to use in the real world environment and so we could find problems and tune the engine. So, we offered it the servers where we would encode and host the videos on their behalf and they could use our engine to reach the clients. So, we haven’t put on any news on this, but the trials actually went extremely well and we've been expanding offerings to the entire market research industry. : Two of the biggest conferences. We have our own opportunity in this particular video, vertical is somewhat limited, but the industry does $30 billion in revenue worldwide. And they test mark the movie trailers, TV commercials, product launches etcetera. So we see this market vertical as one that we can use to get access to basically sell into other verticals. So when they test market you on ad we can nail and try and sell Clipstream to the advertiser or the test market movie trailer while they should be using Clipstream on their website to show that trailer as an example. So I know there are some confusion with investors what it means to launch Clipstream. -- investors say that you keep launching this thing over and over again. So what I kind of clarify with the launches have been. So we have launched the prototype last summer, which can really be thought as a proof of concept. We've launched the commercial prototype last December which was taking the proof of concept for making into something that we saw as a candidate for engine that we hope, we could build products around that will be saleable. Unfortunately, what we released in December, a large number of users had problems with it when we went out into real world environment, mainly was using too much bandwidth and too much CPU. So we fixed, spent few months fixing those problems and launched basically the commercial page trials to the market research industry in March. We have been fixing the engine and fine tuning it based on their feedback through the spring. And now we have an engine that we feel is really rock solid and ready to sell. So based on that we are building out a number of product offerings to turn the engine into products that we can sell each of these verticals. So few weeks ago we launched a new Clipstream website that linked to a number of standalone mini sites. These mini sites will be your first product offerings. And we expect to actually develop more products than what shows there and I want even more mini sites under the Clipstream brand. For example, we have a Clipstream branded Live Internet Radio System, that's mostly built, that will be launching early next year. So the first product to launch will be a cloud based upload system. We are really excited about it because we think it can launch quickly and virally and contribute to the hockey stick revenue growth almost out of the gate. So, the idea is to make it really easy for people to create Clipstream videos and embed them in their site. But it's also important for it to be automated so the system can grow on our staff and on our resources are not a bottleneck. So, we see this product is kind of YouTube for business. So we have work as the potential customers will set up an account and download or upload software from our site for free. The icon sits on their desktop, and they can just drag and drop videos to the icon and those videos will convert into our format and go up into our cloud. They can then log into their management account and stream the video themselves in a free trial load and customize the settings. So, in another words they can go live and get a video that works and plays prior to paying us anything. So, we want to make it really easy for them to test. So if we try to toggle into online mode to publish the video to the rest of the web, it’ll ask them to purchase one of our cell phone style packages of minutes. So the idea is that they will buy package with a recurring monthly cost, tied to the number of minutes of video that they want to offer in aggregate. So the video that they host with us, even when it is coming from us they can make look like it comes from elsewhere, so they can embed that video into like a website or marketing newsletter or blog or some third party type. We are going to allow them to sell or syndicate it or to do whatever they want with it. For high usage customers like advertisers, there will be overage charges for impressions and if they go over their allotted minutes, the overage charges for that. But what is important that we manage our risk. So behind the scenes the offering will be high margin and low risk to us. What we are going to do is initially use Amazon servers rather than buy our own upfront, and what that is going to do is allow us to grow really rapidly without investing our own infrastructure like I said upfront. So, we’ll buy server capacity from Amazon wholesale and use basically a translation cable that will be on our website to brand the URL is Clipstream, but the data will actually be coming from Amazon. So the nice thing about this approach is our new expenses will be exactly tied to new revenues. So our variable -- our new costs are going to be tied to new revenues right out of the gate. That should keep the system profitable almost from day one. So the entire process will be self-served and we will be offering it to, in a number of popular languages right out of the gate. So global customers will be able to purchase in every time zone. We expect the technical support to be minimal as everything will be drag and drop and we will be providing the server infrastructure in its first offering. So back to the launch, so we hired a PR company and an IR company towards the end of the quarter, but we are still being somewhat low-key as we haven’t been ready for prime time. And I again I know this slow process is frustrating to some investors. We only get one chance to make a good first impression. So we have been asking the PR Company to hold off despite engaging them as we are waiting for the website to launch. But now we are gearing everything towards the start of the first quarter. So the launch will be a process rather than an event as many Clipstream products and services will go live overtime. But the first one, the cloud offering is coming really soon. So we will be ramping up IR/PR initiatives in August and September and expect significant media coverage to start over the next three months. So on that note, I'd like to open it up to questions.

Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions). Your first question comes from Hubert Mak from Cormark. Please go ahead. Hubert Mak – Cormark Securities: Hi, guys. I guess I'll ask the first question on Play MPE. So in terms of, as you mentioned that you are seeing some impact on the renewal agreement with Universal. So when do you expect to see return to growth here for Play MPE in terms of about what is going to be geography mainly and if that's the case which region would that be as well?

Yes, we are going to see a growth rate out of the gate with Play MPE. But some of that growth is going to be masked by this new contract. So what's happening today is they are paying us their minimum monthly commitment, but their billable usage is a fair amount below that minimum. So a lot of the growth that we are going to see with Universal is going to be masked initially. But that said we are going into a number of new territories. We are going into new recipient types. We are seeing a lot of growth in some of the Nordic countries, and Australia, New Zealand. We are expecting to expand usage quite a bit through Western Europe, in particular Germany. One of the issues with this is, usage is somewhat out of our control. So we are following basically the labels business plan. But I am expecting that we are going to start seeing some impact as soon as next quarter. Fred you want to answer that?

I would say that, generally the growth will occur right from here. There's always a seasonality to Play MPE. So there will be some ups and downs. But Universal is that its commitment like Steve said. I tend to think that the most immediate growth will be in the market that we are currently dominant in, so U.S., Australia and the UK. And with expanded usage I think, I do think that the pricing model that we can approach now does lend itself to expanding into both existing territories and into new territories. Hubert Mak – Cormark Securities: So if I am looking at in the context of maybe revenue and I understand, I guess some of the volume is not billable. But in terms of revenue, in terms of mix year, are we returning to growth and if that is the case, what type of growth rates are you expecting here?

Yes, so we are not giving any forward looking on the growth estimates. But Play MPE kind of went through a period where it didn’t grow very much it started going like crazy again so going forward we're expecting users to be way up. The main concern is like I said with our biggest customer they are 45% of the major industry some of that initial growth is going to be masked because they have to get up to the starting lines, they have to get up to the that minimum. Hubert Mak – Cormark Securities: All right, okay and then in terms of okay…

Play MPE in terms of revenue the hit was pretty minor, it was along the order of $50,000 a month, it is going to take almost nothing in terms of new Clipstream revenues to glory through that. We're expecting a lot of -- we launched the cloud product we're expecting that to contribute significantly in the first quarter. Hubert Mak – Cormark Securities: Okay and then in terms of their technology I believe I heard Blackberry and iPad is still outstanding but would you say right now all the key components for Play MPE is rolled out, Universal is, is aggressively or at least pushing into these new geographies and verticals?

