Onstream Media F3Q09 (Qtr End 6/30/09) Earnings Transcript

| About: Onstream Media (ONSM)

Onstream Media Corp. (NASDAQ:ONSM)

F3Q09 Earnings Call

August 17, 2009 16:30 PM ET


Brett Mark - Hayden Communications, Inc., Investor Relations

Randy S. Selman - Chairman, President and Chief Executive Officer

Robert Tomlinson - Chief Financial Officer


Fred Milligan - Sanders Morris Harris Group

Jeffrey Miller - J Consulting


Good afternoon and welcome to the Onstream Media Corporation Conference Call to discuss the Company's Fiscal 2009 Third Quarter Financial Result. All participants have been placed in listen-only mode and the floor will be open for questions and comments following the presentation.

At this time, I would like to turn the floor over to your host, Brett Mark, Hayden IR, sir you may begin.

Brett Mark

Thank you. Good afternoon and welcome to Onstream Media Conference Call. I'd like to point out that during the course of the conference call there may be statements made relating to 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 the webcast of today's conference call may be found on the Internet by visiting Onstream media corporate website at www.omstreammedia.com. And then selecting company at the top of the webpage and then clicking on press releases.

At that webpage, you will find a link to the news release we issued to announce the company's fiscal 2009 third quarter financial results and webcast. An archived version of webcast will be shortly accessible from the press release pages and will be available for at least 12 months pursuant to SEC guidelines.

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

At this time, I'd like to introduce Randy Selman, President and Chief Executive Officer Omstream Media. Randy, the floor is yours.

Randy S. Selman

Good afternoon and thank you for joining us. Today, we will review our results for the third quarter and first nine months of fiscal 2009 which ended June 30, 2009. We'll also update our overall strategic progress, including some details about two exciting new products.

With me today is our Chief Financial Officer, Robert Tomlinson. Hopefully you all had the opportunity to review our financial results which were released Friday after the close of the market.

This was an important quarter for Onstream. Friday we reported that during the third fiscal quarter we generated positive cash from operating activities before changes in current assets and liabilities. This reflects the efforts of management to reduce our expenses and hold the line on revenue despite of challenging economy.

We recorded positive operating cash flow before working capital changes of $91,000 this quarter which compares favorably to cash burn a $142,000 in the previous quarter of this year and compared to $82,000 burn in the same quarter last fiscal year.

This most recently completed third quarter benefited fully from the expense reduction initiatives we put in place over the last year. We anticipate maintaining and operating cash flow positive status going forward. We continue to show year-over-year and sequential improvements in our gross profit, both in whole dollars and as a percent of revenue. And we now narrowed our net loss, both on year-over-year and the sequential basis. This demonstrates our ability to more effectively leverage revenue across our fixed cost base.

As we look into the future our focus is now on generating revenue. We are pleased to see a 21.7% increase in DMSP and Hosting revenues this quarter as compared to the same quarter last year. However overall revenue growth remains a challenging endeavor in this economy. But like many companies we are beginning to see a light at the end of the tunnel. 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.

There are many companies providing webcast and web conferencing services and some of the other technologies we provide. Our focus in the past year was to move beyond the commodity business and develop comprehensive turnkey solutions to meet these developing business needs. I'm going to specifically discuss two of these solutions today, our iEncode, webcast-in-a- box solution for which we recently launched an improved version two. And our newest offering called MarketPlace365, which we have launched this November.

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

Robert Tomlinson

Thank you, Randy. Good afternoon. As you can see on this slide, our consolidated operating revenue was approximately $4.4 million for the three months ended June 30, 2009, a decrease of approximately $46,000 or 1% from the approximately $4.5 million in the corresponding quarter in the prior fiscal year.

To break this down further the audio and webcast and Web conferencing group revenues were approximately $2.4 million for the third quarter of fiscal 2009; a decrease of approximately $96,000 or 3.9% from the corresponding prior fiscal year quarter.

