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December 30, 2009

Onstream Media Corporation F4Q09 (Qtr End 09/30/09) Earnings Call Transcript

Filed under: Conference Call Transcript — Tags: — admin @ 12:00 am


Brett Mass – Hayden Investor Relations

Randy Selman – President, Chief Executive Officer

Robert Tomlinson – Chief Financial Officer


Fred Milligan – Sander Morris & Harris

[John Shriviner - Private Investor]

[Sharon Destafano - Canton Research]

Onstream Media Corporation (ONSM) F4Q09 Earnings Call December 30, 2009 4:30 PM ET


Welcome to the Onstream Media Corporation conference call to discuss the company’s fiscal 2009 fourth quarter and full year financial results. (Operator instructions) At this time, I would like to turn the floor over to your host, Brett Mass of Hayden IR.

Brett Mass

I’d like to point out that during the course of the conference call there may be statements made relating to the future results of the company that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results, performance or achievements could differ materially from those anticipated in such forward-looking statements as a result of certain factors including those set forth in the company’s filings with the Securities and Exchange Commission.

It also should be noted that today’s webcast may be found on the internet by visiting Onstream Media’s corporate website at and then selecting Company at the top of the web page and then clicking on press releases. At that web page you will find a link to the news releases we issued to announce the company’s fiscal 2009 fourth quarter and full year financial results and webcast. An archived version of the webcast will be shortly available from the press releases page and it will be available for at least the next 12 months pursuant to SEC guidelines.

Finally, those interested in reviewing our recently filed 10-K which contains all the financial information being discussed today, can find this document also via our corporate website by selecting Company, and under that heading Investor Relations and then clicking on SEC filings where all of our recent SEC filings can be found as well as through the database directly at and search for company filings.

At this time I’d like to introduce Randy Selman, President and Chief Executive Officer of Onstream Media.

Randy Selman

Good afternoon and thank you for joining us. Today we will review our results for the fourth quarter and fiscal 2009 which both ended September 30, 2009. We’ll also update our overall strategic progress including some details about our iEncode and our MarketPlace 365 products. With me today is our Chief Financial Officer, Robert Tomlinson.

Hopefully you’ve all had the opportunity to review our financial results which were released yesterday after the close of the market.

This was a challenging quarter for us but it was not without some positive developments. We saw an increase of 13.6% in DMSP and hosting revenues this quarter as compared to the same quarter last year and an 18.4% increase for the fiscal year over last year.

However, overall revenue growth was impaired as a result of both seasonal as well as general economic conditions and we ended the year with revenues down 3.8% overall. However, we are already seeing a sequential increase in consolidated revenues primarily from the Webcasting Division for the first quarter of fiscal 2010. We expect this trend will continue.

As a result of this initial revenue improvement and the anticipated impact of new products, we remain optimistic with respect to an increased level of revenues during fiscal 2010. Based on this as well as our cost reduction initiatives, we believe that we will be back to cash flow positive from operations before changes in current assets and liabilities by the second quarter of fiscal 2010.

For the year, our gross profit as a percent of revenue was relatively unchanged despite the decrease in consolidated revenues. In fact, the consolidate gross margin percentage for the year ended September 30, 2009 increased to 67.5% of revenues versus 67% for the prior fiscal year.

Consolidated operating expenses remained unchanged quarter over quarter which reflects in part the actions the company took during February 2009 to reduce its personnel and certain other operating costs by approximately $65,000 per month. Those savings are fully reflected in the operating results for the three months ended September 30, 2009.

Operating expenses for the fiscal year were approximately $22.7 million, an increase of approximately $4.5 million over the prior fiscal year. However, this $4.5 million increase was more than accounted for by approximately $6 million of charges for goodwill impairment and a write off of deferred acquisition costs versus no comparable amount in the prior fiscal year. Without these charges, operating expenses would have reflected a decline in fiscal 2009 of approximately $1.5 million as compared to fiscal 2008.

As a result of the entire cost cutting measures initiated in fiscal 2009 and the 10% payroll reduction effective in October 2009, we expect that more than $1.3 million will be saved in fiscal 2010 as compared to fiscal 2009 with no impairment to our ability to grow and expand our business. Further, this amount does not include savings of approximately $400,000 from expected reductions in infrastructure and communications costs.

We are increasingly confident that we have innovative, proprietary solutions in place to meet the evolving and accelerating needs of our clients to utilize the internet to cost effectively interact and build relationships with their customers.

I’m going to specifically update you on two of these solutions today, our iEncode webcast in a box solution for which we recently launched an improved Version 2 and our newest offering called MarketPlace 365 which will begin to sell in January 2010.