Yes exactly so those were impediments to launch into the new territories, a, we had to get the contracts in place, they weren’t willing to go into new territories until they have locked down pricing. Locked down terms and the transactions that used to be billable that aren’t now, in all honesty there is an unfairness to it. And the new pricing models is going to make it way easier for us to get this option into the new territories.

And this is important actually to take a step back and look at the technology that we develop and realize the two sides of each transaction, there is -- what the label does to send a song and the recipient side of thing so when you talk about iPad apps or iPhone apps and those things that is, that makes it easier or creates a greater use on the recipient side and part of increasing customer saying all these by marketing that as a value add to our customers. Hubert Mak – Cormark Securities: Okay.

This what answers your question Hubert?

The technology was holding us back. So, we spent the last few years building our (inaudible) development projects those have mainly come to an end. So there’s a few projects outstanding like the web based encoder, the blackberry the iPad app and the tablet app, but those in the longer impediment. The things that were impeding us to expanding into new territories. That development is all completed. Hubert Mak – Cormark Securities: Okay and then in terms of the cost if I look at quarter-over-quarter I know there was a sort of a switch between R&D declining and G&A increasing what is going on there?

So, it is a functional of the staff resources that we have a greater number of staff focusing on activities that are more supporting sales as opposed to developing new technologies and we still have a very significant presence obviously focusing on developing the new Clipstream product.

Fred, to be correct, this is mostly re-categorizing where we budget certain stuff.

It is a combination of what the staff are actually working on and the consistency on this app. Hubert Mak – Cormark Securities: Okay. Well I guess just to maybe drill down a little bit more if I was -- looks like the switch is going into G&A so and by assuming that the G&A is going to move into sales and that you guys are starting to push towards selling Clipstream. Or maybe the other way to look at is their overall task cause is that expected to increase from here going forward?

Well like I said we're going to tie new -- we expect to expand expenditures to support Clipstream, we expect to staff up. We're going to tie that to revenues, so the goal is at least on a three month period like looking forward 90 days we expect any new expenses to be offset by revenues that we would expect to see looking forward in three months. Hubert Mak – Cormark Securities: I see.

But you are right we've historically been a development R&D company and we're becoming a sales and marketing company so more and more—the new resources are mostly going to be sales, marketing and support staff. Hubert Mak – Cormark Securities: Okay. So just may be one more and that (inaudible) made line will probably get re-classed into sales as those people who are right now classified G&A will move into the sales and marketing I guess.

Well, okay, the G&A line actually if you ignore the cost associated with the litigation and the recovery, it actually has declined. So, there is a movement into G&A, it's actually it just a function of what's happened in the past in terms of the litigation, but there has been move into sales from what the staffing, what the staffs are working on. What kind of roles, what kind of activities they are doing. And even the staff in sales who we hired during the year. What Steve is saying is that when it comes to Clipstream, there is a potential to ramp up sales cost, but those in the sales staff of course those will be in the context of return on investment. Hubert Mak – Cormark Securities: Right. Okay, so moving on the Clipstream here, can you provide us with updates in terms of what the trial, what the existing marketing research and I think moved out of the trials, I believe there were plain trials, are they now like sort of full customers on their own, have you been able to get any more of these market research customers.

Yes. So let me speak to that. The word trial is probably the wrong word. Basically, what is happening is the market research companies were getting really excited and they are saying, hey, we want to use the new Clipstream. We want to reach (inaudible) we don't want to deal with java plugin issues. And we said, well, it doesn't work for everybody. There are still some glitches, there is still some problems. And few of them said we don't care. We want our launch in anyway. So we charged them full price. When I see these are paid trials, they just paid us as per normal. They paid us our normal survey pricing. But they did run into the odd glitch, we worked with their engineers and we fixed them. And so by and large all their known problems have been dealt with. There are still some minor stuff, but nothing that stops us from making money. We actually because we knew that the software wasn't perfect, or the engine wasn't perfect. We restricted just to couple, three I believe, and they are market research companies to start with. As they mentioned, (inaudible) there, we are now trying to expand that to all the market research companies. So, we sponsored the CASRO show and we sponsored the MRA show, two big market research conferences. And our staff went to those shows introduced the technology to tell everybody what's available. It still doesn't have all the balancing resource that market research companies want or need that is why I mentioned that we are still trying to turn into a market research product. But currently we opened it up so that everybody can use the engines, so as a service we can call it on their behalf and roll it out to them. So that process has begun, it's really – tentatively to last two or three weeks that we really started reaching out to others. One of the things we have been waiting for was for the new website to launch and that is now live Hubert Mak – Cormark Securities: Okay. And can you provide some color what do you mean by it'll be available in Q1, instead of like is it why – going to be ready say end of this fiscal year I guess starting September 1st and then what's the opportunity here. I understand you are rolling out, is the roll out is going to be cloud base solution and then what is the short and long term opportunity here.

Yes. So the first product that we are going to roll out is the call base solution. Again, like I said it is a drag and drop up-loader. So the people who download the up-loader software and they just drag their videos to that icon. The videos will convert into a Clipstream and they will show up in their personal web account. They can go into that account; they can manage whether those videos are online or offline, they can configure settings like for example the width and height of the video -- auto start and that kind of thing. And there is a purchase packages from us. So it will be like almost like a cell phone type model. And right out of the gate, we are going to offer it in a number of major languages so that customers around the world can access it. The original marketing plan is we are going to market really heavily to web developers. So the magazines they go to, the conferences they go to, the websites they use, the tools they use. We are also going to be marketing fairly heavily in the search engines. So if you search for something like a streaming video hosting or streaming video software, our ad will pop up and it will be really clear that's a free trial, you can download, encode and be really happy with the technology before you have to give us your credit card. But the system we are actually expecting to grow fairly virally because it goes back to snowball effect that every time somebody uses a video, it's going to be branded, it's Clipstream, so that if you right click on it or if you look at the URL of the link you are going to see Clipstream. So we are expecting more and more people are going to come back to our website. It solves such a big problem, there is such a huge demand for our cross-platform solution and I am not aware of any competing solutions. So I am expecting this could be fairly easy to sell. We already have customers that are reaching out to us. They are cold calling us rather than the other way around, asking us when can we buy this. So that could be the first product. If you go into our website you could see other products that are on their way. One that we are going to be putting a lot of focus into is the number of products for the ad industry, in terms of streaming video, that's where many billions of dollars are spent. border: thin none Black; padding: 0.00mm 0.00mm 0.35mm 0.00mm; text-indent: 0.00mm; text-align: left; line-height: 4.166667mm; color: Black; background-color: White; "> Hubert Mak – Cormark Securities: border: thin none Black; padding: 0.00mm 0.00mm 0.35mm 0.00mm; text-indent: 0.00mm; text-align: left; line-height: 4.166667mm; color: Black; background-color: White; "> border: thin none Black; padding: 0.00mm 0.00mm 0.35mm 0.00mm; text-indent: 0.00mm; text-align: left; line-height: 4.166667mm; color: Black; background-color: White; "> Right. So last quarter, I think there was a -- you guys did mention that we may see some revenue outside of the market research in this fiscal year, I guess that would be Q4, 2013. So based on these commentary, I am assuming this has pushed out, and probably where I’d say that maybe back half of next year, would that be…? border: thin none Black; padding: 0.00mm 0.00mm 0.35mm 0.00mm; text-indent: 0.00mm; text-align: left; line-height: 4.166667mm; color: Black; background-color: White; "> border: thin none Black; padding: 0.00mm 0.00mm 0.35mm 0.00mm; text-indent: 0.00mm; text-align: left; line-height: 4.166667mm; color: Black; background-color: White; ">

Well, no, the revenue that I was expecting in Q4, I am now expecting in Q1. So, you are right. We've been a little bit slower than we had hoped. Hubert Mak – Cormark Securities: And just from a technology perspective, I assume there will be continued improvements, would you say most of the significant or actually any of the significant technological results are gone by now and what's remaining are minor ones or continued improvements.