Digital Media Services Group revenues were approximately $2.1 million for the three months ended June 30, 2009 which represented an increase of approximately $50,000 or 2.5% over the corresponding period of the prior year fiscal year.

The increase in Digital Media Service group revenues was primarily due to an approximately $77,000 or 21.7% increase in DMSP and Hosting division revenues over the corresponding period of the prior fiscal year. This increase in DMSP and Hosting division revenues was comprised of an approximately $93,000 or 55.9% increase in DMSP store and stream and streaming publisher revenues.

The number of webcast produced increased to approximately 2000 webcasts for the three months ended June 30, 2009 versus approximately 1900 webcasts for the corresponding period in the prior fiscal year. Consolidated operating revenue for the nine months ended June 30, 2009 was approximately $13.2 million a decrease of approximately $23,000 or 0.2% for the corresponding period of the prior fiscal year. Primarily due to decreased revenues of the audio and web conferencing services group partially offset by increase revenues of the Digital Media Services Group.

Digital Media Services Group revenues were approximately $6.1 million for the nine months ended June 30, 2009 which represented an increase of approximately $203,000 or 3.4% over the corresponding period of prior fiscal year. This increase was primarily due to an approximately $217,000 or 20% increase in DMSP and hosting division revenues over the corresponding period at the prior fiscal year. This increase in DMSP and hosting division revenues was comprised of an approximately $285,000 or 66.6% increase in DMSP and streaming publisher revenues and an approximately $31,000 increase in hosting and bandwidth charges to certain larger DMSP customer serviced by our smart encoding division.

Audio and web conferencing services grew revenues were approximately $7.1 million for the nine months ended June 30, 2009 a decrease of approximately $225,000 or 3.1% from the corresponding period of the prior fiscal year. This decrease primarily was a result of decreased network usage service fees from the EDNet division which we believe resulted from a reduction in television and movie production activity in the current year, in response to the general economic slowdown as well as higher then normal production activity by our customers in the comparable prior year period in an attempt to mitigate the impact of the threatened Hollywood actors strike, which strike did ultimately occurred in the last part of the December 2007 quarter and extended into the March 2008 quarter.

This slide shows the summary of our third quarter fiscal 2009 financial results. As you can see, our gross margin percentage was 70.5%, up 490 basis points or 7.5% compared to 65.6% in the third fiscal quarter last quarter, and up 200 basis points sequentially from 68.5% in our second fiscal 2009 quarter.

Our consolidated net loss for the three months ended June 30, 2009 was approximately $1 million or $0.02 loss per share, which represented a $648,000 or 38.4% improvement compared to a loss of approximately $1.7 or $0.04 loss per share for the corresponding period in the prior fiscal year. That approximately $1 million of net loss for the third quarter of fiscal 2009 included $1.1 million of non-cash expenses.

Accordingly we realized positive net cash provided by operating activities before changes in current assets and liabilities of approximately $91,000 for the third quarter of fiscal 2009, a sequential improvement as compared to use of cash in operations of approximately a $142,000 in the second fiscal quarter of 2009 as well as an improvement from the use of cash in operations of approximately 82,000 in the third quarter of fiscal 2008. I will talk more about this in a minute.

This slide shows a summary of our year-to-date fiscal 2009 financial results. Gross margin for the fiscal nine month period in 2009 was approximately $9.1 million, representing 68.9% of revenues; an increase in both dollars and percentage of sales over the comparable fiscal 2008 period.

Our consolidated net loss for the nine months ended June 30, 2009 was approximately $10.1 million or $0.23 loss per share as compared to a loss of approximately $5.3 million or $0.13 loss per share for the prior fiscal year period, an the increase in our loss of approximately $4.8 million or 91%. However, this $4.8 million increase in our net loss included $6 million related to a $5.5 million charge for impairment goodwill and other intangible assets, plus a 540,000 write-off of deferred acquisition cost, both non-cash expenses in the current fiscal year period versus no comparable amounts in the prior fiscal year period.