We’ve had very positive feedback from our existing distributors and clients for the initial demo version of the MarketPlace platform and we expect to sign a meaningful number of promoter contracts within the next several months. In fact, we just announced signing an agent agreement with a leading online company in the trade show industry.

Next, let me turn this over to Robert for the review of the financials.

Robert Tomlinson

Good afternoon. As you can see on this Slide our consolidated operating revenue was approximately $3.7 million for the three months ended September 30, 2009, a decrease of approximately $638,000 or 14.6% from the approximately $4.4 million in the corresponding quarter in the prior fiscal year.

To break the fourth quarter revenue trends down further, the Web Conferencing Group revenues were approximately $2.1 million for the fourth quarter of fiscal 2009, a decrease of approximately $324,000 or 13.4% from the corresponding prior fiscal year quarter.

Digital Media Services Group revenues were approximately $1.6 million for the three months ended September 30, 2009 which represented a decrease of approximately $314,000 or 16.1% from the corresponding period of the prior fiscal year.

This decrease in Digital Media Service Group revenues was primarily due to a decrease in webcasting revenues. However, in the Digital Media Service group results we also say a 17.6% increase in DMSP revenues and an 8.5% in hosting revenues, both increases as compared to the corresponding quarter of the prior fiscal year.

As Randy mentioned, we believe that the current economic as well as seasonal conditions were the primary factors in the consolidated revenue decrease. Furthermore, we are already seeing sequential revenue improvements based primarily on increased webcasting activity in the first quarter of fiscal 2010 and we expect this trend to continue.

Addressing revenues for the full fiscal year, they were approximately $16.9 million, a decrease of approximately $660,000 or 3.8% from the prior fiscal year primarily due to decreased revenues of the audio and Web Conferencing Services group. The decrease was primarily a result of decreased net work usage service fees and decreased network equipment sales and rental revenues both related to the ED Net division.

We believe these decreases resulted from a reduction in television and movie production activity in the current year in response to the general economic slowdown.

Although the Digital Media Services group also showed a year over year decline mostly arising from webcasting during the fourth quarter, this decline was partially offset by increased DMSP and hosting revenues. The 18.4% year over year increase in combined DMSP and hosting revenues included an approximately $320,000 increase in DMSP store and stream and streaming publisher revenues which represented a 51.5% increase in that category.

Again, most of the annual decline in consolidated revenues rose in the fourth quarter which we believe was primarily the result of the current economic as well as seasonal conditions and we are already seeing sequential revenue improvements in the first quarter of 2010 and we expect this trend to continue.

This Slide shows a summary of our fiscal fourth quarter 2009 financial results. Our consolidated net loss from the three months ended September 30, 2009 was approximately $1.7 million or $0.04 loss per share.

However, this $1.7 million net loss included $1.3 million of non cash expenses such as depreciation and amortization and compensation to employees and consultants paid with shares and options. Accordingly, we used approximately $415,000 net cash in operating activities before changes in current assets and liabilities for the quarter.

Although our operations used cash in the fiscal 2009 fourth quarter, we note that our third quarter fiscal 2009 operations before changes in current assets and liabilities generated cash of approximately $91,000. Most of the increased cash burn in the fourth quarter related to a decline in our revenues which decline we believe was an anomaly as we have already discussed.

Based on preliminary first quarter 2010 revenues results, coupled with reductions in operating expenses, we believe we should return to cash flow positive status from operations before changes in current assets and liabilities by the second quarter of fiscal 2010.

This Slide summarizes our full year fiscal 2009 financial results. Most of the decrease in revenue and gross margin arose from the fourth quarter which we have already discussed. As Randy noted, despite the decrease in revenues, our gross margin percentage on a full year basis actually increased as compared to the prior year.

Our consolidated net loss for the year ended September 30, 2009 was approximately $11.8 million or $0.27 loss per share as compared to a loss of approximately $6.6 million or $0.16 loss per share for the prior fiscal year, an increase in our loss of approximately $5.3 million.

However, this $5.3 million increase in our loss more than accounted for by approximately $6 million of charges included in that loss for goodwill impairment and a write off of deferred acquisition costs versus no comparable amounts in the prior fiscal year. Without these charges, the net loss for fiscal 2009 would have been lower than the fiscal 2008 loss.

Furthermore, the losses in both years are primarily related to non cash charges which are spelled out in more detail on the next Slide. This Slide provides more detail on our operating cash flow for fiscal year 2009 as compared to the same information from fiscal 2008.

As you can see, the net loss of $11.8 million for the year ended September 30, 2009 included $11.1 million of non cash expenses which resulted in cash used in operating activities before changes in current assets and liabilities of approximately $690,000 for fiscal 2009.