Yes, so the idea of ongoing development would be for example somebody comes up with a new tablet that doesn't implement the standard properly. We run into this all the time where there is a bug in the device, but we still have to do a workaround for it. So, we are going to keep making changes to make sure we support as many devices as possible, but technically all the technical risk is really out of it. That's what I meant when I said that the engine is pretty rock solid as far as we are concerned. So, future development is going to be on things like authoring tools, and we are doing encoders, so that people can encode and upload from their own websites. We are going to do a standalone encoder, so that people can -- instead of using our Cloud, they can use their own servers. We are building solutions for the ad industry, but all those things are the things that don't have any technical risk. We are going to find that our estimates for building out these things is going to be a lot more accurate because they are known development projects with known amounts of time to complete them. Hubert Mak – Cormark Securities: Right, and last quarter, I think you mentioned that there are a number of inbound calls from big players, I think you just mentioned it just now, what are you seeing in terms of those types of (inaudible), because I think I remember you did at one point in time you mentioned that some of these deals were one, are relatively sizeable compared to the current MPE -- Play MPE revenue base. So, if that's the case, can you comment on that and maybe if you can possibly provide some examples if possible?

Yeah, so I am seeing opportunities in the $1 million to $5 million range on an annual basis. Those conversations are all ongoing. I've actually done some travelling, I have gone to met CTOs in some of these companies, but if anything, I have been trying to hold them back. There's more customer demand than that we are ready for, because we -- like I said, we didn't even have a website. Our first product hadn't launched yet. So, I have been kind of pushing them back, but we are expecting to try it -- these are longer term sales cycles, but we are expecting to start servicing them and possibly going to a contract over the next couple of quarters. In terms of the examples, you can probably pick some of them on your own, think of things like studios or chip manufacturers or networks like telcos, cablecos that provide data access to their customers, think of big content owners, think of people involved with delivering video to televisions, surveillance cameras, I am probably forgetting a bunch, but the verticals, I think are pretty self-evident. Hubert Mak – Cormark Securities: And almost one that you named in these verticals, you are at least in discussion with some of the players in these sort of verticals?

Yeah, we've had initial conversations with decision makers in all of these verticals, that’s right. But we're at a point where we have customers, but no product yet, and not even any pricing for our product, so it’s still a little bit premature. Hubert Mak – Cormark Securities: Right, so I think it’s finally from me, in terms of just financial contribution, it sounds like you are expecting some revenue coming through in Q1 of next fiscal year, I guess 2014, and I’m assuming some of these bigger deals, which I think you just mentioned longer sales cycle, with that -- that is more likely in the next -- like the 2015 year or are you actually thinking it would actually come through in the second half of next year?

Or possibly even sooner. Hubert Mak – Cormark Securities: I see.

Yeah, the Cloud product I’m expecting to launch towards the beginning of Q1, so when it launches, it should start contributing [radar to the gate] (ph). In terms of how fast it grows, I think there is potential for hockey-stick revenue growth, but we won’t know until we try it, so we're going to put the marketing effort behind it. We are going to make sure everybody knows that it exists, it’s solving a huge problem that the people are having right now. We're going to price it so that it makes sense to the end customer. So, our expectation is that it is going to do very well, but I don’t want to put any forward-looking estimates until we get out here and start selling and start talking to customers. Hubert Mak – Cormark Securities: Right, and you are now in this quarter -- in Q4, you are more in a sales mode right now rather than development?

If you wonder we are going to be in more of a sales mode, I wish –the call product doesn’t exist yet, and we're still finalizing it. Hubert Mak – Cormark Securities: All right. Okay that’s it from me.

Okay.

Your next question comes from Jeff Terry from Aberdeen Investment Management. Please go ahead. Jeff Terry - Aberdeen Investment Management: Hi Steve. The prior caller asked a lot of good questions, so I don’t have quite as many, but perhaps if you could give us a little more color on how Universal is rolling out with your new product suite. I gathered in some of your growth function of them going into these new territories and then adding -- adding just people to distribution list and you mentioned you are driving, you are driving songs and deliveries per each week, so if you could give us also a sense of what’s the kind of growth you are seeing in some of those metrics to give us an idea when Universal will bridge their minimum threshold and start contributing?

So, I would just probably back up and give the bigger picture, so the bigger picture was that there were four major record labels, so there are –all these brands that you know of, that the people have heard of, they all fall underneath four conglomerates. The four conglomerates are Sony, EMI, Warner, and Universal. About a year ago, Universal and EMI merged or actually Universal bought out EMI, so they are going through a process of basically taking over all of the EMI outlets, so a lot of EMI staff are being replaced by Universal staff. As part of that process, EMI is going to be using us a lot more in existing markets, so whereas in the past, when they were really tight for money, they might not have used this on a second-tier release. Now they’re going to try and use it us in everything. Also EMI is going to be sending out a lot more music. The number of songs that they put out in previous years was a lot smaller. The other piece is the combined conglomerate would really like to go to journalists and music reviewers and non-radio recipients. Radio is really the tip of the iceberg. As part of that process, they needed better player software, they needed the new [go-Play] (ph) website that I alluded to, they needed the new iPhone and Android applets, so those things are all in place, but they also wanted to expand worldwide. Their goal is to go to 77 countries with us. So the way it is structured because EMI and Universal are 45% of the market, they tend to take the lead going into new territories. So, Universal and EMI would go in first I would say typically followed by Warner as the second major and then Sony is usually the last one to move into a new market. But once you have the majors, it’s kind of like having a shopping center or a mall, you need to have your anchored tenant, and the majors are like the Wal-Mart, and once you have them, that attracts the customers, and the customers – in our case, the customers are the recipients, the radio stations, and once we have that network of radio stations, that’s where the real value is. So, if they go into a new market like Germany and are followed by the other majors, we now have a huge opportunity to sell to the independents. The independents are probably about 50% of the market. So part of our strategy is, we don’t want to wait. We want to go worldwide as quickly as possible. Hence, we setup a contract that makes it easy for Universal to go under new territories where they are competing systems at a really low price, but they are rewarded for growing quickly. We have accelerator clauses where if they ramp up usage quickly, they are rewarded for it. And I think one of those markets that creates an opportunity for us to sell to everybody else, so that creates the opportunity for us to sell to the other majors and to sell to the independents. And then, the other piece that we haven’t really talked about a lot is that when we have the network in place, it gives us the opportunity to monetize the actual network itself, everything from monetizing the data and – but also going to selling derivative products, so we haven’t talked about it too much in this call, but we have other products that we will be selling into the Play MPE customers, they could add non-traditional Play MPE revenue. Jeff Terry - Aberdeen Investment Management: And in that respect I gather, again so you mentioned the four that they are serving out 1.1 million songs, and 66,000 registered users, and then I think you mentioned you are gathering all the data on those songs when you were talking about the quarter, so is that what you are heading to by the monetization of the network?

