David Mossberg - Three Part Advisors, IR Fred Vandenberg - CFO Steve Vestergaard - CEO

Hubert Mak - Cormark Securities Robert Kecseg - Las Colinas Capital Management Robert Sullivan - Big Sky Investments

: :

Thank you, Chris and thank you, everyone, for joining us on the call today. Before we begin, we will be referring to today’s earnings release, which was sent to the newswire earlier this afternoon. I also should remind everyone that this conference call could contain forward-looking statements about Destiny Media Technologies within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon current beliefs and expectations of management, and are subject to risks and uncertainties which could cause actual results to differ materially from those forward-looking statements. Such risks are more fully discussed in the Company’s filings with the Securities and Exchange Commission and SEDAR. The Company does not assume any obligations to update information contained in this conference call. During this conference call will discuss certain non-GAAP financial measures. These non-GAAP financial measures are presented in the supplemental disclosures. They should not be considered in isolation of, or as a substitute for, or superior to the financial information prepared in accordance with GAAP, and should be read in conjunction with the Company’s financial statements filed with the SEC and SEDAR. The non-GAAP financial measures used in the Company may differ from similarly titled measures presented by other companies. A reconciliation of non-GAAP financial measures to the most comparable GAAP financial measure can be found in our earnings press release. Our speakers today will be Fred Vandenberg, CFO, and Steve Vestergaard, CEO. And with that, I’ll turn the call over to Fred.

Thanks, David. Play MPE is our digital delivery system used by the record labels to deliver music for promotional purposes and represents more than 96% of our revenue. As expected, revenue for the quarter and for the period took a step back due to the renewal of the agreement with the Universal Music Group, which became effective after the second quarter of last fiscal year. We’ve now had a full year of the effective date of that renegotiated agreement under our belt, and I wanted to take a step back and address some of the overall trends in our revenue. Initially we saw a tremendous growth with Play MPE when revenue almost doubled in 2009 and 2010 and grew by 55%, and even in 2011 we grew by approximately 10%. Starting in 2011, we saw a couple of challenges that I’ll talk about briefly, which I think saw some flattening, or a mild retraction in revenue that I think gives the wrong impression of Play MPE. The largest impact we faced is the renegotiated agreement with Universal when we combined our North American and European agreements into one global agreement. This eliminated some of the inefficiencies inherent in the agreements, and has negatively impacted our revenue over the past four quarters. The keys to our success for Play MPE is to gain or keep major label usage in a particular segment or geographic territory, and leverage that network of use with the labels and the radio stations to sell to independent labels. Very broadly, this is our marketing approach. The keys to maintain or obtain major label use are generally simplifying the distribution process, make the distribution effective, satisfy various security concerns, and maintaining competitive pricing. With that as a backdrop, another event that adversely affected our revenue occurred in 2011 when our marketing partner in Australia attempted to move the entire market to a lesser service with at the time half the major label market presence, physical presence in Australia and by charging substantially lower prices. We’ve seen a gradual erosion of that independent label revenue in the last few years. However, over the course of the last year, our team conducted market research and gathered certain metrics and testimonials at radio, that sort of thing, and began talking with Sony Music Australia. Direct talks began in July of 2013, and then near the end of the quarter we announced that Play MPE signed an exclusive agreement with Sony Music Australia. This agreement became effective after the quarter. As a result, we now have all majors using Play MPE in Australia, and we’ll be focusing in the near-term on regaining independent labels in that market. Also in the near-term I think we’ll be focusing in on the major label usage in the United States and by reviewing the accuracy and completeness of our label distribution list and marketing those results. We’ll also be focusing in on Scandinavian revenue, where we have seen a real growth in major label usage, and as such have a network of use that we will leverage against. Also following the quarter we had an announcement with Shazam. Now very simply, for those of you that don’t know, Shazam is a company that provides apps to smartphones which when someone hears a song they can tag it using the smartphone app and find out the name or the artist associated with that song. Now that listener then has the option to buy that song directly on iTunes, for example, or Amazon. We believe that with a more successful tagging, that is the app knows the song, the more record sales or song sales will grow. With the agreement with Play MPE, Shazam, we’ll be giving a digital fingerprint to Shazam in many cases before the song is released, and thus there is going to be no lag time between the release of the song and the time when the listeners will be successfully tagging the song. Thus we believe there will be fewer unsuccessful matches. And this will be, like we believe a value-added benefit of distributing through Play MPE. Our costs for the quarter, expenses, were virtually identical to the comparative period with the exception of a onetime item. With the cash that’s exercising the repurchase of options during the period. The fully diluted shares of the Company were reduced by slightly less than 1.5%. With that, I’ll turn it over to Steve, and I’ll be available on the call for questions later.