The primary non cash expenses included in our 2009 loss were approximately $6 million arising from a $5.5 million charge for impairment of goodwill and other intangible assets, plus an approximately $505 write off the of the deferred acquisitions, approximately $3.2 million of depreciation and amortization, approximately $1.1 million of employee compensation expense paid by the issuance of stock and options and approximately $383,000 for professional fee expenses paid for with stock and options.

As we have discussed, net cash used by operations before changes in current assets and liabilities is decreasing starting with the first quarter of 2010, our current quarter. This improvement is not only due to recovering sales, but also from specific operating expense reduction initiatives undertaken by the company as shown on this slide.

Effective October 1, 2009, a significant portion of Onstream’s work force including all of management took a 10% payroll deduction which is expected to be maintained until increased revenue levels result in positive cash flow. This action, which reduced payroll costs by approximately $62,000 per month was in addition to payroll cost reduction actions Onstream took during fiscal 2009 which represented monthly savings of another approximately $65,000 per month.

The combined result of these and other initiatives already put in place represent approximately $1.3 million in cost savings in fiscal 2010 as compared to fiscal 2009.

In addition, during fiscal 2009, Onstream began to identify and implement certain infrastructure related cost savings which actions we expect will reduce operating costs, cost of sales, by another approximately $45,000 per month once they are fully implemented by the end of fiscal 2010.

The anticipated results of these initiatives, some of which have already been implemented is approximately $400,000 in cost savings in fiscal 2010 as compared to fiscal 2009.

Turning to the balance sheet, we had approximately $541,000 in cash and our stock holder’s equity was approximately $18.2 million as of September 30, 2009. Onstream received $500,000 from one of its lenders in October 2009.

In December 2009, Onstream’s line of credit arrangement secured by and based on our accounts receivable was extended for two years with an increase borrowing limit of $2 million from the previous level of $1.6 million. Certain financial covenants were relaxed or eliminated.

During December 2009, we received funding commitment letters executed by three entities agreeing to provide us within 20 days after notice given on or before December 31, 2010 aggregate cash funding of $750,000.

I would now like to turn it back over to Randy.

Randy Selman

Thank you Robert for the overview of our fiscal 2009 full year and fourth quarter operating results and financial position.

The primary focus of the company during fiscal 2009 was to complete the development of two products we believe will have a significant impact on our growth and value with the business. Although the development process took a bit longer than expected, primarily due to the availability of resources and keeping operating costs as low as possible, we have now completed the development and required network infrastructure for iEncode Version 2 which is now in full production, and we expect to complete the initial version of MarketPlace 365 and begin the sales process as well in January 2010.

The iEncode technology is an ideal solution for large volume web casting organizations as well as AV companies looking to add webcasting to their service offerings and other companies looking to add webcasting as a part of their daily communication services.

iEncode enables these enterprises to produce webcasts on the fly in a simple, easy to use way. This technology is highly scalable and our customers can develop webcasts without involving Onstream personnel, and this way as the use of the technology scales, it will evolve into one of our higher margin offerings at a very profitable product fund stream.

iEncode is also a very cost effective solution for our customers, enabling the higher volume users to produce more webcasts more efficiently and at lower overall costs than historical models.

MarketPlace 365 is our newest product offering that combines the best elements of web based lead generation; social media marketing and comprehensive communications in a platform that enables publishers, associations, trade show promoters and established entrepreneurs to self deploy and manage their own profitable virtual online marketplaces.

We have just announced our first MarketPlace 365 agreement with Tarsus Group TLC, who will implement and market the platform to their 19,000 trade shows and 2,000 suppliers as a part of the new trade show network.

Tarsus chose the MarketPlace 365 platform because our solution will allow them to create an additional revenue stream with a solution that comes prepackaged with an array of powerful marketing and search engine optimization features that can be implemented quickly with no up front costs and minimal IT resources required.

I would also like to briefly mention that Onstream Media will soon introduce its high quality live mobile video streaming service enabled for iPhone and Blackberry users. The new mobile video streaming service was developed with Onstream Media’s leading digital services platform DMSP technology which is used by many companies in the global 2000 media entertainment and business to business community.

The service’s device diagnostics enabling adaptive and segmented streaming to popular mobile devices using optimized media delivery network. As a long standing part of that, Onstream’s mobile media streaming service easily integrates with optimized networks to deliver video in HD or standard definition as well as all the popular formats including Adobe, Flash, H.264, VP6 and Windows Media VC1.

In January 2008, we introduced iEncode, a low cost appliance subscription based webcasting service that puts self administered, highly affordable internet broadcasting power in the hands of users featuring easy set up and on premises encoding for higher quality signal.