Yeah, so it’s -- so the data is valuable, but the network itself is also valuable, so for example, when we go to sell our internet radio software next year, the customers of that are going to be all the radio stations around the world, so the radio stations already trust this. We already have that network, we already have a way of communicating with them, and so we can launch that through the MPE system. Both the record labels and the radio stations are media companies, so they are going to have a demand for Clipstream. We expect record labels, for example, to be some of the very first users of Clipstream. We're looking at embedding Clipstream into our player software, so that when they send a music video out, the stream can be potentially delivered through the new Clipstream technology. So, what you kind of get is, we've got a toolbox of technologies that all kind of feed on each other, so we've got the locking patents and the watermarking patents, some of those technologies you’ll kind of cross over. We got the seven pending technologies around the new Clipstream player list technique, but this starts to become a bit of an overlap between the Clipstream customers and the MPE customers. For example, we've got a lot of demand now as I have gone out and started doing early marketing of Clipstream. We have had demand from movie studios that are wondering, can we use the MPE system to do exactly what the record companies are doing to send out videos, and when you look at the budgets, the budget on a movie might be $50 or $100 million versus a budget on a song is typically on the order of $250,000. So, we're finding that there are opportunities for us to take our technologies and kind of prepurpose them and sell them elsewhere, so I guess what I'm saying is we are finding MPE customers are potential Clipstream customers and vice versa. Jeff Terry - Aberdeen Investment Management: You mentioned a couple of things, then (inaudible) locking and DRM, and then those represent opportunities, (inaudible) and then you also mentioned previously that Universal wanted to include additional people like journalists and bloggers that are influencers in media, I think when you were in Dallas, you mentioned there were quite a few more of them than there are of the typical addresses in this distribution list.

Yeah, radio stations are the tip of iceberg. Jeff Terry - Aberdeen Investment Management: How is that happening? How is that proceeding? Are they kind of loading up address list with those types of recipients?

They have done some initial stuff. I am expecting more of that to happen in Q1. Part of my frustration is, I don't completely know what their business plan is. Fred was in UK about a month ago meeting with all the majors, and it looks to me like it's probably going to start hitting early Q1, but an answer to your other -- and like I said, radio stations are the tip of the iceberg. There are ten times as many journalists as there are radio stations, and the answer to your other question about locking and security, yeah, so HTML5 videos is what everybody is using now. There is no security, whatsoever. So, if you look at somebody like Netflix for example, they are currently using Silverlight, but Silverlight is being completely discontinued, that’s a Microsoft technology, and the alternatives don't support any DRM or any security. So, they have been lobbying the Standards Body to add security to the HTML5 standard, but there is actually an edition of about 50,000 people that have signed it opposing that because they think the Internet should be free and open and that video shouldn't have any DRM. Even if the Standard Body was to adopt some sort of DRM, you are talking five, six, seven years for that to roll out. By the time it gets into standards, by the time the new browsers are developed, and then after that for consumers to actually adopt to the new browsers. So, in the meantime, we have a system that works now that we can lock the videos, and if we send a movie to you, we can lock the movie to your computer, so that you if you forward the link to a friend, it is not going to play on the friend's computer, and the value of that is not just limited to content that is being sold, you know lot of times, if I have a movie trailer for example or let say a movie that I am developing, and the movie is only partially done, and I send it out to a producer or something, I am not going to want that to show up on the Internet anywhere. So, we are the only streaming technology where I can lock that and I can secure and protect who has access to that content. Jeff Terry - Aberdeen Investment Management: And so I guess that then you have had dialog with the studios and others that there would be potential customers for that, now it sounds like they would value --?

Yeah, I have met in person with CTOs in studios already. Jeff Terry - Aberdeen Investment Management: As well as these OTP providers (inaudible) distributors?

I am sorry, I did not hear it. Jeff Terry - Aberdeen Investment Management: As well as these other content distributors or --?

No, those have more been on the phone, but not in personal meetings. Jeff Terry - Aberdeen Investment Management: Okay.

But as I likely said, the leads are coming in quicker than we can handle them. And that's one of the reasons why we are pushing for this automated system is there is only so many hours in a day that we can talk to potential customers and including big potential customers, but I know the demand is there, the demand is like an avalanche, but we want to get all our ducks in a row, so we are trying to get the – the website is up now, but we want to get the product, the first product before we start going to contract with some of these people. Jeff Terry - Aberdeen Investment Management: But just two more questions. One is, how large is your sales team given what you just mentioned? I mean and then secondly, I want to – after that, I want to go back to your – the website.

Yes. So the existing sales team, we have got the MPE staff that works with the record labels, but on terms of Clipstream, it’s minimal, it is basically three people. So that's where a lot of our hiring is going to be, it's obviously going to be on the sales and marketing side, but initially, we are expecting that it's more going to be a support issue as opposed to a sales issue. So, when we start marketing the Cloud system, we are going to have some incoming support calls. We are going to have technical sales meets where people will have questions -- technical questions about the system. But it is not sales in the way you would normally think of sales where one on one sales are going to take place are more on the site licenses, so for example going to the CNNs of the world and saying hey you should switch your entire site and all your videos going forward over to Clipstream. The thing with that is that's going to take the server-based encoder, and the server-based encoder product hasn't launched yet. The same applies to some of the other networking opportunities, like if I was to go to a big Internet company like a Telco or a cable company, they are going to want to control everything, so they are going to want to have the site server encoder as opposed to the card encoder, which is the first product that we are launching. So, everything is kind of under development in parallel with a lot of balls in the air, but we expect the first ball to land, and to land really shortly is the Cloud-based encoder. Jeff Terry - Aberdeen Investment Management: Okay, and then on the website, I did go to daily.plaympe.com, and it's just -- is there, is there monetization for this or will you be in effect providing sites for Universal or anybody that wants to come out with their new songs or new video content?

Yeah, there is expectation that we are going to be able to monetize this in the future. As I mentioned, we are adding streams to the song, so you can come and listen. So, a lot of times, we are the only place you can get the song. So, this is a pre-release period. The songs come out on radio. It's not available for sale yet. And so, we are going to have it, so that you can come and stream the song and listen to it on that website. When that happens, we are expecting a large enough advertisement -- large enough audience that we can monetize it probably through advertising it. But the reason we built it out was actually to drive recipient demand. If I am a record label, and to back up we are going to be syndicating all those charts. So, the charts that are showing up on that site, we are letting other sites and magazines and stuff carry those charts. So, if I am a record label and my song is not showing up in the top ten listing in a category, that's actually going to hurt me and cost me sales. So, I am going to want to make sure that I send through Play MPE system, so that I have a chance to show up in the chart. But the other thing that's happening is, especially with independents is they will now take their content off this site and they will blog it. So, it will show up in Twitter, it will show up in their Facebook, anywhere that they are out marketing their system. They are building awareness for our system. So, what its doing is its driving demand for both the labels to use the system and to pay us, but it's also creating demand for recipients to log into their Play MPE account to get the latest music. It's also going to drive usage in another way, and that's if I see a song come through the Play It , the daily site, and I didn't receive it on my Play MPE account, I now have a way to contact the record label, and say hey, how come you didn't send that to me. And every time they add a new recipient, that's another $0.50 in revenue for us. So, it's going to drive more people to be on the record company's list, and it's going to help make our lists more accurate. The system is opt-in. So, currently not every song goes through our system is showing up there, but we are going to expect more and higher and higher percentage of the MPE songs that will show up there going forward in the future. Jeff Terry - Aberdeen Investment Management: Well, thanks very much.

