INTERVIEW - DAVID HOOD PROGRAM: CEOCast.com LENGTH: 15:00 DATE: January 29, 2002 GARY NASH (Senior Analyst, CEOCast): I'm Gary Nash and welcome to CEOCast. Joining me this morning is David Hood. David is the co-founder and the Chief Executive Officer of the private company Hemera Technologies Incorporated. David, welcome to CEOCast. DAVID HOOD (CEO, Hemera Technologies Inc.): Thank you very much Gary. NASH: Now, your company is in the digital imaging and graphic software space and you've just launched a new product, but you've also expanded internationally. And we're going to talk about that a bit more as we continue more with our chat. But David, for those who may not be familiar with Hemera Technologies, give us an overview of the company. Tell us a bit about it. HOOD: Sure. Hemera was founded with the goal of making it easy and affordable to use high-quality digital images in any type of application. Targeting homes, schools, business and for professional projects as well. Hemera actually has one of the largest, if not the largest, collection of wholly owned digital images in the world. This gives us several advantages. One is that we can offer our complete image line royalty-free which has several advantages. One is that it means that our customers can use the images in any way they want, without having to worry about paying on a per usage basis. The other part of royalty-free for us is the fact that the images are wholly owned, which means that we do not have to pay a royalty on the back end. For us this translates into much greater control over how we can use the content and into our margins. In addition to the image assets of this large collection, we also provide a really unique software technology to make it easy to search and use images. This allows people who aren't familiar with graphics, from the home consumer right up to the business user, people that don't use graphics on a daily basis but do need them once in awhile, to be able to use them very quickly and easily. So, really it comes down to our mission of leveraging our image assets and technologies to deliver high-quality images through many different channels and to as many different customers segments as we can. NASH: David, give us a sense of the opportunity in this space. I mean with the proliferation of the home computer and then everyone sort of having that entrepreneurial spirit, I would think a lot of opportunity exits. HOOD: The digital imaging market is a huge market and still has a lot of untapped potential. We divide the market up into three large segments to make it easier to look at. The first is the consumer segment, where we talk about home, school and small office customers. And there's no question that this segment is growing with, as you said, the proliferation of computers. Another segment that we think will be very large in the future is the business segment, with more and more people in a business capacity requiring images for use in their business communications. These are people whose role does not include graphic design, but people in marketing, sales and finance who need to make presentations and add impact to documents using images. The third segment we see is the one that's probably the most established so far, which is the graphics professional market. Looking at these three segments we think that there's a five billion dollar opportunity within the next three or four years. NASH: And what is Hemera's core customer? I mean, you've mentioned the three sectors, but basically is there a particular customer or market base that you were targeting of those three sectors? HOOD: Right now, we have two main types of customers. The first are the customers that use Photo-Objects and The Big Box of Art; these are packaged products that are sold globally in three different languages and available, I think, in 10 to 15 different countries, mostly in retail outlets. These products are available for both Windows and Macintosh and the customer is very much the home, school and business user, and also to a certain extent professional multimedia designers. We also have a second type of customer, which are our licensing partners. These are hardware, software and service companies who license our images as well as our technology and include them in their products or offer them for resale. Examples of these types of customers are Hewlett Packard Company, AOL, Kodak and quite a long list of others. NASH: Let's talk about that a little more. How are you reaching your customers? How are you marketing Hemera to the targeted audience? HOOD: We have a strategy defined by segments. So in the consumer market we utilize mostly the retail channels, but we also use licensing. We license images and technology to quite a few companies that then offer their own retail packages available to that market as well. Within the business segment, and this is the segment that is fairly new and the one that offers the most potential, we're taking a multi-pronged approach. Once again OEMing and licensing will be important for us. This is a segment where people are already using productivity applications, such as Microsoft PowerPoint. They're also using scanners and printers, and so we'll be getting our products out with our partners to give the business segment access to our content. NASH: So, is your revenue model one of licensing, and am I getting the hint that there's going to be a subscription revenue model also? HOOD: We have a multi-channel approach and so, yes, we do have licensing revenue and that is one of our important channels. We have our retail presence, which for us is very good for several reasons. One, it allows us