Thanks, Fred. So for the benefit of the new investors in the call, I’d like to begin by offering a brief summary of our businesses. So our Play MPE secure delivery system is used by major record labels to send their pre-released music through the Internet to trusted industry recipients, such as radio stations, DJs, and journalists. So this is an automated system that builds record labels based on transaction usage in monthly and per song minimums, and currently it represents about 95% of our revenue. Actually, I stand corrected, 96% of our revenue. So our second product line, Clipstream, it’s the new cross-platform streaming video product that we launched early in the second quarter, which disrupts the $5 billion transcoding and content delivery industry. Unlike competing solutions that require the video to be converted into multiple formats, the single Clipstream format plays across a wide range of devices without a player plug-in. So in both cases the revenue model is recurring and the revenues are sticky. So each month we expect to keep the existing business for predictable revenue base and layer on new customers. This incremental revenue requires minimal spending outside of sales and marketing, so as we are able to grow the top-line, the operating leverage within our model will allow our bottom-line to grow almost significantly. So similar to the previous three quarters, our Play MPE revenues were negatively impacted by our contract with Universal. Now for those unfamiliar with the contract, our new terms changed the way we charge Universal for certain recipients. Also, as Fred mentioned, the contract combined the minimums for various territories into one global minimum. In exchange for making those concessions in the contract, we received a guaranteed minimum revenue level. Since usage levels in Q2 were still at or below the minimum, our results reflect the lowest level of revenues we received from the agreement. So Universal represents 45% of the major label market, and should provide a solid foundation for growth in the coming years. We also have a global agreement with Warner and agreements with Sony sub-labels around the world. At the end of the second quarter, our Play MPE service was selected to become the exclusive supplier of digital distribution services for Sony Music Australia. In the Australian market, we are the exclusive provider for all three majors and many independent labels. We believe this agreement will help add usage by more independents in the country and greater overall usage in the region. Subsequent to the end of the second quarter, we had two significant announcements regarding Play MPE. First, we signed an agreement with Shazam to license our digital fingerprints and metadata to its servers. So as Fred mentioned, Shazam has a technology which identifies a song based on the song's digital fingerprint. Ahead of time, they need that fingerprint and associated data to be entered into their servers, and we're their earliest source of data they can license. This process benefits both consumers and record labels. Under the old system, information for new releases needed to be manually entered into the system, and it often took a few weeks to be uploaded. In some cases, the information for these releases was entered incorrectly, or even missed altogether. For example, many independent songs wouldn't make it to the Shazam database, but now independent customers can be sure they're included if they use Play MPE. So that's why we think this feature is going to help drive increased usage with independents. So under the new system, the information will be uploaded automatically as soon as the song is made publicly available. This should lead to an increase in digital sales. Secondly, we received approval for watermarking -- for our watermarking technology in Europe. The inaudible digital trace embedded in the audio files survives duplication, filtering, and conversion into other audio formats without affecting sound quality. We now own four watermark patents, including two in the U.S. and one in Japan. We have applications pending for a third patent in the U.S. and one in Canada. So the field is quite litigious, as there are so many watermarking patents, so it was really important for us to get this approval in place before we could begin to market it. We have no immediate plans to market it directly, but we've begun exploring partnerships where the technology could be licensed by third parties to their own customers, so they can mark audio and video content. A typical use of the patent would be to mark content to identify the recipient in case it is pirated, but the mark can easily contain other information besides the recipient’s identity, such as the geographic region a piece of content is intended for, or even other terms of the license. Since we cannot control the usage levels by the major and independent labels directly, we continue to focus on reducing barriers to usage for Play MPE. This quarter we released apps for the Android, iPhone, tablet, and iPad, with a fifth BlackBerry version on the way. The value of this is that many program directors don't have time to listen to new music during the business day, and because of that, a new song might miss being added to rotation. With the apps, they can listen to broadcast-quality versions of the audio in their car through Bluetooth, and if Play MPE gets more songs on the air, that's just going to drive business. A web-based encoder is currently in the late stages of development. We expect it will really increase usage. Currently promotions staff generally have to send the song to a special department internally which deals what Play MPE sends. Even though it's against corporate policy, they will often find a new means other than Play MPE, such as using Dropbox to send it in a method that's not secure. They lose the benefit of security reporting, but they get the immediacy of being able to go send it directly themselves. Our market research is showing us that there would be a large demand for a simpler web-based Play MPE tool that promotion staff can use directly without a lot of training. We believe this web-based encoder is going to increase usage with our existing major label customers. One of the terms of our new contracts that has impacted revenue is that we don't charge for a recipient that hasn't used the system directly in three months. We are developing a new system to allow recipients to listen to a music file within the e-mail itself so they don't have to log in. That will become a paid user just by clicking and streaming the music. We're also exploring expanding opportunities for Play MPE beyond music. For example, we've been meeting with studios to explore using the system for delivering video. We believe our current run rate for Play MPE represents only about 10% of the global opportunity or I should say audio opportunity available to us, and we're exploring new opportunities outside of audio, so we can see a lot of potential for growth going forward