Onstream Media Corp. F1Q10 (Qtr End 12/31/09) Earnings Call Transcript

Feb.17.10 | About: Onstream Media (ONSM)

Onstream Media Corp. (OTCPK:ONSM) F1Q10 (Qtr End 12/31/09) Earnings Call February 17, 2010 4:30 PM ET

Executives

Jeff Stanlis - IR, Hayden IR

Randy Selman - Chairman, President and CEO

Robert Tomlinson - CFO

Analysts

John Scrivener [ph]

Fred Milligan [ph] - SMH [ph]

Operator

Good afternoon, and welcome to the Onstream Media Corporation Conference Call to discuss the company's fiscal 2010 first quarter financial results. All participants have been placed on a listen-only mode and the floor will be opened for questions and comments following the presentation.

At this time, I would like to turn the floor over to your host, Jeff Stanlis of Hayden IR. Sir, you may begin.

Jeff Stanlis

Good afternoon and welcome to the Onstream Media conference call. I would 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 also be noted that the webcast of today's conference call may be found on the internet by visiting Onstream Media Corporate website at www.onstreammedia.com and then selecting company at the top of the web page and then clicking on Press Releases. At that web page, you will find link to the news release we issued to announce the company's fiscal 2010 first quarter financial results and webcast.

An archived version of the webcast will be shortly be accessible from the press release page and will be available for at least the next 12 months pursuant to SEC guidelines.

Finally, for those interested in reviewing our recently filed 10-K, which contains all of 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 you'll find all our recent SEC filings. It can be found as well via the Edgar database directly at www.sec.gov and then search for company filings.

At this time, I would 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 first fiscal quarter 2010 which ended December 31, 2009. We'll also update our overall strategic progress, including some details about our iEncode and MarketPlace365 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 Tuesday after the close of the market.

As I stated in the financial results press release, it is clear that in many respects the economic conditions that affected our webcasting and conferencing results during the previous fourth quarter are showing improvement. The fact that we increased revenues this quarter over the immediately preceding quarter by approximately $340,000 or 9.1%, further indicates that the fourth quarter 2009 was indeed an anomaly and that we are seeing return of previous revenue levels.

As we stated in the last quarter's financial release and now we state today, we believe we will deliver sequential revenue growth throughout fiscal 2010. I'd also like to point out that we are now doing final testing and debugging of our MarketPlace365 platform, and we are targeting in March 2010 formal release date, although we will begin to add data customers on the platform within the next few days. As a result, the sequential growth in the first quarter did not include any contribution from this platform.

In addition, our iEncode appliance has not yet begun to meaningfully impact our revenues primarily due to delays in network deployment as a result of several facilities consolidations that were occurring at the same time. What this means is that our efforts to reduce costs may have affected our new iEncode rollout, but we will have a more cost effective infrastructure and therefore higher margins as a result.

The first quarter was highlighted by progress in our Digital Media Services platform segment where we recorded approximately $155,000 in additional DMSP and hosting division revenues, representing a 39% net increase over the first quarter of the prior fiscal year. And we also saw an improving of gross profit, both in dollars and a percentage of revenues compared sequentially to the fourth quarter of fiscal 2009. We expect DMSP revenues to continue to grow and they will be further driven by our new MarketPlace365 platform as our product announcement and subsequent demos were met with positive industry reception.

Although I will go into more detail later in our conference, MarketPlace365 is an all encompassing, lead generation, social media marketing and comprehensive communications platform. It enables users to rapidly and cost effectively self deploy their own online virtual marketplaces. The solution comes prepackaged with an array of powerful marketing and search engine optimization features that can be implemented quickly with no upfront costs and minimal IT resources required.

In December, we announced that Tarsus Group PLC chose MarketPlace365 because our platform will allow them to create an additional revenue stream as well as benefit their large membership. Subsequent to the first fiscal quarter end, we have added the Trade Show Exhibitors Association, tsea.org, a non profit association to market the MarketPlace365 platform.

MarketPlace365 will enable TSEA to increase the value it delivers to its loyal membership. In addition, TSEA plans to leverage the quality content of its new Red Diamond Educational Seminars, which will be made available through a marketplace virtual trade show. We anticipate additional customers for our MarketPlace365 platform in the coming weeks. We are increasingly optimistic about the potential of this product offering and believe Marketplace365 can become a major growth driver for us, starting this year.

In addition to the market potential we see with our MarketPlace365, we are optimistic with respect to even greater increases in the level of webcasting revenues during the remainder of fiscal 2010 based on order flow and other sales activities thus far for the second quarter of fiscal 2010. And we expect our relationship with British Telecom Conferencing, a division of BT Group PLC, one of the world's leading providers of communication solutions and services will improve our ability to sell conferencing services in our Infinite division. In addition, we signed a new agreement with them for resale of Onstream's webcasting, iEncode, and Digital Media Services on a worldwide basis.

As we stated in our last call, as a result of the entire cost cutting measures initiated in fiscal 2009 and the 10% pay-roll 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 cost, which Robert will update you on later in the call. These exciting activities and opportunities provide the foundation for optimism going forward in 2010.