This slide provides more detail on our operating cash flow for the nine months to date of fiscal year 2009 as compared to the same information for the nine months of fiscal 2008. As you can see, the net loss of $10.1 million for the nine months ended June 30, 2009 included $9.9 of non-cash expenses, which resulted in cash used in operating activities before changes in current assets and liabilities of only $275,000 for that nine month period.

The biggest non-cash experience for nine months fiscal 2009 period was approximately $6 million combined charge for impairment of goodwill and other intangible assets, plus a write-off of deferred acquisition cost which I already discussed. The next largest non cash expense was depreciation and amortization expense, which was $2.6 million for the nine months ended June 30, 2009. This represented a decrease of approximately $556,000 or 17.9% as compared to the corresponding period of the prior fiscal year.

This decrease was primarily due to reduced depreciation expense as a result of certain DMS peak components reaching the end of their book as well as reduced amortization expense related to certain intangible assets, which resulted from the reduction of the historical amortizable cost basis of those assets as a result of the impairment charge I previously discussed.

As Randy and I indicated we reported positive cash flow from operations before changes in working capital for the third fiscal quarter of 2009, up $91,0000, a sequential improvement as compared to use of cash in operations of approximately $142,000 in the second fiscal quarter 2009, as well as an improvement from the use of cash and operations were approximately $225,000 in the first quarter of fiscal 2009. This $91,000 of cash provided by operations in the third quarter of fiscal 2009 was also an improvement as compared to the use of cash in operations of $82,000 in the same quarter last year.

During February 2009, we took actions to reduce our personnel and certain other operating costs by approximately $65,000 per month, which savings are fully reflected for the first time in the quarter ended June 30, 2009. Effective April 1, 2009, we began to identify and implement certain infrastructure and other cost savings. Although these infrastructure savings are not yet fully realized in the June 30, 2009 quarterly results. The improvement in cash generating from operating activities for that quarter were partially due to increased gross margin, both in the absolute dollars and as a percentage of revenues.

We will closely monitor our revenue and other business activity for the reminder of fiscal 2009 and into the following fiscal year to determine if further cost reductions are considered necessary.

Turning to the balance sheet; we had approximately $586,000 in cash as of the end of the third fiscal quarter. And our stockholders equity was approximately $19.1 million as of the same day. In our last call we discussed the financing that occurred subsequent to the end of last fiscal quarter. Accordingly during the third quarter we've received $1 million from Rockridge Capital Holdings, an entity controlled by one of our largest shareholders. We invite you to review our current 10-Q filed last Friday for further details including the collateral and other terns of the financing.

Although the 10-Q indicates that this loan carries the 44.3% per annum effective interest rate much of that was related to non cash financing fees payable with our common stock. The cash coupon related to the loan included in the 44.3% total is just 12%. Furthermore, as we discussed in our previous conference call, we carefully looked at several options and specifically evaluated three possible financing vehicles before selecting this one.

We thought then and continue to think now, that the terms are fair considering how challenging the credit market is for smaller companies. Many of the traditional debt or equity sources are simply not participating with the small cap companies any more.

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

Randy S. Selman

Thank you, Robert for the overview of our fiscal 2009 third quarter operating results and financial position. As I mentioned in my introductory comments, we are focused on transitioning from a provider of commodities services to provide key solutions to address existing and emerging challenges. I'm going to spend some time talking about two of those solutions now.

The first is our Encode platform. Although, I've talked about this part in previous conference call, in June 2009 we announced an enhanced version V2 of iEncode will be in full production in September 2009.

This technology is an ideal solution for large volume webcasting 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 personal. In this way as the use of the technology scales, it will evolve into one of our higher margin offerings and a very profitable product for Onstream.

Oncode is also a very cost effective solution for our customer's enabling the higher volume users to produce more webcasts more efficiently and at lower overall costs in historical models. It's a win-win for Onstream and our clients and it is already in use in 20 locations which will soon be upgraded with the new version.