with Play MPE. Investors can actually follow that expansion themselves. If you go to our real-time stats page, just go to dsny.com and scroll down to the bottom right of the home page, there's a link there labeled Play MPE Stats. If you click on it, you can see automated sends as they go out, and generally these sends are labeled with the name of the country that they’re going to. So moving on to Clipstream, our soft launch in Q2 has successfully shown us that the system has the features that are needed to disrupt a $5 billion transcoding and content distribution business. Video data usage is almost doubling from year-to-year, offering a tantalizing opportunity for both us and our investors. We built an engine that is really unique because our single format plays everywhere without player software and without a streaming server. We use JavaScript code in the web page itself to stream from a standard web server rather than a streaming server. So we filed seven patents claiming priority to August 2011 to stop anyone else from using those techniques to create something similar. In February of this quarter, or of Q2, we expanded our application, our patent applications to dozens of countries all around the world. As we see this is a global opportunity, we want the technology to be protected everywhere. So the standard way to do it now is to encode the video into three to five formats, which are uploaded to streaming servers and content delivery networks that are separate from the web server. Users are required to maintain player software or to have the latest chip on their device. The video is completely open and can be readily copied and pirated, and once encoded the video quickly becomes obsolete as new standards are introduced. With HTML5 video tag formats there's no ability to interact with the video or create reporting as the video plays. So our approach is much simpler, and has the advantages of up to 90% bandwidth and hardware savings because of the caching and stream recycling. It has longevity, as our video will play well into the future, security -- we can protect from piracy, and the ability to directly host without transcoding and content delivery network costs. New devices that are hard to support, including TVs and devices that aren't even invented yet, will play our format as long as they support the latest browser standards. So there's been some confusion between Clipstream, the engine itself, and the cloud service that we just launched. We’ve decided not to license our engine directly, at least not yet, so instead we’ve built a separate solution, a cloud solution, where users can drag and drop video into any source format, or starting in any source format, and it will automatically convert into our format and play seamlessly in the cloud through embed code the user drops into their web page. So hundreds of other companies offer cloud systems, including systems like YouTube, which is free, and that creates some confusion because on the level of that solution, these companies are competitors. But if you take it there, but they also make an end product, they make cars and motorbikes. When we talk about launch, understand that there's the engine, but also the Clipstream cloud solution, and then on top of that solution we expect a layer on other solutions for other customer types. So with this background, I'd like to provide an update on our progress in the quarter. In early December, we soft launched our cloud solution. We found some usability issues, which we fixed over the Christmas holidays and into early January, then we began marketing to web developers through search engine advertising in late January to get early test customers and early feedback. We found there was some confusion where users would try to register without downloading the software, or download the software and then forget that they needed software to upload. They looked for the upload button in their account, or they tried to encode from their smartphone. Also to encode source video they need the correct source codecs installed for Windows to provide us with the video in a nonproprietary format. So we've done a number of revisions of the site and software to fix some of these usability issues, and continue to make major revisions based on early user feedback. For example, we're expecting another major upgrade of both the site and the software next week. On February 25th, we launched a much larger marketing campaign to web developers featuring an ad in our own format. This campaign served a secondary purpose of field testing the technologies of video ad solution, and I'm really pleased with how the ad has worked. We're having really high play rates, and it's working much better than competing solutions. This campaign is ongoing and we expect to continue it into the future past the initial one month trial. So you can view that ad yourself. It's at tinyurl.com/clipstream-ad. Just over a month later, on March 31st, we renewed the ad campaign to continue into the foreseeable future. Then layered on a new ad campaign to market research companies. The second ad, also in our own Clipstream format, is available for viewing at tinyurl.com/clipstream-survey-ad. So with the tagline of drag, drop, done, the Clipstream cloud service is the easiest solution for creating video. This service allows any non-technical user to download our software and upload a video that can play on any type of device, including PCs, laptops, mobile phones, and tablets. So we're selling packages of transfer minutes, similar to a cell phone plan, with packages going anywhere from $5 per month to 5,000 per month. Most of the current users are signed up for our $5 and $20 range packages, so the impact on revenue to date has been fairly legible, but we're layering on reliable recurring sticky revenue. And once we're really happy with the automated solution, we could scale it fairly quickly by increasing our investments in marketing. So the approach we're taking to our sales strategy is to attack markets one at a time, layering on revenues like the layers of an onion around a secure, reliable, automated core. So we're mostly ready for the two initial markets, web developers and market research companies, and have been selling to both of those throughout the quarter. But we're still building up features that they need. So for example, web developers want to be able to view the available frames in a video to pick one per use as the front frame before the video starts playing, and we don't currently support that. In terms of the market research guys, we have our initial layer of security for market research, but they’re anxiously awaiting our second security pack, which is due in May. We think this second level of security is going to rapidly expand usage in the market research vertical. For other markets, we are close to being ready to sell, but we need more development to productize the offerings. So for example, advertisers need authoring tools to create their own ads where they have the