Thank you.

Your next question comes from Robert Kecseg from Las Colinas Capital Management. Please go ahead.

Hi, Steve. Yeah, I wanted to ask you about competition. Now that you have these contracts with the major studios on the music side, do those music companies have an alternative other than your company to deliver this music out? - Las: Hi, Steve. Yeah, I wanted to ask you about competition. Now that you have these contracts with the major studios on the music side, do those music companies have an alternative other than your company to deliver this music out? Capital Management: Hi, Steve. Yeah, I wanted to ask you about competition. Now that you have these contracts with the major studios on the music side, do those music companies have an alternative other than your company to deliver this music out?

Yeah, there are alternatives out there. There are this kind of couple tiers of alternatives, but in terms of a secure system like we offer with the locking, with the recipient based watermarking, where every recipient gets a different version of the song that is marked with their system. With support -- global support by all the majors, with usage on many continents, there’s no other company like that out there, but there are a lot of regional competitors, lot of companies that are putting out MP3 files which are of lower quality where they are not providing any reporting, where the security is fairly minimal, typically just user name and password, or where the labels can’t do their their own list management, so it’s basically just an e-mail blast to a group of recipients. That second tier business, we're actually not currently addressing. We have decided that we want to become a premium service and keep the pricing targeted to the customers that want the premium service. If I was to talk about the U.S. market, for example, there are alternatives from – you know in the urban market, there is a company called Serato, and there is a system called Newmusic Server. Newmusic server, you upload your song there, there is no security at all, and everybody in the system can get free music like anybody in this call could go log in and become a new music server customer, and can get free music basically. One of our ex- partners, AllAccess.com, they do a limited amount, you know where they do promotions, and we are running into those types of companies elsewhere and other markets. In many cases, we're finding that we can kind of partner and work with them. In the case of – there is a company called MusicPoint in Australia that had all the Australian labels. We ended up taking all that business away from them probably about three or four years ago, but we ended up working with them as a partner, so they are actually a subsidiary of Clear Channel, and we partner with Clear Channel that they can now get all their music through their media-based systems. The media based system is a way of linking into the Play MPE system, so an answer to your question, we really see our biggest competition as being still the physical CD, the labels still send a lot of physical CDs as silly as that is on the high end, and then on the low end, labels are sending out MP3’s. Sometimes they don’t even use a competitor, they will just use a system like YouSendIt.. The major labels tend to not do that. They tend to have policies against doing that, but you see a lot of that with independents where the independents just want to get their song out there and they – you know they don’t care if it gets pirated.

And then back to the thing about the minimum where various people are asking about, if they are not at the minimum yet of the big guy Universal/EMI, then if they haven’t reached it by the next quarter, then we pretty much already know what that quarter will be, all right it will be about the same as this one here. So, then it would just be a matter of which quarter it breaks through? - Las: And then back to the thing about the minimum where various people are asking about, if they are not at the minimum yet of the big guy Universal/EMI, then if they haven’t reached it by the next quarter, then we pretty much already know what that quarter will be, all right it will be about the same as this one here. So, then it would just be a matter of which quarter it breaks through? Capital Management: And then back to the thing about the minimum where various people are asking about, if they are not at the minimum yet of the big guy Universal/EMI, then if they haven’t reached it by the next quarter, then we pretty much already know what that quarter will be, all right it will be about the same as this one here. So, then it would just be a matter of which quarter it breaks through?

Well, no, because there is a seasonality to it, Q! is always by far our best quarter, because it’s leading into Christmas, so you’ll see a big jump in revenue just based on usage is always high going into Christmas, so September, October, November is always a busy quarter, so especially sequentially quarter-over-quarter you can see a lot more usage. Whether they [build] (ph) through the minimum or not, you know it’s probably going to be close, but we're going to see a lot of growth with all of the other activities that we're doing, so we're going to see the other majors using it more, we are going to see more independents, you’re going to see us going into more territories with other users. What the impact of that is, I’m not so sure. But I am expecting our Clipstream is going to contribute in a - fairly big way to next quarter. So like I said, the revenue hit that we hit this quarter – that we took this quarter was only $50,000 a month, it is not going to take a lot of Clipstream revenue to make that up.

Okay, and then I don’t think this was mentioned yet, I was cut off by a power outage here, I didn’t have quite the backup servers that you do, so I missed a part of the call, but did you explain whether or not the other two major music companies were already using it or not, I’m not sure if I understood that, I am talking about Warner, Sony. - Las: Okay, and then I don’t think this was mentioned yet, I was cut off by a power outage here, I didn’t have quite the backup servers that you do, so I missed a part of the call, but did you explain whether or not the other two major music companies were already using it or not, I’m not sure if I understood that, I am talking about Warner, Sony. Capital Management: Okay, and then I don’t think this was mentioned yet, I was cut off by a power outage here, I didn’t have quite the backup servers that you do, so I missed a part of the call, but did you explain whether or not the other two major music companies were already using it or not, I’m not sure if I understood that, I am talking about Warner, Sony.

Yes, I should be clear with that, especially in the U.S., we really have everybody, and all majors are very active. With Sony and Warner, they are organized a little bit differently, and you tend to not do a -- I mean we have a global contract with Warner, but you tend to also have to go and get each territory on site, so whereas Universal will tell all their territories they have to use us, they have to make that decision, but head office has the power to insist the territories use it. With Warner and Sony, they tend to be a bit more regional. Sony in particular used to be Sony BMG. They had bought a company called Bridlesmith, BMG, and BMG labels are managed kind of separately from the Sony labels, so what ends up happening is you tend to have to do contracts with the individual sub labels or you have to do geographic contracts. So with the other majors, we've got independent contracts in all the Nordic countries. I think there are five countries there that are represented; Australia, New Zealand, which we have got all apart usage in a bunch of territories. Warner did a global contract with us to establish its pricing everywhere, but we still have to come into each market and kind of figure out the agreement. So in terms of usage, what labels are using us where, the best place to kind of monitor that is, if you go to the front page of our corporate site, dsny.com, there is a little link in the bottom right with the real time statistics. You can actually click in there and you can see the songs go by as they come out. Now, sometimes you see a blank either on the volume or the name that just means that the label is sensitive. They don’t want to make it public that their songs come out, but in general, you can get a pretty good idea of what we're sending where and to whom.

Okay. Thank you very much. - Las: Okay. Thank you very much. Capital Management: Okay. Thank you very much.

Your next question comes from Scott Shaffer. Please go ahead.

