Musicrypt Reports Increased Revenues And Decreased Expenses In Fiscal 2005 Q2

Toronto, Ontario

Musicrypt Inc., ("Musicrypt" or "the Company") (TSX-V: MCT, OTCBB: MCYPF), the industry's leading digital music distribution company, today announced its financial and operating results for the 6 months ended June 30, 2005. All dollar amounts are in Canadian dollars unless otherwise specified.

Musicrypt continued to make significant progress during the first half of 2005, as revenues for the period were over four times the revenues for the first half of 2004. During the same period, the net loss decreased by over 40% from the same period last year. Revenues for the second quarter of 2005 increased 195% over the second quarter of 2004. The Company also met the deferral criteria for development costs under generally accepted accounting principals primarily as a result of the financial position of the Company and the fact that the Company is generating revenue from the product and technology it has developed.

Financial Review
For the six months ended June 30, 2005 Musicrypt reported a net loss of $797,000 ($0.04 per share), a 45% decrease from a net loss of $1,440,000 ($0.11 per share) for the same period in 2004. The loss for the second quarter was $353,000, which is $477,000, or 57%, lower than last year's second quarter. These decreases were primarily the result of a cost saving program implemented by the company and recognition of product development costs as an asset, combined with the increase in revenue. The loss per share was further reduced by a higher number of weighted average shares outstanding for the 2005 first half of 21,649,352 compared to 13,565,176 in the same period last year

The revenue for the first half of 2005 was $150,126, more than four times the revenue for the same period last year. The increase of $118,000 was 362% over the revenue for the first half of 2004. The second quarter ended June 30, 2005 showed an increase in revenue of 195% to $78,503 over last year's second quarter.

The Company is also pleased to report a substantial reduction in expenses, the most significant of which were as follows:

    * A reduction in salaries and benefits of $285,000 (or 43%) and in consulting fees of  $164,000 (63%), both of which reflected the cost saving program implemented in 2004

    * Research and development expense decreased by $130,000, or 87%, primarily due to the capitalization of $99,748 of these expenses as product development costs, which produced a credit balance of $22,000 in R&D expense for the second quarter. The commercial acceptance of the company's product (DMDS) by the marketplace indicated that expenditures for product development should be recognized as an asset because these are expected to yield future economic benefits. These expenditures are shown on the balance sheet as development costs of $200,844

    * Marketing expenses in the six months increased by $116,000 to $144,000, or 409%, reflecting increased trade show attendance and advertising, particularly for the US market. Other decreases in expenses for the first half of 2005 were seen in general and administration expense by $35,000 (36%) and professional fees by $19,000 (36%)


"The first six months of 2005 saw Musicrypt increase revenues, reduce expenses, and establish key partnerships with Billboard Radio Monitor and Nielsen BDS. We also received the grant of the Canadian patent for our technology, as well as endorsements from Clear Channel Radio and XM Satellite Radio in the United States," said Musicrypt CEO John Heaven. "These relationships, along with our strengthened financial picture, position us to become the global standard for secure digital delivery through our DMDS service platform."  

About Musicrypt
Musicrypt's patented Digital Media Distribution System (DMDS) is the leading secure B2B digital delivery solution for the music industry. DMDS is a web-based delivery system that pioneers secure digital file distribution by incorporating biometrics, high-value encryption and watermarking. The first application of DMDS replaces the physical distribution of new musical recordings by record companies from the studio, internally, and to radio stations with more secure, more effective and less costly digital distribution of broadcast quality media via the internet. For more information on Musicrypt, please visit www.musicrypt.com

The statements contained in this release that are not purely historical are forward-looking statements and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.