creativity to make them interactive. They would also like better reporting and integration with third party systems, such as real time bidding networks. So we see the automated solution as the core of our onion in our proof case so we can sell it to other markets that require a high level of sales. So some of those other market verticals include large site licenses for companies who do a lot of video, white labeling the solution, so large cable and telephone companies can offer their own YouTube-style services to their members powered by Clipstream, integrating the offering into other software and hardware products, so imagine using video editing software cameras that directly save the video into the cloud in our format, putting product videos into online retail sites -- this is a big one because there's very little competition here as competing solutions don't play well with database-driven solutions, providing security for remote viewing of private videos, such as movies and TV shows that are not complete that are still under development, streaming paid movies and other video content to consumers, et cetera. The list goes on, but it's a fairly long list. And our challenge and our opportunity is one and the same. The market is so large that as a small company we need to initially target early wins in one market, but one market at a time, adding markets as we grow staffing, which gets to my next point. We began the hiring process in April to support the growth of Clipstream. We’ve hired a sales consultant who teaches at the local university and who has built several large sales organizations. We're also working with a consultant in the ad industry who's been a serial entrepreneur in the new media space, and it also has really good contacts. We engaged a tech sales-focused recruiting agency to find senior level talent to round out our team. So on March 27th, we announced that we'd opened a sales office in Silicon Valley. This was a small executive office in a tech start-up lab that gives us space in the centre of the action where new companies are being funded and grown. So one of our directors, Yoshi Kumagai, will be manning the office, and we expect to hire area sales staff to be managed out of that office. We're currently looking for a head of sales and marketing, and senior sales people with a history of doing enterprise-level sales. We're also hiring programmers and support staff, such as quality assurance tester, product manager, technical sales support people, et cetera. So we understand the need to build out our sales and support levels in order to grow the business, but our hope and concern is to keep spending levels to no more than one quarter ahead of revenue. So overall, we're very excited about the prospects of our business. We believe we are really well positioned to capitalize on the growth stages ahead of us. But before we open the call for questions, I've received several questions by e-mail that I want to answer initially here. So the first one, do companies have to use Destiny servers to use Clipstream? Evasive answer here, the system was intentionally created to be compatible with third-party servers. All the account administration logic takes place on servers that are owned by Destiny. For example, our servers identify the location of the viewers so that the hosting could come from a location close to that viewer. We then hand off the commodity hosting to partners. We currently use Amazon as our partner supplier, but last week Google slashed prices, and we're tempted to use them. Then Amazon matched the wholesale price break, but we're going to integrate with Google anyway as a supply partner too, as expanding providers creates better system reliability, but also improves our ability to get better wholesale pricing. We can use this system to let a large telco or cable provider or a large site license to use their own commodity hosting to serve up the video while still using our servers to manage the logic. So the answer is that it's kind of a business decision whether or not we allow third parties to run Clipstream on their servers. So probably for some of the bigger deals, yes we will. What is the significance of getting the watermarking patent, and what effect will it have on the revenue? Okay. The answer is because the space is litigious. We needed the patents to prove to offer the solution outside of our own products. The watermark patent is significant on a few fronts. First, it allows us to protect and defend our proprietary technology from competitors. Second, the watermarking feature provides security features that protect Play MPE content. We view the watermark as a selling point that will offer value to users but cannot -- our sales efforts for Play MPE and Clipstream. So the approach we are taking is to see if it can be sold indirectly. We started talking to potential partners that could sell it as a service into their own market. It's not our biggest marketing priority, but we've at least put a single hook in the water to see if we can catch our first fish to partner with. Next question, have we reached the MPE minimum? And what is the revenue expectations for the third quarter? So the answer is we were above the minimum in October and just barely to the tune of a few hundred dollars over it in March. So it's been dipping below most of the last few months, but we expect with the web-based decoder and growth into the new territories, it won't be long until we can stay over the minimum on a sustained basis. Our worst-case scenario is not bad in that we will continue to generate the revenue we did this quarter from UMG on a guaranteed minimum basis. How is the Clipstream adoption coming along? Have we reached any milestones, considering the short period of time? Have you hired or are you very close to hiring a marketing sales executive? I think those questions were kind of answered in my preamble, but if I've missed something, I welcome more specific questions when we open up the phones. Next one, do you plan Clipstream to be used on full-length films, videos in the future, and not be limited into the advertising or short video clips? So actually we're not limited to short videos, I'm not sure why people have that misperception. The length of Clipstream's not limited at all. You could encode a five hour movie as a single Clipstream video clip if you want to. There is a lip-synching bug that shows up if you do a video bigger than five minutes and you seek aggressively on certain devices that don't purge the audio cache fast enough, but the bug doesn't come up that often, it's minor, and it's in the queue to be fixed. That wouldn't stop us from selling it for bigger content. The bigger issue for movies is we need to get our movie security pack integrated, so we have a second security system that we're integrating where you can walk the video to either a source site or to a specific recipient. So we can set it so that the video plays on your computer, but if you pass it to your friend, it'll refuse to play. So