MarketPlace365 is our newest prior offering, currently scheduled for launch in November 2009. MP365 is a self producing solution for creating online multimedia market places 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 facilitates e-commerce and can support all sorts of venues. With MarketPlace365 we foresee see that Onstream's revenue potential is hundreds of thousands of dollars for MarketPlace. Additionally we expect gross margins in excess of 75%. The platform is extremely flexible allowing for multiple permutations in vertical markets. Our unique pricing model will facilitate sales as we've eliminated the high costs associated with producing and selling the MarketPlace.

We intent to extent the platform to our existing network of resellers who have all indicated serious interest as well as to new global agents and distributors. We expect to launch with approximately a dozen data marketplaces in the fall with major marketing effort in our second fiscal quarter 2010.

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

We introduced version 2 of our iEncode product at the InfoComm trade show in Orlando in mid June 2009. Version 2 is a major upgrade, based on feedback from test customers and we expect to see and we expect to see an acceleration in the growth of iEncode sales as a result of this really. The new version of this product features self provisioning, the ability of the iEncode to automatically established its connection to Onstream servers, regardless of where in the world the iEncode box is located.

An extremely efficient and easy to use user interface, advance reporting as well as on premise encoding and the ability to facilitate and archive an unlimited number of webcasts.

We continue to expand our leadership position in webcasting providing live, on demand and now self administered Internet broadcasting solutions to large mid size and small businesses worldwide. Webcasting is taking shape as one of the killer aps of this decade. And Onstream Media is continuing to lead the way with its powerful suite of online broadcasting solutions that now enables essentially anyone to affordably create and code, stream, edit an archive their own video or audio.

The appliance contains almost all of the entire required infrastructure and it is client administered. So there is a very little or no corresponding costs associated with scaling the product. Onstream's long term goal is to integrate the visual webcast platform along with our other web based conferencing services and our digital media services platform for automated processing, including meditagging, hosting, searching and streaming of archive webcasts. We expect recurring annual revenues of $20,000 for iEncode installation and we expect to have additional on going revenues from iEncode users from storage and bandwidth usage.

A high profile example of iEncode use was the Georgetown university webcast of the speech by President Obama. iEncode target markets; 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're 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.

This slide is not a financial projection, but presented to show the financial opportunity iEncode can provide. As you can see, with a reasonable ramp up of iEncode installations, iEncode can produce substantial high-margin revenue growth over the next two years. And because this is a highly scalable product, we expect the initial gross margin percentage of approximately 58% to increase to 85% by the end of the year two.

Now let's discuss MarketPlace 365. As I said earlier, our new solution which we plan to introduce in November 2009, enables the creation of online multimedia marketplaces. The real power of this tool is that it creates a substantial lead generation service, reduces the cost to acquire leads and provide the system with fully qualify each lead. The MarketPlace also efficiently organizes content and information whether it's organized by booth, stores or by libraries. Instead of a trade show or conference existing once per year for a short period of time, our MarketPlace is available all year long as the online destination on a particular subject.

Marketplace 365 is a fully automated and user provision solution, requiring limited Onstream personnel to manage or support. Although it's primary purpose is to facilitate lead generation, MP365 fully supports social interaction using chat, blogs and moderated groups. MP365 incorporates Onstream's DMFT, including user generated content, paper 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 expensive 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 or industry interest topic can be made into a marketplace. For example, a Marketplace 365 application can be designed using a virtual trade show template to provide an online marketplace, about for instance construction equipment.

A B2B magazine publisher that produces a construction equipment industry magazine can become the MarketPlace promoter. The publisher's personnel using MP365 can determine the number of booth in the show, the charge per month for each booth, the charge for lead if any, rates for banner ads as well as any other services offered including the ability to chat with a booth administrator or sales person either via text or instant phone call or even have an automatic RSS 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 to web conferencing tools. How to’s, FAQs 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 the retail store to sell 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 deliver at reduced cost by up to 90% while making the advertising and search engine dynamics more effective as well.