Hi, Steve. Regarding G2, you said that we have customers, but don’t have product now. Can you kind of sum up a little bit how and when investors and video content producers will know when you do have a product? Steve Vestergaard – President & Chief Executive Officer: Yeah, so the answer depends on the vertical, so we've got customers coming from different verticals. We have got everything from ad agencies to like I said Internet providers, all the different verticals that I have talked about the studios. Those different verticals are going to need different products. And in some cases, they are going to need some custom development, but as a first step, we need to get our first encoder out there. So, our first self-serving coder where the general public can basically use it, so that first self-service encoder is going to be the Cloud product. We want to make it so simple that anybody can use it, so we're actually not even using the word encoder, so we are going to call it an uploader. Behind the scenes, it will secretly be encoding into the Clipstream format, but from the customer’s point of view, it’s just drag and drop. They’re just pulling videos and other formats, Flash, Windows Media, whatever ever, dragging those videos on to the icon on their desktop, and they just magically appear as Clipstream content on their Clipstream accounts. They can log into their Clipstream account, this is the contents there. They can click to a button to make it online. As soon as they do that, they have to purchase a package from us, a package of minutes from us where there would be a recurring revenue stream for us. But once that process is in place, we can take that encoder and we can adapt it for the other applications. So, in terms of the bigger deals that we've been talking about, a lot of them are going to be looking for us, basically an encoder that runs on their own server in the background, so where they can have something on their own corporate network, and we give them a site license, and they can just kind of use it internally. That has to come after the first product comes out, so in answer to your question when’s the first product going to come out, really early in the first quarter. I don’t want to get nailed down on a date, just because recently we’ve missed dates and being late. My philosophy is I want to get it right before we put it out even if it takes more time, but I am expecting it to be really early in the first quarter, how will you know, you’ll actually see it for sales, we (inaudible) press release and make a big deal about it. As I mentioned, we hired the PR Company. They help you with timing. We have got the PR company geared up to be trying to get us [passed] (ph) in early September.

Okay, so you will actually announce this, so the market will know when this product is for sale, or is that…?

Yes, what we have had so far is we have had our engine. We have had our trials with the market research companies, but I haven't one to tell the world about it, we didn't have a website. We didn't have a product that the world could buy. As funny as it sounds, we didn't want to get inundated with customers where we had to tell the customers that sorry, the shops closed, there nothing on the shelves you can buy it yet. We wanted them to come to us when the product's ready. So we've intentionally kept out of the press. We actually hired the PR company on May 1, and we've actually asked them not to do anything because we' have not been ready for them. When the Cloud encoder launches, anybody that wants to use Clipstream can use Clipstream, including the bigger customers. It's just they have to use it on our terms putting it up on our server. When that product is ready, yeah, we are going to tell the world. We are going to be as loud and extroverted as we can be. We are going to be screaming from the rooftops and trying to get as much press as we possibly can.

And that will be early first quarter?

That's right.

Okay. A couple of quarters ago, you said one G2 licensing deal could be larger than all of your annual revenue…?

Yes, our current annual revenue is around, using round numbers, call it $4 million. The Clipstream opportunities, on an annual basis, we are looking at probably one to five is the potential. But again, –we need a product to sell to a lot of these people. So, I have had initial conversations, I have actually gone in and met CTOs in person for some of these opportunities, but we are still pretty early in that process. If investors are looking for revenue, the first revenues besides market research are expected to come from the Cloud product. But that said, these big opportunities can use the Cloud in the meantime. So as much as they want, their own solution on their own servers, while they are waiting, they can still pay us to use the Cloud system.

Is it reasonable or could you see (inaudible) in the first quarter or two?

Sorry the beginning of that kind of broke up, can you repeat yourself?

Okay. Could you see -- your current revenue was $1 million. Could you see that type of revenue just with the Cloud product in the first quarter or the two quarters, just from the Cloud product that’s the retail Cloud product?

So we have all kinds of ambitions for the cloud product. I think it has the potential to do the hockey stick and huge growth. It's going to be a smaller purchase. I mean we are looking at probably anywhere from $10 to $500 per month. It's going to really depend on the volumes, the volumes that we can achieve. The reason I don't give any forward-looking guidance on that is because we really would be speculating. We haven't done any test marketing to know for sure. So, we are not going to know until we launch it. What we do know is there is a huge opportunity. This business is worth many billions of dollars. We are going to make it available globally. So, we are going to have a German version and a Japanese version, et cetera. It's going to be self-served, so there's nothing on our site to limit volumes. It's not going to be limited by our server capacity or bandwidth capacity, because we are going to outsource to Amazon to start with. So, there's nothing to slow that growth. So, it can grow really fast, but we are not going to know until we launch. My expectation is it's probably going to start slow, and that's where the hockey stick comes in. And as we get more and more word of mouth, it's going to be like a snowball that more usage is going to attract more usage and is going to kind of grow like that. But I am personally expecting the impact on Q1 will be significant, what that dollar amount is we are not going to know until we have tried.

The advertiser site, when does that – does that come after the cloud?

Yes, that will be the next thing. What we are finding with the advertisers, we’ve met with a lot of advert – we’ve met with some of the biggest agencies in the world. They are telling us what they want. One of the things they are really excited about with Clipstream is we can give reporting from within the video. So, for example, if somebody pauses within the video or they move their mouse to a certain part of the video, we can give that kind of tracking information back. We can also make the videos interactive. So if they want to have a game like you've got a video and there are 12 coke cans hidden in the game, see if you can find them all. Those are sorts of interactive things we can do, we can make things in the video clickable so you can click to on advertiser’s website if you click on certain things, within -- within a video. So, the advertisers are really excited, but they tend to want all of the – they want us to provide the entire service. They want us to encode it, to host it, to possibly audit the streams, , keep track of was the ad actually seen, a big problem for them is they get billed for an iPad view when their ad was actually off the screen, so nobody actually saw it even though it was delivered to the iPad. They wanted us to do all the reporting on the back side, so we’re building out service solutions around that. A part of what we're going to need is to ramp up a bit on the staff, so there’s the development and R&D piece to it, but there’s also the business plan piece to it. I’m guessing it’s going to take us at least until towards the end of quarter two to be marketing to the advertisers. Now, in the meantime, the advertisers can use the cloud-based encoder product. So, Amazon can support tens of millions of impressions, so if somebody wants to encode an ad and put it up on the Cloud and embed it into an ad campaign, they can do that, and we’ll automatically make more money on it. So basically because of the way the pricing is going to work, we are going to charge extra for impressions, so if somebody has a piece of content like an ad that’s reaching tens of millions of people, we’ll automatically build on way more money than we would if it was a kid that’s delivering a video to hundred people.

The last question is, the watermarking patents, and where you stand there?

That is so incredibly frustrating. We reach out to the patent office about every six months, and they keep updating their estimate. The last time we reached or two times when we reached out, (inaudible) was supposed to be April 2013. The current estimate is early August 2013, so we're coming up to it, and it is any time. One of the problems with it is our watermarking is technically very complicated, so you can actually go and the patent’s published, so you can go and take a look at it yourself, go to – Google has got a patent site, you can go to. And there aren’t that many people in the world that understand it, and so our belief, our lawyer’s belief is the European patent office only really has one guy that’s an expert in patent -- in watermarking. We're really just waiting for him to go across his desk. It is being delayed so many times, or their estimate is being delayed so many times. I don’t expect it to be any later than this year. But I could see it being delayed as much as into the fall sometime. That is really frustrating, we filed the original provisional pattern in 2006, so it’s been seven years.