that's kind of based around the Play MPE patents. That security pack is in the queue to be completed over the next three to four months. Can you do higher than HD quality with Clipstream? There's no limit to the frame rate or number of pixels, although in the cloud we currently limit it to 30 frames per second, 960 pixels horizontally, but that's just a setting that we put in there. A more higher quality takes a longer initial buffer, more bandwidth, and more CPU. It would mean that older machines like the iPad 1, the viewers on lower speed ISPs might not be able to play it. So that's an acceptable compromise for some applications. We currently send data in two-second chunks, which means that a minimum of a two second delay between when you click play and when the video starts playing. In our tests, we found that if we were to increase the chunks to 10 second chunks, our available bandwidth on some ISPs that are currently throttling us would more than quadruple, allowing us to do much higher quality. But we found people don't want to wait 10 seconds for the video to start for normal clips. But for a movie they might be able -- might be willing to do that. So yes, we plan on doing a special version of Clipstream for high-quality movie applications. Why don't you have a showcase of demos? Okay. That one was a mistake on my part, so I was concerned to give visitors to the site too much to do. I didn't want them going into a showcase and watching movies or watching our ad. I didn't want them to do anything other than click download and register the software. I found that I was wrong, and a showcase is in the process of being added to the site over the next few weeks. How does your encoding speed compare to other solutions? So our speed is actually very comparable to other solutions as long as you're encoding at the same bit rate. So generally other solutions wouldn't go above 640 pixels wide, the time it takes us to encode all the bitrates up to 640 as an aggregate is about the same time as it takes us to encode the 960. In other words, we can cut the encoding speed in half by removing the HD option. When you encode on other services, they often put up a low-quality initial video immediately to make it seem like it is ready when it actually isn't. That's actually a really good idea because they say, your video's ready, but we're improving the quality or a message like that. So we're going to do the same thing. So that's in the queue of features we plan to build into our offering. Also the encoding speed is CPU dependant. For example, if you encode on a server, it's much, much quicker. The reason we don't encode on a server or don't encode in a cloud is we don't want to pay for it. When a customer uses their own PC to encode, it saves us a fortune on the cost of servers and real estate. So our encoding speed is highly dependent on the number of cores and availability of RAM. So a typical laptop only has two real cores, the others are virtual, and will typically take five times real-time for full screen HD. We use a machine in the office here with six cores for market research video, and it actually encodes much, much faster than real time. And you can buy it -- that's only six cores -- you can buy machines with 16 cores to dedicate to video encoding to do much faster than real time. Because we're relying on the desktop for the mass users, we are working on improving encoding speed by using the graphics card to assist with some of the array math calculations. But I wouldn't expect that improvement until late in the summer. Do you have an agreement with Warner Brothers for its movie trailers to showcase the Clipstream survey services? Can you comment on any development of future relationships with them? So the answer, we do make movie trailers for most of the six major studios, but our customers are the market research agencies and not the studios directly. They use us through the studios. That said, the large -- the six large studios are all targets for us, and they're obvious targets for us. Are there any companies currently using Clipstream that can show how they are using the tech? Yeah. We plan to put up case studies on the site as we come across really good ones. We're still fairly early, though. Most of our initial customers are small users and small web developers, but that's on the to-do list to add case studies to the site. Will there be an option for users to buy the software and host videos on their own servers, therefore not having to pay you for minutes? It's technically possible for us to offer that. It's actually one of the benefits of the system. You can create -- you can use any brand of web server and not be tied to us at all after the videos created and you have the JavaScript embed code. Strategically we haven't decided to offer that yet, as it gets away from our recurring revenue model. With our system recycling and our ability to use multiple commodity providers, we think we can match or beat prices if needed and still get much higher margins than any of the other cloud providers. That said, we expect there will be large customers that will demand that feature. For example, military and government users will probably want to use their own hosting for security reasons, and anyone that does hosting would want to use their own capacity. So for large enterprise license opportunities, we’d make that decision on a case-by-case basis. Last one here, when will you be ready to launch the Mac version? Well, first, I should just clarify, I think there's some confusion. Clipstream plays fine on a Mac. I think what this question is referencing is creating videos and uploading videos from a Mac. That Mac encoder's been basically ready for about a month, but there's a small bug in the way the encoding logic is working, and we haven't wanted to take our core codec engineers off the new features in the Windows encoder. So once we do that launch next week we'll have the Windows guys back on trying to track down that bug. So I'm guessing that’ll probably be ready sometime in May. That said, we haven't really had that much demand for a Mac version of the encoder. I'd say there's actually more demand from device users that want to encode with their smartphone. But that is -- it's not reasonably possible to create videos on a device because of CPU limitations, but we could let them upload to the server and do the encoding on the server. This hasn't been a priority for us to offer, though, as it would cost us more to do the encoding on our equipment, and people uploading video from their iPhone would generally expect the service to be free and ad sponsored. This would be the kind of offering we'd be more likely to offer as a white label to a cable or phone company that might want to rebrand the service as their own, but powered by Clipstream. So that said, I'd like to open this up to questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Thank you. Your first question comes from Hubert Mak, Cormark Securities. Hubert, please go ahead.