Another example is a vertical shopping mall. Retailers can establish malls for any specific category of items. Again the major publishers, such as fashion or electronics can also participation in the MarketPlace to their advertising clients to subscribe to a store or kiosk at the mall.

Finally, associations and trade show organizers can create trade shows that are available 365 days a year and of course all related entities having booth kiosks or compartment at the marketplace. Target customers include any subject matter expert, publisher, association, trade show developer and entrepreneur.

The MarketPlace 365 product provides a number of benefits to Onstream. It is expected to be a high margin localized product, which we expect as it grows will generate significant cash for the company. We expect to be able to expand the solution significantly without adding material expenses. This solution integrates and leverages essentially all of our Onstream's existing technologies including archiving, transcoding, user generated video, customized players, video advertising, secure streaming, pay per view, webcasting and web and audio conferencing.

We already have all of these solutions developed and deployed which will reduce our development costs of this new product. In addition, although there are other virtual trade show offerings, we believe there is no solution like MP365 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.

Beyond these new product introductions, we continue to see growth in our DMSP and hosting division. As I mentioned earlier, we were pleased to see a 21.7% increase in DMSP and hosting revenues this quarter as compared to the same quarter last year. We had approximately 350 clients including 90 major clients as of the end of the third fiscal quarter 2009. We continue to expand our DMSP customer base. This is in part due to referrals while our other marketing initiatives are also generating leads. The introduction of our new product MarketPlace 365 will help us drive DMSP sales as well.

On a final note, Onstream has been in non-compliance since January 2008 with one of the NASDAQ market listing rules which has to do with the bid price of launching common stock being below $1 per share. Although NASDAQ had granted several extensions for the original deadline for Onstream's compliance with this rule, they have announced they will grant no further extensions after July 31, 2009.

Accordingly, the company now has until October 16, 2009 with no more available extensions to regain the points with this requirement. The company might be considered compliant with the rule subject to the NASDAQ staff discretion if Onstream's common stock closes at $1 per share or more for a minimum of 10 consecutive business days before the October 16 deadline. The closing Onstream share price today was $0.42, up from $0.28 just 10 days ago. We continue to be optimistic with respect to an improved valuation on Onstream shares in the market based not only on positive recent activity but also some recognition of our achievement in generating positive cash flow from operating activities before changes in current assets and liabilities in this most recent quarter.

In conclusion, I am generally pleased with the results of the quarter as we generated positive cash flow from operating activities before changes in current assets and liabilities. This achievement is due to our ability to maintain revenue levels despite the challenging economy as well as the benefits of our cost reduction initiative. We're encouraged in particular by increases in our DMSP and hosting revenues. Operationally, we continue to make steady progress in expanding our gross profits margins which exceeded 70% of revenues for the quarter and also showed continued ability to reduce our operating expenses as a percent of revenue.

We remain focused on expanding gross margins and controlling operating expense to enable us to remain operating cash flow positive going forward. With this as a base, we believe that our most recently announced product offerings iEncode and MarketPlace 365 will contribute significantly to improve our revenue growth in the coming quarters.

The current economic uncertainty prevents us from giving a more detailed outlook, but we remain confident in Onstream's longer term ability to capitalize on economically attractive opportunities. However, we believe that growth in our core businesses combined with our new iEncode and MarketPlace 365 offerings will positively affect our results in the coming quarters.

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

Question-and-Answer Session


Thank you. (Operator Instructions). Thank you. Our first question comes from Fred Milligan of Sanders Morris Harris Group. Please state your question.

Fred Milligan - Sanders Morris Harris Group

Yeah. Hey Randy.

Randy Selman

Hi Fred, how are you?

Fred Milligan - Sanders Morris Harris Group

Fine. How are you? Hey, where do we stand now with the 360 marketing?

Randy Selman

I'm sorry.