The iEncode appliance serves as a front end to Onstream’s full featured visual webcast software which is utilized by thousands of corporations worldwide. This fully self service version of our industry leading visual webcast service provides ease of use and reduced costs.

Although we recorded some iEncode revenue during fiscal 2009, and we announced Version 2 of iEncode in June 2009, Version 2 was not available for delivery to our customers until this month. We expect to upgrade the existing installations of the prior versions of these appliances as well as ship several newly placed orders in January and it is our goal to have more than 30 installations in place by the end of the second fiscal 2010 quarter.

As a result, we expect iEncode contribution to increase to more meaningful levels in fiscal 2010 as compared to fiscal 2009. A typical iEncode installation is expected to generate recurring annual revenues of approximately $20,000 and we anticipate that many larger enterprises will order additional units after they’ve integrated the appliance into their ordinary course of business.

We also expect to provide additional ongoing revenues from iEncode users for storage and bandwidth usage. We are targeting a variety of government and non government organizations as well as corporate enterprises whose investor relations, public relations, human resources, sales, training and education departments are prime candidates for iEncode.

We are also targeting AV professionals, healthcare and educational organizations in the U.S. and globally. We believe the addressable market is in excess of 200,000 installations.

MarketPlace 365 is a self provision solution for creating online multi-media marketplaces including trade shows, virtual malls and conferences, all by integrating several proprietary Onstream technologies as the fully automated back end and with the primary purpose of creating qualified lead generation. This solution also facilitates e-commerce and can support a variety of different venues.

The real power of this tool is that it creates a substantial lead generation service, reduces the cost to acquire the leads and provides a system to fully qualify each lead. The MarketPlace also efficiently organizes content and information whether it’s organized by booth, stores or by libraries. Instead of trade show or conferences existing once per year for a short period of time, MarketPlace is available all year long as the online destination on a particular subject.

MarketPlace 365 is a fully automated and user provisioned solution requiring limited Onstream personnel to manage or support. MarketPlace 365 fully supports social interaction using chat, blogs and moderated groups.

MarketPlace 365 incorporates Onstream’s DMSP including user generated content, pay-per-view and streaming publisher, along with webcasting and web conferencing capabilities all in one platform.

Most of our competitors in contrast, need to string together products from several companies and require substantial expenses in professional services to implement the platform which adds time and money to launch a show. We handle all of these services in an automated way, allowing for rapid scalability and the potential to increase Onstream’s margin as this product gains market adoption.

Every consumer industry interest topic can be made into a MarketPlace. For example, the MarketPlace 365 application can be designed using a virtual trade show template to provide an online MarketPlace about construction equipment, a BtoB magazine publisher that produces a construction equipment magazine, can become the MarketPlace promoter.

The publishers personnel using MarketPlace 365 can determine the number of booths in the show, the charge per month for each booth, the charge for leads if any, rates for banner ads as well as any other service offered including the ability to chat with a booth administrator or sales person either via text, instant phone call or even have an automatic access feed to every booth attendee when new content is added to the booth.

Each booth will have a wide range of features. The booth can have audio, video, white papers, brochures, as well as product demonstrations using webcast or web conferencing tools. How-to’s, FAQ’s and other documents can be loaded and updated on the fly. Web conferences can create interactivity with potential customers.

Every item loaded into the booth is search engine optimized. In addition, distributors can easily bring consumers to their retail stores to sell the products without having to leave the show.

By aggregating all of these events into one MarketPlace, we can bring massive economies of scale in terms of search engine optimization services and buying discounts. This means that we can reduce these costs by up to 90% while making the advertising and search engine dynamics more effective as well for our clients.

The addressable market includes hundreds of thousands of potential promoters including any subject matter expert, publisher, association, trade show developer and entrepreneur. An ideal promoter will have an established advertiser or vendor base to create an acceptable level of exhibitor participation to ensure success of the MarketPlace.

This Slide shows the financial opportunity MarketPlace 365 can provide to Onstream. Looking at a typical MarketPlace containing just 200 booths, and each booth contributing $150 in revenue per month at a 75% gross margin, each MarketPlace has the potential to product approximately $270,000 of additional gross profit on a yearly basis to Onstream, substantially more for larger marketplaces.

The platform is extremely flexible allowing for multiple permutations and vertical markets. Our unique pricing model will facilitate sales as we have eliminated the high upfront costs associated with producing and selling a MarketPlace.

We’ve had very positive feedback from our existing distributors and clients for the initial demo version of this product. Today, the MarketPlace 365 service has been demonstrated to more than 30 publishers, trade show organizers and associations who have given more than 20 MarketPlace commitments on a wide range of subjects including franchises, diving, aviation, restaurant business, design and architecture, marketing, pharmaceuticals, finance, astronomy, memorabilia, constructions, expositions and expo services.