Hey, guys. Just want to maybe start with Play MPE here. Can you sort of comment in terms of what does the rollout internationally outside of North America looking like with UMG well for right now? Like where do you see -- like how are they taking you guys out there internationally? Cormark Securities: Hey, guys. Just want to maybe start with Play MPE here. Can you sort of comment in terms of what does the rollout internationally outside of North America looking like with UMG well for right now? Like where do you see -- like how are they taking you guys out there internationally?

Yes. So that's why I encourage people to look at like our stats that you can get to off our front page is if you follow the stats you can actually see that they've already started testing. And there's test sends going out all over the world in some places with local market issues, but also trying to remove the barriers to their expansion. :

Okay. I know you tried to address this as part of those e-mail questions, but can you sort of be a little more specific? Like what type of growth rates are you looking at maybe next year to maybe even three years out? Like if you look at growth rates like for next year, where do you see your market share opportunity maybe three to five years out? Cormark Securities: Okay. I know you tried to address this as part of those e-mail questions, but can you sort of be a little more specific? Like what type of growth rates are you looking at maybe next year to maybe even three years out? Like if you look at growth rates like for next year, where do you see your market share opportunity maybe three to five years out?

: : But in terms of answering your question directly, we don't really have a good metric or a good way to project where we're going to be. Internally we have goals, but we're not going to share the goals on this call. Fred, did you have anything to add to that?

Well, I think when you talk about growth and Play MPE revenue, you really have to break it down by market, and we don't do a global assessment. And like I said earlier, we really tend to focus in on the independents where we have major label usage, or first establish major label usage. And sometimes that is dictated by UMG. For example, in Scandinavia we have a very strong usage with UMG, but also now we have with Warner and some with Sony. So we're going to leverage that into independent growth, and we have metrics on terms of growth in that area, but in terms of projecting -- predicting percentage growth globally, we don't do that, at least not in a way that we would publicly announce.

Okay. And then just maybe we’ll witch over to Clipstream then. I understand you guys really only started marketing the product probably even early March of this year, so that's probably close to the quarter. But obviously now we're month or so, a little more, so where -- what is the uptake right now? And where do you see this sort of ramp going maybe into either Q4 of this fiscal year, or is it early next year? And then in addition, like is there anything that you guys -- because it sounds like you guys still need some development, or are those just very minor to get this sort of ramped up? Cormark Securities: Okay. And then just maybe we’ll witch over to Clipstream then. I understand you guys really only started marketing the product probably even early March of this year, so that's probably close to the quarter. But obviously now we're month or so, a little more, so where -- what is the uptake right now? And where do you see this sort of ramp going maybe into either Q4 of this fiscal year, or is it early next year? And then in addition, like is there anything that you guys -- because it sounds like you guys still need some development, or are those just very minor to get this sort of ramped up?