Fred Milligan - Sanders Morris Harris Group

I mean, do we have clients or customers, whatever you want to call them?

Randy Selman

I'm sorry, 360 -- that MarketPlace 365 marketing?

Fred Milligan - Sanders Morris Harris Group

Right, right, right.

Randy Selman

I have introduced the service to several publishing and trade show companies, and I have a lot of interest in the product. We believe and we're working with these companies in the process of developing it as well. So, we're getting a lot of good feedback. And this is going to be -- we're not going to build a new comp. We are going to build with what we're working with

Fred Milligan - Sanders Morris Harris Group

Okay. What do you expect to have when you opened, when you have many clients?

Randy Selman

I think I said in the speech that we expect to have around a dozen shows. MarketPlace is ready to go once the product is released.

Fred Milligan - Sanders Morris Harris Group

Okay. Thank you.


(Operator Instructions).

Robert Tomlinson

While we waiting I have a couple of questions coming in through the Q&A online. One of the questions is when do you expect to see sales revenues from iEncode from Jim Cone.

Jim, the iEncode revenues some of which have already started but we expect to see a significant ramp up as soon as the V2 version begins to ship, which will be the beginning of the next month. We believe the user interface has been modified to make it so easy to use the system that it's an easy training and quick startup now for end users. We think that was what kind of held it back a little bit in the prior release. So we're very excited. We believe it will begin to effect certainly in December quarter and then on to 2010. We believe we'll start to see a very big ramp up of it.

Will the company consider a reverse stock spilt for except the listing due to NASDAQ deficiency, as by I can't read the name. I think that we've going to look at that very carefully over the next two months. We do have a littler bit of time. I am going to continue going on the road and meeting with new investors and hope that might results of the company's positioning and the new products will hopefully bring the value of the MarketPlace above the minimum requirement. But of course we will have to look at those possibilities should the time come. But I can't say right now which way we'll determine. Any questions from the audience?

I got several more on the screen here. How does iEncode plans to compete with your competitors Media Slide 5.3 which is one of the best webcast solutions currently in the marketplace that's from at least you've gone through from Q3,

Media Side 5.3 is a very good product, no question about it. It is a substantially higher cost product than iEncode. It is identified just a part of different purpose. Although our product can be competitive with Media Slide in many applications. We believe that the real bulk is going to be in smaller businesses AV companies. We think larger companies that are currently using webcast will use it. Although Media Slide is very well modification market. We're already getting some pretty good traction in some schools.

So I think it's a big market. I think there is a room for a lot of these types of products and I think each one has its own merits. And I believe we will be very competitive with iEncode.

Another question asked by Alan Menzer, please comment on the need for one-time cash infusion of approximately of one to 1.5 million to adequately address the current working capital deficit over and above the need for 10 to 11% increase in revenues going forward.

To answer this question that capital requirement is not an immediate need. We can certainly look at it as we progress as to whether we want to make changes in some of our CapEx expenditures. We are reducing costs and facilities so that we'll reduce that burden to some degree.

We've also identified sources of additional capital should we require it. And we'll be looking at all those alternatives as we have in the past. And also we do expect to see a substantial sales increase in the coming quarters with our new two products. So all the above, we should be able to address the working capital shortfall.

One last question of anything happening with Quest contracts from James Smith from PCFE (ph). As far as the Quest contract we're still part of the Networks Universal government contracts, which was awarded a couple years ago. And we do expect eventually to see some revenue from that contract. We've been told a lot of the delay in the revenues from that contract is due to supplies of additional capital from prior contracts haven't been fully used up. And since we weren’t on the prior contract, we aren't seeing any of that revenue.

Although, the team of people that are in Quest Group that are that did gather on the Networks Universal proposal have seen very, very little response so far from this contract.

My guess is that, we will see eventually some revenue from it. I don't know, I'm not even going to attempt to make an estimate anymore, because I haven't been right all along on this and understanding with the government's position as it is right now, I would anticipate, it might be sometime before we do see that revenue.