Each of these MarketPlaces is expected to have a minimum of 100 exhibitors with many industries potentially having more than 1,000. As I mentioned previously, we announced that Tarsus, a leading publisher and promoter of hundreds of trade shows globally, have agreed to market our MarketPlace 365 solution to their customers.

This is strong validation of our solution and we expect to be able to sign a meaningful number of trade show promoter contracts in the next several months.

The MarketPlace 365 product provides a number of benefits to Onstream. It is expected to be a high margin, low cost platform which we expect as it grows will generated significant cash for the company, but not only for MarketPlace fees but also from web casting, web conferencing and other Onstream services sold to the promoters and exhibitors.

In addition, this solution integrates and leverages essentially all of Onstream’s other existing technologies including archiving, transcoding, user generated video, customized players, video advertising, secure streaming, pay-per-view and audio conferencing.

In addition, although there are other virtual trade show offerings, we believe there is no solution like MarketPlace 365 in the market and it is ideally positioned to meet the needs of a wide range of potential clients who are looking for ways to attract new customers in a cost effective way.

We expect to begin selling MarketPlace 365 in our second fiscal quarter 2010 but meaningful revenue will really begin in our third and fourth fiscal quarters.

Beyond these new product introductions, we continue the growth in our DMSP and hosting division. As I mentioned earlier, we were pleased to see an 18.4% increase in DMSP and hosting revenues this year as compared to last year.

We are at approximately 345 clients including 16 major clients as of the end of the fourth fiscal quarter 2009. We continue to expand our DMSP customer base. This is in part due to referrals but our other marketing initiatives are also generating leads.

The introduction of our new product, MarketPlace 365 will help us drive DMSP sales as well. Although there was a slight decline in the number of customers over the prior quarter, we’ve had a resumption in new customer subscriptions during the first quarter fiscal 2010, resulting in 388 total clients to date using our DMSP.

On a final note, Onstream has been in non compliance with one of the NASDAQ markets listing rules which has to do with the bid price of Onstream common stock being below $1.00 per share. The company had until October 16, 2009 with no more available extensions to regain compliance with this requirement. If not, our common stock was subject to delisting.

However, such delisting would not occur if we requested a hearing with the NASDAQ listing qualifications panel and pending the panel’s decision, subsequent to that hearing. Onstream requested such a hearing with the panel which we attended on December 3, 2009 at which time we presented our plan for regaining compliance with the rule and requested that our securities be allowed to remain listed pending the completion of that plan.

Based on the panel’s consideration of that plan, as well as any other relevant factors, the panel has the ability to grant us a period of up to 180 days counting from the date of the October 19, 2009 letter to regain compliance with the rule.

This would extend our listing until approximately mid-May. As of today, the panel has not informed us of their decision.

Despite the challenging market conditions for small cap stocks like Onstream Media, we believe that with our exciting new products and other potentially favorable developments on the horizon, Onstream Media remains well positioned at this time and that we’ll be able to satisfactorily resolve the NASDAQ compliance issue.

I’m sorry; Robert just informed me that I said mid-May. Its mid April that our listing will continue to unless we hear from the NASDAQ sooner.

In conclusion, we are encouraged in particular by increases in our web casting DMSP and hosting revenues in our current quarter. We remain focused on further revenue increases as well as expanding gross margins and controlling operating expenses to enable us to return to operating cash flow positive.

With this as a base, we believe that our most recently announced product offerings, iEncode and MarketPlace 365 will contribute to even better financial results in the coming quarters.

I’d like to thank all of you for your time and attention today, and with the help of our operator, we’ll now open it up for questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Fred Milligan – Sander Morris & Harris.

Fred Milligan – Sander Morris & Harris

MarketPlace 365, third and fourth quarter revenues coming on. What kind of revenues are we talking about at that point?

Randy Selman

Obviously it’s going to depend on how quickly our promoters ramp up during the January through March quarter. As I mentioned, there are about 20 MarketPlaces that have been committed to. We expect to begin development of most or all of those in that first quarter, so once we get those up and running and they reach the level that as I mentioned in the speech, about reaching a certain level where it’s acceptable and makes for a decent MarketPlace for attendees to go to, then they turn on the revenue stream at that point.

And that number is somewhere in the neighborhood of approximately 100 exhibitors. Once they reach that point, the MarketPlaces are generating some pretty decent revenue. If you go back to my slide, the number at 100 is in the neighborhood of about $50,000 a month which to Onstream would represent about $15,000 for that MarketPlace or about $180,000 annually.