: We launched into that market late January, didn't advertise too heavily, but we advertised through the search engines on very specific keywords to get initial feedback. Then we layered on a pretty big marching campaign about a month ago. I think that's like 1 million impressions a month or something. That one's using our ad format, which gets to the ad format. So the ad format, we're working with a consultant in the ad space. That one's ready to go for a bunch of customers, but it's not quite productized yet. So we can offer it as a service, which doesn't make us as much money, but we're starting to do that. So the idea is our sales people can go out and pitch it as a service, but we want to build out offering tools and better reporting for that space. So a fraction of the customers in the ad space would be happy with that. A larger fraction are going to want us to better integrate with some of the third party stuff. So we're also working on that. That would be integrating with real-time bidding networks and reporting systems, and just being compatible with all the standards. So the ads we're starting now, but we're going to be adding features and tools, and it's going to take some time before we can reach that entire market. But that's a big market. We think that's the biggest market for us, so we're putting a lot of effort into the ad market. Next one is market research, and we've been growing that one even in the current quarter. What they're coming back with is they want our next security pack in the worst way. So the new security pack blocks cut and paste. It embeds the IP address into the video, so if you film it with a camera you could tell where the video came from. It blocks screen scraper software, just a whole bunch of stuff that protects their content from being pirated. : We started the recruiting process. We're expecting that person is probably going to be working -- they're probably going to want a month off between their old job and their new job. Realistically, we're probably looking at July to get that process -- or to get that person at -- we'll probably be able to announce the person sooner than that, but to get them actually here in the office day-to-day. :

Okay. I mean -- but particularly in the context of all the things that you said now, based on today what you have in place, and I understand there's some, maybe... Cormark Securities: Okay. I mean -- but particularly in the context of all the things that you said now, based on today what you have in place, and I understand there's some, maybe...

Yes. So to answer your question, we're expecting Clipstream growth in this current quarter, so the current quarter being Q3, which is March to May, and we're expecting decent growth. But we're early in the game and we're not going to publicly project what we think those revenues are going to be yet. That said, as we get wins we will press release them and try and be transparent with investors.

So are you able to sort of give a ballpark on when you think that Clipstream revenue will be let's say meaningful to your overall revenue base? Cormark Securities: So are you able to sort of give a ballpark on when you think that Clipstream revenue will be let's say meaningful to your overall revenue base?

:

Okay. And then just one more question here just in terms of what you just commented about your sales, you’re hiring sales right now and by July. Am I correct in assuming that that sales would be focused on the enterprise? And if that's the case... Cormark Securities: Okay. And then just one more question here just in terms of what you just commented about your sales, you’re hiring sales right now and by July. Am I correct in assuming that that sales would be focused on the enterprise? And if that's the case...

: The other thing we're looking at is keeping the brand-new expenditures, so the expenditures, our new hires, to a level where we expect revenue growth within three months to pay for that additional cost. We're not looking to go into a big loss position. We want to grow within our means to grow. We want to grow with revenue.

Okay. And I guess I'm just thinking that -- I mean given that you're looking to hire by July, let's just say that's the time frame, then if you're looking at sort of several quarters before the sales guy gets ramped up, then we're looking at enterprise deal probably maybe late next fiscal year then. Is that sort of the thinking here? Would that be reasonable? Cormark Securities: Okay. And I guess I'm just thinking that -- I mean given that you're looking to hire by July, let's just say that's the time frame, then if you're looking at sort of several quarters before the sales guy gets ramped up, then we're looking at enterprise deal probably maybe late next fiscal year then. Is that sort of the thinking here? Would that be reasonable?

Well, no, because we're attempting to do enterprise sales now.

Okay. Cormark Securities: Okay.

I mean we've been attempting to do enterprise sales since December. It's just some of these sales cycles take a long time, and it's not just the cost of the sale. It's a big deal for a big company to change the way they do things, and they're not always in a tremendous hurry. But things will go faster when we bring in help.

Okay. And then, sorry, just one more here, just in the terms of the cash. I noticed it went down relatively significant. Obviously you guys repurchased some options, so what's your sort of thinking about cash and trying to queue on both Play MPE as well as the Clipstream? Cormark Securities: Okay. And then, sorry, just one more here, just in the terms of the cash. I noticed it went down relatively significant. Obviously you guys repurchased some options, so what's your sort of thinking about cash and trying to queue on both Play MPE as well as the Clipstream?

