VitalStream Holdings Reports Record First Quarter Revenues

VitalStream® Holdings, Inc. (www.vitalstream.com), the parent company of VitalStream Inc., a streaming media solutions and global content delivery network (CDN) provider, today reported results for the first quarter of fiscal 2005.

Revenues for the quarter ended March 31, 2005 were $3,397,888, a 71 percent increase over revenues of $1,991,437 in the same period a year ago, and a 14 percent sequential increase over revenues in the fourth quarter of 2004. In the four quarters through the recently concluded quarter, VitalStream has recorded increasing year-over-year quarterly revenue growth of 36 percent, 51 percent, 69 percent and 71 percent. For the first quarter of 2005, VitalStream reported a net loss of $196,000, or $0.00 per share, versus a net loss of $213,000, or $0.01 per share, in the same period a year ago.

The company's operating expenses reflect costs to expand the sales force and increase marketing efforts, increased product development activity, capital investments in our content delivery network to increase scalability, one-time costs related to the preparation and implementation of Section 404 of the Sarbanes-Oxley Act of 2002, and a one-time severance charge of approximately $70,000.

VitalStream's weighted average shares outstanding increased by approximately 88 percent for the first quarter of 2005 compared to the first quarter of 2004 as a result of financing and conversion transactions that occurred in June 2004.

VitalStream ended the first quarter with cash of $9.1 million versus cash of $10.3 million at December 31, 2004, primarily due to a prepayment of certain license fees of approximately $750,000 during the quarter.

During the quarter, the company also recorded a one-time gain of approximately $200,000 in other income from the sale of certain smaller hosting accounts to a third party. This sale reflects VitalStream's strategy to increase focus on its core streaming product lines.

"VitalStream continued its track record of generating strong revenue growth as we expanded business with existing customers and added new ones," said Philip N. Kaplan, president and chief operating officer.

On May 2, 2005, the company announced it had acquired the business of PlayStream, a leading provider of streaming media services to small and medium sized businesses. In 2004, PlayStream recorded revenue of approximately $1.6 million, more than 90 percent of which was recurring revenue, and generated positive net income.

"The combination of our two companies provides customers a comprehensive, scalable solution for delivering their digital media content on the Internet. PlayStream has a major presence in the small and medium-sized businesses (SMB) and small and home office (SOHO) markets and uniquely positions VitalStream to capture the opportunity in these emerging sectors.

New customers added by VitalStream in the quarter included Sprint, Scott Company, AFLAC, the Seattle Seahawks, United World Vision and Eyewonder.

During the quarter, the company continued to enhance its product offerings by announcing its third generation Video Streaming Service for Flash that features a new reporting dashboard.

VitalStream also announced an OEM partnership with thePlatform, a leading provider of digital media publishing tools that will offer customers a comprehensive publishing solution to manage, control, publish and track secure digital audio and video that is sent over VitalStream's advanced CDN.

"These kinds of product enhancements continue our tradition of providing our customers innovative solutions and advance VitalStream's competitive position in the marketplace," Kaplan noted.

Adjusted EBITDA for the quarter ended March 31, 2005, was $86,000, compared to $35,000 during the comparable period last year.

VitalStream defines Adjusted EBITDA as net income (loss) before interest, income taxes, depreciation, amortization, non-recurring asset sales, and stock-based compensation. Adjusted EBITDA is not a measure used in financial statements reported in accordance with generally accepted accounting principles, does not represent funds available for discretionary use and is not intended to represent cash flow from operations as measured under generally accepted accounting principles.

VitalStream's management uses Adjusted EBITDA as a measure of its operating performance. In addition, VitalStream believes that Adjusted EBITDA may be useful to existing and potential creditors of VitalStream, and to analysts and investors that follow VitalStream's performance, because it is one measure of the income generated that is available to service any outstanding debt.

VitalStream, Inc., a wholly-owned subsidiary of VitalStream Holdings, Inc. (OTC: VSTH), is a global provider of integrated content delivery services that enable businesses to broadcast digital media and communications to worldwide audiences via the Internet.

This news release contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 19034. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.