So, that's why we're going to focus our efforts on our two new products, on our existing infrastructure. And we look to really gain traction and scale from the two new products and the existing product line.

That's all what we have online. We'll check one more time to see if there's any further questions.


Yes, we do have a question on the phone side. It comes from Jeffrey Miller for J Consulting, please state your question.

Jeffrey Miller - J Consulting

Hey, Randy, how are you?

Randy Selman

Good. Jeff. How are you?

Jeffrey Miller - J Consulting

Good, thank you. In the presentation, you had a slide outlining a broad pay stroke view of iEncode going forward. The MarketPlace 365 seems to be something that's quite compelling and is there any way that you would give us any type of flavor or I mean if it's even possible to assertain some type of an idea of what this could potentially be?

Randy Selman

As I mentioned in the presentation, a MarketPlace could generate hundreds of thousands of dollars. It doesn't mean every single one will. In fact many of them might be very small shows that some entrepreneur decided to build and we're hoping it's going to be a viral effect to this as well. In the long term I think that they are potentially thousands of marketplaces that can be created. So many publishing companies and trade show developers and associations can really use this product to benefit their advertisers, their members in the association. And of course it's such a great tool; I mean it's a really comprehensive tool.

One of the key factors of what makes this so compelling is that you can virtually do everything in the marketplace. You can store comprehensive video content and retrieve it very simply. You can put a lot of advanced information into the boot so that specific to that the particular advertiser or that exhibitor, you can actually broadcast live events from the MarketPlace on occasion coinciding with industry events.

So here is where the MarketPlace and the iEncode kind of try together where we can put an iEncode in at a venue and actually broadcast it right from the MarketPlace. The revenue opportunities in each one of these market places is very substantial. And I think that the response even from the small group I've already been to which has been overwhelmingly positive. I think that we have an opportunity to get a lot of shows online quickly and start extra generating some real revenue.

It's a very, very compelling offering to the exhibitor in the show as I mentioned, it has a very compelling regeneration capability, some of which is secret source and I am not necessarily sharing that today. But the point to the matter is we believe that if you are in that industry you are going to want to be in this marketplace.

Jeffrey Miller - J Consulting

Okay. Now Randy that being said it appears that the core business is stable in a very challenging environment. And that you highlighted predominantly two new initiatives iEncode and MarketPlace 365. Now these 2 things, obviously weren't created overnight. The CapEx involved in that has the majority of all of it, it's already been paid for and built, and just tweaking at this point in time?

Randy Selman

Well that's the substantial portion, obviously. I mean the MarketPlace 365, other than the user interface and of course some of the functionality, runs on existing platforms, as I mentioned in the talk. The DMSP heavily provides most of the platform services. And as I mentioned, if you use live events or on-demand events you can use our webcasting and webconferencing services for that. And in the DMSP we have all of the functions like our pay per view and our user generated video and all those other functions as part of it. So all of that kind of infrastructures is all in place.

Obviously, the look and feel of the MarketPlace, the method of getting around the MarketPlace or be able to just crack the information, the searching, the meta-tagging have all of the internal functions have all been -- are all in the process of being created, which was started over a year ago. And we think that we're getting close to getting sample operational capability here within the next few weeks. So we're looking good for the November release of the product.

And on iEncode, obviously, version one is already out. Version two is an improvement of the usability and some other reporting capabilities and some other functions. So that's already in final test now. And as I said, we'll be releasing it into the full production in September at which we'll be upgrading a lot of the existing V1 unit’s in the field. And hopefully starting to ship units to new subscribers

Jeffrey Miller - J Consulting

Great. I look forward to seen the progress of both new products.

Randy Selman

Thank you, Jeff. Any other question?


No, sir not at this time.

Randy Selman

Okay. Well I thank you all for joining me today and look forward to talking with you at the end of our fiscal year at the later part of December.


Thank you. This does concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.

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