to reach a market that none of, or very few of, our competitors on the higher end can. Two, retail is such a good branding exercise. People see the physical products on the store shelves. And finally there are our on-line initiatives and you are quite right to guess that a subscription will be part of that. NASH: David, there are others in this space, both large and small, and they're taking a different approach, I mean, even when you're speaking about Microsoft, when you buy the software, they have an image program in there. Why should we be looking at the Hemera solution a bit more closely? What are the value propositions of Hemera? HOOD: Hemera has two unique value propositions. One is that from the very beginning we've taken a wholly owned approach to digital images, giving us the capability to distribute them through channels and to allow customers to use them in ways that many of our competitors can't. The second, and this is what's been winning us many, many awards over the years, is our technology that allows people to access our images. And we actually call it our "search and use" technology. So the key is how quickly you can find the images and then how easily you can use them. The founders of Hemera come from a technology mindset, a technology background. And so when we create products, we create so that people can get the content very quickly and easily into the applications that they're using. Be it Microsoft Word, Microsoft Publisher, or CorelDraw for example. And so I think we have a very unique combination of wholly owned content and technology that allows people to search and use the images. And this approach, I think, gives us a real competitive advantage over the other players that we've seen. Another unique value proposition is our multi-channel approach of distributing through retail, OEM and the Internet. NASH: You've eluded to it in the past, but then let's talk about the recently launched AbleStock. Tell us about that initiative and what type of forecasting the company has assigned to that initiative. HOOD: Right. AbleStock.com is a Web site aimed at the graphics professional. We're bringing royalty-free digital photography to creative professionals that are looking for high-quality images but are looking for them at a lower price. If we look at the professional graphics market, obviously there are some very large competitors out there, the two largest being Corbis and Getty Images. What we've seen consistently over the past several years is that these two companies keep moving up-market within this professional graphics segment. Their images keep getting more expensive. They keep getting more conceptual and they seem to be staking-out a higher and higher ground. This has opened up a real opportunity for a company to come in and offer very high-quality images and usable images at a lower price. And this is exactly what we are doing with AbleStock.com. We're targeting what we see as this opening market segment within the graphics professional market. NASH: And how are you reaching these professionals? Once again how are they finding out about AbleStock? HOOD: We have very comprehensive marketing programs kicking-off in February, including print and Web advertising. AbleStock will be very, very visible in the coming months. NASH: What type of projections do you have for the division? What type of impact are you looking to bring to Hemera's bottom line? HOOD: We expect AbleStock to grow, probably to represent about 25 per cent of Hemera's revenues. NASH: Let's talk about the company's solution itself. What are some of the initiatives the company has utilized in protecting the intellectual property of the company's technologies and solutions? Are there copyrights, patents or first to market, is that the strategy? HOOD: I think we follow a fairly similar strategy as other players, in terms of our digital image content, which is just being very careful in terms of our licensing agreements. We have very strict licensing agreements that set out the terms and conditions under which Hemera images can be used. We have not proceeded to use things like digital watermarking because we haven't seen that as a real deterrent. The markets we're targeting, especially the business and professional markets, place a lot of importance on the legality of the images they are using. Therefore, these are markets where you do not see as much copyright infringement as you would for example, within the consumer market. When it comes to our technology, we do have a new patent-pending technology that will launch within the next 60 days, aimed at delivering content to the business market in a quick and easy way. NASH: Hemera recently expanded and for the listeners, I didn't point out that Hemera is located in Canada, but the company has recently expanded into the United States. Tell us about that expansion and what type of impact you hope that will bring to the company overall. HOOD: We recently opened an office in Seattle and that office is right now looking after the marketing and setting up of our AbleStock initiative. We managed to lure away and hire one of the top guns from Getty Images and we've put him in charge of building our initiative in the graphics professional market. So, we obviously expect great things. Seattle is a base for Internet companies and the city has a very good and experienced workforce to draw from. NASH: And what type of foreign expansion has the company looked into, for example Europe or South America? HOOD: We have an extremely strong presence in Europe right now, particularly in countries such as the UK, Germany and France. However, our current business model