Is the delay preventing you from getting any business from any customers who manage that …

Yes it’s possible for us to get the business with both having the European patents, but the industry is so litigious that the watermarking industry -- and there are so many patents out there, (inaudible) are nervous to use anything that’s not protected by a patent. And we really do need to get that out there so what it’s really done is held back our marketing. We probably would be putting more effort into marketing the watermarking if the patent was in place.

Okay. Thank you.

Thank you.

Your next question comes from Jim Kennedy from Marathon Capital Management. Please go ahead. Jim Kennedy - Marathon Capital Management: Hi Steve, hi Fred.

Hi.

Hi Jim. Jim Kennedy - Marathon Capital Management: I want to switch back to MPE for a moment. Fred said early on that part of the challenge globally is people understanding the value of what you have. And I guess where I am wrestling with is if – I have heard that the number panting about that this is a potential $50 million a year market. You have obviously the dominant player in the U.S. and I’m wondering what is that value or what is that proposition that people who are having trouble understanding you’ve got your pricing in place. Is it a competitive issue or a competitive question earlier why aren’t people slapping themselves inside they’re head and going gosh! I never knew we could do this or I need this I mean obviously there is something out there that either they don’t know of it or the value that Fred alluded to just does not being communicated the way it should so what gives me the confidence that our revenue on the MPE side and go from 4 million to 25 million over the next x number of years.

Well I think the value of point b can be delineated into a number of factors, the value of our system really depends on who you’re talking to, so major labels are concerned with security, independent labels are concerned with the distribution aspect and all of them are concerned with the probability that – our system will get on air.. Now we think that major labels probably have a better idea of how that actually ease into Play MPE and how that impacts your ability to get on air, but that information is difficult to obtain. We think that when you sense a plan -- there are so many different positive aspects of Play MPE we do market research studies from our recipients all the time and there are a number of things that they like about our system. There is a number of formats that they can download into, there are number of apps that they can download into. And the download speed and the quality of the sound of the music, are all features that are, that put us in a very good light. The trick I think is translating that into the effectiveness of the delivery so, okay your recipients like this system a lot, but what that means is a 5% chance, better chance that you’ll get on air or that you’ll get on air more quickly or that getting on air even to a lesser extent will likely mean your royalties are more accurate, but those kinds of things are difficult to market. Jim Kennedy - Marathon Capital Management: Your technology may or may not help someone get on air quicker or at all as opposed to competition.

Alright, I think there is no question that I does, I think we have a lot of competitive advantages in that, but the trick will be putting that into metrics and to quantifying it.

Let me take shot at that, in some of the new markets there is slap pricing. So I can go to a promotions company and (inaudible) phone or radio stations for me, and say, hey you need to download the new song and just click the song up as an MP3 on their website. No security, maybe a username and password and that’s it. But sometimes, there is a perception that for 500 bucks I can get – all you can eat or reach as many people as they want and that comes with promotion as part of it. Whereas we’re coming in as a more expensive service with all these extra value, but we're saying for an independent we might want $0.75, let’s see we’ll be asking for $250 minimum and we're telling them, oh you need to either go through us or you need to learn our encoder package to try and figure out how to upload it. We also have vested interests, so as the majors goes into a new market and they switch everybody over to us, that may mean that they start laying off certain promotion staff they don’t need them anymore, can they do all the distribution in a country like Poland out of the UK that means they can let a lot of staff go. So there is -- we do run into some internal resistance. And we also have the problem that it’s common for independents to come to us in a new territory where we were not after. We don’t take their money because we don’t want to, we don’t want to take their money and send it out and nobody downloads the song. So, we are not that active in a territory. There’s no sense by doing that. The problem is to become active in a territory we need Universal and EMI to seize the market, you need to get the other majors, we need to get the radio stations all actively using the system. The next piece is a list, so their record labels the majors tend to have their own lists, but they keep them confidential, so we're not allowed to share them with other labels. It’s kind of like their secret sauce who do you send to get a song on air. So, we actually have quite a few staff that do nothing more than call radio stations and find out who should we be sending to. Typically, the program director at a radio station is really hard to reach. They don’t want to be bothered by every crouch band in the world so typically their identity, their real email address, their contact information is typically hard to get. So for each territory we have staff that are building out lists, until we have a list in the territory it makes it difficult for us to market to the independents, but that is where this contracts is so important is a lot of these things can happen a lot more quickly if, we can kind of go on the code strings of Universal and let them handle all these new markets for us and we keeping fingers crossed is looking really good that’s what’s going to happen. What we don’t know is exactly what the timing is going to be. We're expecting the timing to start in Q1 and probably early Q1 but if you want to monitor, the best place to monitor how usage is growing is to look at our real time stat site. Jim Kennedy - Marathon Capital Management: But Steve, in what percentage of that business is actually U.S. not for you just in total worldwide what percentage of that music distribution is U.S. and then how much is outside the U.S.?

You mean in the potential business? Jim Kennedy - Marathon Capital Management: The total, right in other words if I were going to size this entire market, okay what percentage of the entire market is the U.S.?

If I was to guess I would probably guess somewhere around the quarter. Jim Kennedy - Marathon Capital Management: Okay.

It is a bit funny because our revenues are transaction based, so in terms of revenue the U.S. is probably a lot more than a quarter. Because that would go by record sales, but whether a record sells $1 million or $100,000 we still get paid the same to deliver it. So we can actually make a lot of money on songs that don’t go to them, but they don’t have that many sales, but still go to a lot of radio stations. From our point of view I’m guessing that our market opportunities probably three quarters international. Now Fred had mentioned that our U.S. business that we did with Universal historically is now all coming through the UK. I believe it is all priced in euros Fred you can confirm that, is that right.

That’s right.

So our global business including our U.S. revenues are all coming through in euros now so it’s being re-categorized as European business even though it’s taking place in the U.S., so it gets a little bit hard to pull it over 10-K. Jim Kennedy - Marathon Capital Management: Okay, so and again I’m just trying to get my hands around your addressable market. So if you’re doing approximately 4 million now and that’s U.S. centric and you say U.S. is about 25% of the world market does that mean that your addressable market in total is roughly $16 million or that is the part if you had duplicated your U.S. success that is the part where the percentage of the -- market that you might capture.

Yes, so where are these numbers are coming from is the U.S. as the worldwide line item was somewhere around $350 million to send those physical CD’s when you take a look at the savings that their -- the prices that they are paying to switch over to digital that probably puts the market down to about 60 million. We think out of that market, we probably can get about two-thirds so we think one-thirds is going to go to the low end, so just people uploading MP3’s or emailing out MP3’s or using yousendit that kind of thing. I believe the addressable market is above $40 million. But it’s not -- our potential for growth is not just geography even in the U.S. it’s really common for promotion staff to not us because they view it as a little bit complicated. So we've got somebody in the content management part of the major label using our sophisticated but because it’s sophisticated it’s a little bit complicated to learn using our encoder and when they encode on behalf of their internal staff they might have a two or three day turnaround. So we get promotional staff in the label that might use an alternative. They might just use (inaudible) or something and just to send it out because it is quicker and even though it is against company policy who is going to know we’ll just push it out there. You can go ahead Fred.