Once they get up to a couple of hundred booths, then they’re talking getting closer to more than a quarter of a million just for that single MarketPlace.

Fred Milligan – Sander Morris & Harris

And this is all ready to go right now?

Randy Selman

We’re just finishing it up and we’ll have the software ready to go in January.


Your next question comes from [John Shriviner - Private Investor]

[John Shriviner - Private Investor]

Just a question about Tarsus; can you tell us what amount of resources if any that Tarsus is going to commit to promoting MarketPlace 365 or will it just be another tool that they use that they list on their website as compared to some other tool that they may use. How much time and how vigorous are they going to be in promoting this MarketPlace 365?

Randy Selman

Tarsus Group plc is a public company that lists on the London Stock Exchange so they’ve got pretty substantial assets available and resources available to them. The CEO of one of their divisions which runs the TSN division is very excited about MarketPlace. He believes that this is the future of the trade show industry, not as a replacement, but as a complimentary service to the existing physical trade shows.

So he thinks that as a result, many of his existing trade show companies that are involved in the TSN network which is about 19,000 will be very interested to use this service as an enhancement to their existing shows.

They also mentioned to us that of their own shows which I believe they have several hundred, they will be using MarketPlace 365 for those types of shows as well where they feel it’s applicable.

And then finally, they’re also considering or potentially using the MarketPlace 365 service as an adjunct or a complementary service to the TNS service as well, and that’s still under development, so further information on that isn’t available right now. But we expect that they’re going to be finalizing that with us within the coming month.

[John Shriviner - Private Investor]

Are they actually presenting it right now going in January? Is this a concept or do they actually have a video or a demo model or something that’s concrete that’s something they can say this is what we have and we’re up and ready to go and Onstream has got it for us and you can use it tomorrow sort of thing.

Randy Selman

They’re an agent. They’ve signed an agent agreement so they’re actively promoting it to other trade show organizers and developers and we expect to see a considerable number of leads coming from them.

The status of the program was never really discussed as far as the availability. They just expect that we’ll have software available to them to start building shows in January and that’s our plan.

[John Shriviner - Private Investor]

How early in January do you think we’ll see some results of any concrete results of the introduction of this or iEncode of the conferencing units you announced before. Are you talking sometime late in the first quarter or will we see some concrete results coming in to hopefully change our share price in the early part of the year.

Randy Selman

To address that issue I’m going to try to get as much news out as quickly as possible so I do anticipate announcements to occur in the January timeframe. We have been doing quite a big of background work on MarketPlace.

We’ve had some good interest in our iEncode product so between the two there should be some newsworthy announcement made. That’s what will contribute to getting our stock obviously in compliance with the NASDAQ.

[John Shriviner - Private Investor]

A lot of people that I take care of, they just want to know when is the official news release showing the actual introduction of the new IEncode box and the MarketPlace 365. Is that going to happen late January or will you announce it right away and then later on in the month or the quarter you’ll be coming in with some concrete deals that you’re secured with somebody?

Randy Selman

I can’t give you an exact date.

[John Shriviner - Private Investor]

Well, not two months from now, next month hopefully.

Randy Selman

As I mentioned, I think we’ll have meaningful announcements in the month of January so just look forward to those.

[John Shriviner - Private Investor]

People ask me a lot of questions and I just want to make sure that I’m on the same page as everybody, giving them the correct information.

Randy Selman

We’re very excited about MarketPlace 365. We’re going to try to get it out there as soon as possible. Like I said, we’ve already had great feedback from the existing companies that we’ve shown it to and it’s one of the first products that we’ve introduced that sells itself.

It markets itself. It sells itself. One of the biggest functions if you were able to understand from the speech, MarketPlace doesn’t have high professional service costs to get it started. Mostly all of our competitors required anywhere from $50,000 t0o $100,000 of upfront fees just to get a show off the ground.

Ours is self administered so it doesn’t require those upfront fees and so this way it’s easy to market because generally a promoter will start to pay us when he starts to receive revenue. So it’s obviously our main directive to get as many of these MarketPlaces into qualified hands so we have many successful MarketPlaces quickly.

[John Shriviner - Private Investor]

Well I wish you success because we’ve waited a long time for something to change to get us going in a positive direction and I look forward to trying to keep people to keep the faith and I wish you luck and good luck with it and I look for early results.


Your next question comes from [Sharon Destafano - Canton Research]

[Sharon Destafano - Canton Research]

This might have been mentioned and I might have missed it but could you just give me your cash position now and your burn rate now.

Randy Selman

The burn rate we can only discuss from the last published quarter which was approximately $441,000.