:

Okay. I'll pass the line. Thanks. Cormark Securities: Okay. I'll pass the line. Thanks.

(Operator Instructions) Your next question comes from Robert Kecseg, Las Colinas Capital Management. Robert, please go ahead.

Hi, guys. I've got a question for you on the MPE. It shows on your data reporting on the site about 70,000 registered users. And in looking at the seven-day report, it looks like roughly 100 to say around 200 registered users are on there over that seven-day period. So what my question is, is how many of those 70,000 registered users are actually active users? Las Colinas Capital Management: Hi, guys. I've got a question for you on the MPE. It shows on your data reporting on the site about 70,000 registered users. And in looking at the seven-day report, it looks like roughly 100 to say around 200 registered users are on there over that seven-day period. So what my question is, is how many of those 70,000 registered users are actually active users?

: :

:

Yes. As an example, some of the sends -- like if a send's being done by Universal and Universal's below their minimum, in a way you could think of that send as almost not generating any revenue. Until we get up the minimum it doesn't increase, it doesn't create anything new.

And maybe just an easier way on the Clipstream side. So you're saying that in this current quarter that we're in right now that there are actually some Clipstream revenue? Las Colinas Capital Management: And maybe just an easier way on the Clipstream side. So you're saying that in this current quarter that we're in right now that there are actually some Clipstream revenue?

Yes. So the Clipstream revenue we're getting now is web developers coming in, putting in their credit card, and choosing a package. Because it's something new, they tend to either choose the $5 or $20 package. The system is set up that as they use it they're going to be charged overage for usage, which will incent them to go up. So we're expecting a web developer, for example, will probably typically be around $100 a month, but they're not $100 the first month. : : :

Okay. Great. Thank you. Las Colinas Capital Management: Okay. Great. Thank you.

Thank you. There are no further questions at this time. Please proceed.

:

Your next question is from Dave Fannin, private investor. Dave, please go ahead.

Yes. Thank you. You addressed a lot of the questions that I had, but one of the areas that you didn't address at this point and I'm just sort of curious of where you and the Board stands as far as a reverse split, and this is the NASDAQ?

: :

Okay. Thank you very much.

Thanks. We can take that last question.

Your next question comes from Robert Sullivan, Big Sky Investments. Robert, please go ahead.

Yes. I've got kind of a question, it's more of a comment. I was going through your Investors Relations page, and I'm going back to 2012, and you guys have Clipstream applets on this page, and on both my browsers they get blocked. It says the application is blocked by security settings... Big Sky Investments: Yes. I've got kind of a question, it's more of a comment. I was going through your Investors Relations page, and I'm going back to 2012, and you guys have Clipstream applets on this page, and on both my browsers they get blocked. It says the application is blocked by security settings...

Yes. So we actually -- I mean we've talked about that because we don't want to go back and reinvent history. Those old news releases are part of our history so we've left it up there, but even though that's branded as Clipstream, that's another product that was branded as Clipstream that uses Java, and a lot of the browsers today block Java for security reasons. :

Okay. Excellent. Thank you. Big Sky Investments: Okay. Excellent. Thank you.

Okay. There's one more question here. So this will be the last question.

Thank you. Your next question comes from Hubert Mak, Cormark Securities. Hubert, please go ahead.

Hey. Just one follow-up here, in terms of the Play MPE, you guys are obviously running through, I guess, the guarantee minimums, as you suggested. Under the new agreement, are you guys expecting continued growth going forward from, I guess, Q3 and going forward? Cormark Securities: Hey. Just one follow-up here, in terms of the Play MPE, you guys are obviously running through, I guess, the guarantee minimums, as you suggested. Under the new agreement, are you guys expecting continued growth going forward from, I guess, Q3 and going forward?

:

I'll just add a little bit to that. I think one of the things I tried to highlight was that the last year was negatively impacted by that agreement with -- that adjusted agreement with Universal, and going forward, so Q3, Q4, and into 2015, we do expect to see growth. And one of the things that that negotiated agreement does is, is it does hide some growth that we’ve seen in other areas. Like there is 20% growth in Northern European usage, there’s the Sony Australia agreement that would not have impacted results at all yet. We believe that we can grow because we have that network of major label usage that no one else has in Australia. We believe we’ll be able to regain the Australian independents, and we also believe that we can springboard from that usage to other areas in the general area, like New Zealand or perhaps even Southeast Asia.

Okay. Thanks. Cormark Securities: Okay. Thanks.

Okay. Thank you, everybody, for attending, and I think that wraps it up.

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