is to serve Europe from our head office. We do have European sales people who look after our European accounts. We are definitely planning some geographical expansion. I think that within the next six months to a year, you'll start seeing our products and our technologies becoming available in places such as Japan, Eastern Europe and Africa. NASH: David, the company is a private company, as I mentioned from the top. How have you funded yourself? How are you funding yourself? HOOD: We've funded ourselves through Venture Capital. Being based in Canada we have dealt mainly with Venture Capitalists based within Canada. However, I think two of our Venture Capitalists are among the largest in North America. For example, the Caisse de Dépôt, which is very active in many funds down in the U.S., is one of our backers. NASH: Hemera appears to have become more aggressive as far as its expansion and branding. How are you positioning the company to the investment community? How are you getting the word out about Hemera Technologies? HOOD: The approach we've taken over the last four years, and that we're continuing to take is to build value. We've been focused on growing revenue, building the bottom line and creating a profitable and valuable company. Hemera has enjoyed 100 per cent growth every year since its creation in 1997. There's no question that the company is getting to the size where we'll require capital to maintain growth of that magnitude. NASH: You have reached profitability, am I correct with that? HOOD: We actually reached profitability within our second year of operation. NASH: Ah, interesting. HOOD: That is a rare thing for a company that started in 1997. It's one of the things that makes us very attractive. NASH: Is there a need in the future for an additional capital raise. What is the message that you would put out there to the investment community that you hope they would get, therefore you would get? What is it that you want them to know about Hemera? HOOD: I think there's no question that a company that's growing as quickly as ours, and that has plans like ours does require capital. We'll be keeping our eye on that. And if business performance continues as it is right now, we will be looking at raising more capital in the future, and obviously depending on market conditions that may include a stock offering. NASH: With that in mind and speaking from a strategic view point here, what can we anticipate from Hemera, let's say given the next two quarters? HOOD: Within the next two quarters we're broadly expanding to reach a lot of new customers. We already talked about AbleStock and that will continue to be one of our large initiatives. AbleStock was launched last week and we're expecting big things out of it in the next six months. Within the next 60 days, we'll be unveiling a new patent-pending technology that makes it very quick to search, access and use digital images. This technology will be aimed particularly at the business segment that we've talked about. We also talked a bit about geography, and we will be expanding into new areas. However, we're not sleeping on our retail (box product) side. We're continuing to expand our product line, the Photo-Objects line, the Big Box of Art line and in this next quarter alone I believe we are launching five new and/or enhanced retail products. So there's an awful lot of activity here. NASH: So, I guess the company is in an environment now of execution, and showing the investment community along with your customers that you can deliver what you have said, what you've promised, right? Are you in that type of environment right now? HOOD: Very much so. As we've been in for the last year or two, we're in a high growth mode. We have a lot of expectations on us, evidently both from the investor's side of things, but also from the customers' side. We've shown that we can deliver high-quality products that the market wants, and we want to keep executing on that and expanding into these new customer segments. NASH: David finally, what's your overall vision for the company? HOOD: We've already talked a little bit about the industry and that there are two large players out there right now. Our vision for the company is to grow and join those top two, and in particular we see the business segment being very, very important in the future and we're positioning our technology and our content to become the leader within that segment. NASH: David, I want to thank you for joining me on CEOCast this morning. First of all, congratulations on the launch of AbleStock, I wish it much success going forward. HOOD: Thank you very much Gary. NASH: I've been speaking with David Hood. David is the Chief Executive Officer and also the co-founder of the privately held company Hemera Technologies Incorporated. Until next time, this has been Gary Nash, for CEOCast, where Wall Street listens. -30- Hemera (founded 1997) creates and sells royalty-free digital images to the consumer, business and creative professional markets. Hemera's image products are available directly via the Company's Web sites - www.hemera.com and www.ablestock.com. Hemera images and image collections are also available worldwide through sales channels that include retailers, licensors and software republishers. Hemera possesses one of the world's largest collections of wholly owned, royalty-free digital images, and a growing family of award-winning and best-selling image collections. For more information, visit www.hemera.com. LEGAL Media Contact: Mats Lindeberg Tel: (819) 772-8200 ext. 284 Email: media@hemera.com << Back to press releases.

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