Robert Tomlinson

For the quarter ended September 30, our OpEx was actually $414,000 cash used in operations before changes in current assets and liabilities. Our cash at the end of the quarter was $541,000 and of course we’ve had cash transactions since September 30, including $500,000 received from one of our lenders.

[Sharon Destafano - Canton Research]

Are you able to tell me your cash position now in December, at the end of December?

Robert Tomlinson

We normally don’t disclose balance sheet information ahead of the official disclosure, and actually there’s as you know cash activity. You have, even though we may have various transactions, the timing of them at year end, we do not have a year end balance. It’s two days before the end of the year and there’s a lot of transactions that go back and forth at the end of any particular month.

That cash, we’d probably have to tell you the whole balance sheet and we don’t have that at this point.

Randy Selman

Typically if you look at the track record of the company, we typically have about half a million of cash on hand if you look at the end result of each quarter.

[Sharon Destafano - Canton Research]

Would you anticipate that your burn rate next quarter is comparable to prior quarter, more or less? I know there was a comment about an increase in cash burn in December, but I didn’t catch it all.

Randy Selman

Actually we were referring to the September quarter having the increased burn rate. Because of the increase in revenues that we’re seeing for the December ending quarter, this is our first fiscal quarter, so I don’t want to confuse people. It’s not our fourth, it’s our first.

And because of all the cost reductions we anticipate a substantially lower burn rate if any in the first quarter.

[Sharon Destafano - Canton Research]

You met with the panel and the panel, is the panel supposed to get back to you about the 180 day extension which would bring you to mid April or is that just a done deal now?

Randy Selman

They have to actually officially notify us that we’ve been granted the extension to that point. We really don’t have any further information on it other than what we’ve told you in the speech. The NASDAQ will let us know I would assume as soon as they’re finished reviewing everything.

[Sharon Destafano - Canton Research]

So if in January you’re anticipating putting out announcements, is there anything to prevent the panel from just slamming you down in January or early February?

Randy Selman

Obviously I’m not going to speak for the NASDAQ, but I believe that we’ve been a long standing member of the NASDAQ and since ’97, which means we’ve had a long standing involvement and we’ve had very positive results with the NASDAQ as far as listing and qualifications and all that.

So I think there’s a good chance, but I don’t think that we will be able to anticipate that. Whether the NASDAQ makes a sudden decision and decides to delist us. I think that we presented an extremely good plan and I believe our plan was well received by the NASDAQ, and I think we have a very good shot of getting the extension.

Robert Tomlinson

The one thing I would add is the NASDAQ’s attitude towards all small companies such as we are, there’s a lot of companies in the same position as Onstream just due to the economic situation in general. So they understand where companies are and they’re acting accordingly. So we don’t expect them to take any kind of action that would be a long term detrimental.

We obviously have to do what they say for us to do, but their attitude is one of working together with the companies during this time.

[Sharon Destafano - Canton Research]

How soon, these commitment letters for the $750,000, how soon do you expect to close on those?

Robert Tomlinson

We’ll use those as we need them if required. They’re basically stand by’s waiting in case we need them. There’s no official moment when we’re going to use at this time to close on them.

[Sharon Destafano - Canton Research]

I had read in your 10-K something about you’re projecting CapEx for 2010 at $1.4 million. Is that still the plan?

Randy Selman

There’s one of the qualifications of CapEx, especially now because we’ve done a lot of development work on our major products and even though we obviously want to continue that development, we’re at a stage where depending on each month that goes by and the situation as we evaluate it, we can decide to either defer some of those CapEx requirements. Basically they’re pretty flexible.

So that’s our intention. That is our program and we will go forth with the program if everything is as we expected, but there is some flexibility there as well for us to defer items if we have to because of other needs or if we decide to focus our resources elsewhere.

While we’re waiting for any further questions, I did receive a question on our email system. Someone is asking is there any potential for an agreement with E-Bay.

Obviously the potential still exists. We are still awaiting the patent approval that has been in process for almost five years from the date it was first filed.

We had some encouraging information coming back from the patent office. We are expecting any day now to hear about that patent. We think that once that patent has been granted, we’ll have a better opportunity to work with E-Bay and other companies that are using these types of video uploads as part of an overall service offering.


Your next question comes from Fred Milligan – Sander, Morris & Harris.

Fred Milligan – Sander, Morris & Harris

You hadn’t mentioned anything about free concerts which you’re going to do again if I understand, the Allman Brothers but you’ve got some others lined up as well?

Randy Selman

We’re looking forward to helping the next round of Allman Brothers concerts in March. Obviously Moogas is a small company trying to get off the ground, but they did have a very successful event last year.