Jim, I think the question was predicating on the assumption that we were knocked out in the U.S. and I think I mentioned it earlier but there is still substantial room to grow in the United States. We continue to grow with independents each quarter, it’s persisted and consistent, but there are still quite a lot of opportunities or there is opportunities to grow within the majors themselves I think when Sony is say approximately somewhere between 40% of the revenue received from UMG historically before they acquired EMI you still see that there is huge opportunity with Sony and now Sony is a bit of a different animal because they are set up differently than UMG but and they also have their own system that is priced differently than ours I mean their costs are hidden a little bit. So there is with the renewed agreement at UMG I think we're actually able to compete and pursue Sony and then EMI little bit more effectively now we’ll see how that happens, but there is other areas where we can really increase in United States too and that is from the web based encoder that I had mentioned, you’ll find --I think if we can put this out that the easier you make it for customers to buy the more likely they will. And it’s not just the function of price and all the rest it’s just the user experience, I think there’s a lot of opportunities still in the United States and I’m not sure that really… Jim Kennedy - Marathon Capital Management: Fred, I guess I am wrestling with a little bit is what I’m hearing is that you’ve signed all the major so to speak. That’s one hurdle, you’ve got what everyone believes is a superior product. And we've got a $40 million addressable market usually when you bring those things together you get some pretty rapid growth unless there is something in that equation and what I’m hearing is that it’s not quite as (inaudible) as just saying, okay, we have our agreements now everybody come to destiny for their needs. And I’m just wondering I mean is this a 10-year proposition where you’re going to have to go out to each one of those individual markets and help seed things and you’re going to have to customize some of the technology or access to it. Or does this growth become rather a hyper because we're finally over some hurdles and held us back in the past?

Yes one of the big hurdles that has held us back is development. So what we have now is web based encoders are going to make a huge difference because it makes the way easier. We've also have created something where labels can share assets. So if I put a song out in the U.S. I can now share with all my sister labels all around the world so they can repurpose it put in the local language and they can push it out. What we’re doing is we’re going through each objection, we're building out lists in each territory, we're making the system easier to use. We're going after new recipient types I think we (inaudible) underestimating the number of CD’s that are going out to journalists for example that market is 10 times the radio market. I have had senior executives at the majors tell me that radio is absolutely the tip of the iceberg. So the objections are kind of all being dealt with, but one of the big ones for us to move quickly into new territories because we really need that Wal-Mart we really need that anchor tenant to build out that market. So like I said typically the majors are about half the market, the independents are the other half. We can’t market to the independents until we have the majors. We typically can’t get the majors until we get at least Universal EMI as first like into that new market. So, what we think is going to really hyper charge the growth is working with the dominant major which is Universal EMI and then that we have a really strong vested interest because they save a fortune by switching over to work with them to go into all these new markets. With the other labels, you’ve got to understand that just because we are at contract with them that means their staff are allowed to use us, but it doesn’t necessarily mean they have to use us. And so one of the things that sometimes happens is that they use us for their big releases and their important releases, but a song that they think might go nowhere or it’s not maybe not as a bigger hit, they may be less concerned with the security. So really going after trying to get, we're trying to get the majors to force the staff to use us on every release. If we go to a parent level contract with Sony in U.S. for example that’s something that could happen and that’s something we're pursuing. Within the label themselves they do a [kind of sense] internally with the promotion staff sensed up around and just because it’s easier using these really easy tools like yousendit and (inaudible) they are sending around MP3’s completely against corporate policy, but nobody knows they are doing it necessarily or there’s no repercussions. What we need to do is get tools in their hands that make it cheaper and more efficient for them to use us than to use one of the alternatives. What we hear Fred talked about market research that we do lot of market research with the radio stations. With the record labels one of the things we really hear is they want their own encoder. And they want to be able to just do it themselves and currently we the way we are set up with the majors that they have to do everything through kind of their central staff that do the encoding. We think its web based encoder pretty -- in the hands of promotion staff we think even the majors themselves -- use the system way more than they are now. Jim Kennedy - Marathon Capital Management: And Steve without giving any forward guidance if I look at next fiscal year which starts when October 1?

(Inaudible) wanted to trick, then try and jump ahead you have your question you said it’s going to take 10 years. Jim Kennedy - Marathon Capital Management: Let me phrase it a little differently, if we end next fiscal year what’s the huge disappointment to you and what you guys doing cartwheels over, I mean if you were at a $5 million run rate on MPE having grown 25% or you want to call saying, well that was really good year, who are you saying well, we thought it would be quicker than that and are you doing cartwheels if it’s 8 million next fiscal year. I’m just trying to get a sense of what kind of adoption rate without you predicting it, but when you are disappointed in and what are you ecstatic with?

Well in terms of the way we think, in terms of the internal targets, our targets are going to go from four to 40 overnight. Our next target would be to double revenue and so that’s what we’ll be looking at. We're also looking at obviously whether it makes sense to go into some of these derivative businesses and to some extent we've already started that process I didn’t want to get into anything that’s nonpublic but when it feels like we’re swimming upstream somewhere then we look for a branch where it’s a little easier. Besides MPE we're really betting the company fairly heavily around Clipstream. We're not putting anything at risk Clipstream is going to be self financing out of the gate, but in terms to their market size, Clipstream is not a $40 million market, it is probably a $1 billion plus market —in terms of market… Jim Kennedy - Marathon Capital Management: I mean switchgears and just one question in Clipstream and I’ll get out of the line. What I’m hearing a little bit on MPE and also in Clipstream is that as you’re going through the development process and as you are getting ready to rollout product. You’re getting out a feedback from potential customers be their advertisers or large partners that gosh, it needs to do this or it really should do this or we like to do that or could you tweak it to do this. Do you run the risk as you said you need more staff, do you run the risk of these large entities just running you around for the next two years trying to add bells and whistles before you ever get an order that means anything?

I think we're going to grow the revenue the quickest by going through volume first. So with that guidance stand at $50 a month I mean that is still $600 a year, there’s this many 100’s or 1000’s or even millions of them out there. That’s what we're targeting first because we can completely automate that process they can put in their own credit card information. And ultimately I think that’s an add up to more than (inaudible) kind of ask this question I was a bit evasive, but it is going to ultimately add up to more than the one off sales, the one up sales are more difficult. Jim Kennedy - Marathon Capital Management: Right, right okay. Bye guys thanks a lot. I appreciate you taking my call.

Thank you.

(Operator instructions.) There are no further questions at this time. Please go ahead.

Okay, I appreciate everybody’s time I know there’s a lot of questions as it was a fairly long call. If you didn’t get a chance to ask a question both Fred and I are very accessible, we welcome both phone calls and emails from investors. We're happy to answer any questions. We're also happy to take suggestions some of our best constructive criticism and some of our best opportunities have come from our own investors. So please feel free to reach out. Otherwise, on that note I think we’ll adjourn. Thank you.

Thanks everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.