Onstream was paid a pretty good fee for that event and it opened our eyes that the concert business is a very interesting potential business. One of the things that I mentioned today as a matter of fact, is our new streaming service to Blackberries and to I-Phones and as part of that, we expect that to eventually deliver live concerts right to the cell phones.

So that plus the hopefully success of Moogus will certainly drive a lot more of that business coming in through 2010.

Fred Milligan – Sander, Morris & Harris

Is there any date that you can give us for the live concerts?

Randy Selman

There’s a project in the works that will be part of our announcements hopefully during the first quarter.

Fred Milligan – Sander, Morris & Harris

I have a question as to whether you’re going to be early or late with regard to January with regard to signing up the MarketPlace 365. Can you be more specific in regard to that?

Randy Selman

The primary issue with signing up each of the individual MarketPlaces are potentially very, very high volume business agreements. The potential revenue in each MarketPlace can be very substantial for the promoter and Onstream and so think of it almost as a business partnership and signing an agreement between two parties as to that partnership.

So there’s a lot of negotiation involved. There’s a lot of issues that arise but at the end of the day, both parties will benefit tremendously from it.

So I can’t foresee at this moment in time, I’ve done a couple of negotiations so far of these contracts and they’ve gone relatively smoothly, probably smoother than I’d expected. But at the end of the day, that to me is one of the issues that we have with MarketPlace is having these legal documents signed by the promoters because it is very substantial revenue and each one of these is a business.

And hopefully these businesses have tremendous value in the future, and at some point they may even be bought and sold as a business. So Onstream can make some substantial money when that happens as well.

So the key point that I’m trying to make is that there are legal issues that have to do with each MarketPlace, but once that become relative to the number of MarketPlaces that we’ve done and we can see what the issues are and we upgrade the documents to make them smoother and quicker, then that will become more efficient and hopefully we can close them faster.

But once they’re signed and once they’re promoted as agreed, we will make the announcement. Each MarketPlace to me is a substantive press announcement, so I believe that we’ll announce everyone of them and with the parties that we’ll be working with so that that will help us. And people will easily quantify how much new revenue if we are able to say how many booths or expected booths are in the show.

Fred Milligan – Sander, Morris & Harris

So the equation is 100 booths is $50,000 and you get $15,000 out of that?

Randy Selman

I was trying to say a typical booth; the promoter is going to charge $500 a month, $150,000. Our formula is very simple and so yes, out of that booth fee of $500 we get $150. So that’s just booth fees.

I’m not even really talking about all the other services that are in the MarketPlace that are extra costs such as several of the e-mail marketing, and chat functions and webcasting and web conferencing and all the others. Those numbers really will be improved on top of that.

Fred Milligan – Sander, Morris & Harris

Who actually pays this? Is it the consumer or is it the exhibitor in terms of developing leads?

Randy Selman

The exhibitor is getting a bargain for his investment in the MarketPlace because by virtue of all the technology, search engine optimization and the collective purchasing, we’re going to be able to deliver leads to the MarketPlace at what we believe is a 90% discount of what they’re currently paying in similar services.

What we’re really basically saying is that we’re going to take the collective group and essentially use that group to buy purchased online search engine marketing as well as the natural search engine optimization that comes as a result of all of the different exhibitors in the show and use that to drive traffic to the show.

And that traffic will hit those booths, and they’ll be able to get like I said as much as a 90% discount on what they’re currently paying. So if you’re paying out $200 for a lead you can get that same lead for $20.00 you’re apt to want to renew and continue with this program.

Our technology has proven this already where we’ve applied it in our own search engine optimization marketing.

Fred Milligan – Sander, Morris & Harris

Is there any anxiety in regard to delays because of the legal issues?

Randy Selman

No. We’ve already had it thoroughly reviewed by lawyers as far as all of the general information and all that, and as far as the promoters etc., like I said we’ve already negotiated several. We understand some of the issues that they have and we’re flexible.

Obviously we’re not going to let a legal issue stop us from generating revenues in the show. At the end of the day those issues will be overcome. But some of the primary things if you just want to think about some of the things like if a promoter signs a three year contract, what happens at the end of the three years?

Those are the things that that promoter is pretty interested in because if he’s built up a show that’s generating a few million a year, he certainly doesn’t want to lose it at the end of the three years. So there has to be automatic renewals. There has to be certain revenue levels that are committed, and these are the things that need to be negotiated in each one.

But when you start talking about all the potential here that each of these promoters has, everybody is willing to work together to get it done.


There are not further questions. I’d now like to turn the floor back over to Mr. Selman.

Randy Selman

Thank you very much for joining us today. I want to wish you all a Happy New Year and we look forward to talking with your about our first quarter results in 2010. Thank you all.

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