We continue to believe that Onstream will most probably return to cash flow positive status from operations before changes in working assets and liabilities by the second quarter of fiscal 2010, the current quarter.

I will discuss our products and other activities after Robert has provided the details on the quarter's numbers. Robert?

Robert Tomlinson

Thank you, Randy, and good afternoon. As you can see on this slide, our consolidated operating revenue was approximately $4.1 million for the three months ended December 31, 2009. Although this represented a decrease from the revenue level in the first quarter of the prior fiscal year, as Randy mentioned, our first quarter fiscal 2010 revenues represented a sequential increase as compared to our most recent quarter, the fourth quarter of fiscal 2009.

This sequential revenue increase, 9.1% overall was further comprised of a 19% sequential increase in webcasting revenue and a 36.8% sequential increase in DMSP and hosting revenue. Furthermore, going back to the year-over-year comparison shown in this slide, Onstream recorded an approximately $155,000 or 39% net increase in DMSP and hosting division revenues for the first quarter of fiscal 2010 over the first quarter of the prior fiscal year.

This increase in DMSP and hosting division revenues included an approximately $53,000 or 23.9% increase in DMSP store and stream and streaming publisher revenues and an approximately $102,000 or 57.7% increase in hosting and bandwidth charges to certain larger DMSP customers serviced by the Smart Encoding Division. As we have mentioned, we believe that general economic as well as seasonal conditions were the primary factors in the consolidated revenue decrease we saw in the fourth quarter of fiscal 2009.

The first quarter of fiscal 2010 represented a reversal of those trends to a great extent, as we saw an overall sequential revenue improvement based primarily on increased webcasting and DMSP activity, and we expect these more positive trends to continue.

This slide summarizes our financial results for the three months ended December 31, 2009 as compared to the corresponding quarter of the previous fiscal year. Our consolidated net loss for the three months ended December 31, 2009 was approximately $4.3 million or $0.10 loss per share. However, this $4.3 million net loss included approximately $4.2 million of non-cash expenses, including a $3.1 million non-cash write-down for impaired goodwill and other intangible assets, in addition to depreciation and amortization charges and other non-cash compensation and professional fee expenses. Accordingly, we used approximately $111,000 net cash in operating activity before changes in current assets and liabilities for the quarter.

This $111,000 net cash usage represents not only an improvement over the approximately $225,000 net cash used in operating activities for the corresponding quarter of the previous fiscal year, but an even greater improvement over the approximately $415,000 net cash used in operating activities for the immediately preceding quarter, the fourth quarter of fiscal 2009.

Based on expected continuing increases in revenues, coupled with the continuation of reductions in our operating expenses which I will talk about further in a minute, 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 provides a more detail on our operating cash flow for the three months ended December 31, 2009 as compared to the same information for the corresponding quarter of the previous fiscal year.

As you can see the net loss of $4.3 million for the three months ended December 31, 2009 included $4.2 million of non-cash expenses, which resulted in cash used in operating activity before changes in current assets and liabilities of approximately $111,000. The primary non-cash expenses included in our first quarter fiscal 2010 loss were approximately $3.1 million for impairment of goodwill and other tangible assets, approximately $567,000 of depreciation and amortization, approximately $262,000 of employee compensation expense paid by the issuance of stock and options, and approximately $169,000 for professional fee expenses paid for with stock and options.

As I mentioned earlier, this $111,000 net cash used in operations represents not only an improvement over the approximately $225,000 net cash used in operating activities for the corresponding quarter of the previous fiscal year, but an even greater improvement over the approximately $415,000 net cash used in operating activities for the immediately preceding quarter, the fourth quarter of fiscal 2009.

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

Effective October 1, 2009, a significant portion of Onstream's work force including all of management took a 10% payroll reduction which is expected to be maintained until increased revenue levels result in positive cash flow. This action, which reduced payroll cost 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 with fiscal 2009, and the primary reason we achieved an approximately $327,000 decrease in compensation expense for the three months ended December 31, 2009. This 327,000 decrease represent a 13.6% of compensation expense for the corresponding quarter of the prior fiscal year.

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

The consolidations of two of our collocation facilities into two other existing locations were completed as scheduled during the second fiscal 2010 quarter. During the third fiscal 2010 quarter, we are planning to discontinue the use of a third party software application incorporated as part of our DMSP and hosting services in favor of a less costly application. During the fourth fiscal 2010 quarter, we were also planning to reduce the number of telephone switches and/or switch locations used by our Infinite division.

With these consolidations as well as recently negotiated reductions in our bandwidth and telephone line and usage rates, we expect to reduce our cost of sales by approximately $400,000 during fiscal 2010 as compared to those costs for fiscal 2009.

Turning to the balance sheet, we had approximately $331,000 in cash and our stockholder's equity was approximately $14.7 million as of December 31, 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 increased borrowing limit of $2 million from the previous level of $1.6 million. Certain financial covenants were relaxed or eliminated. Subsequent to the end of the December quarter, we received additional funding for our operations of $250,000 from a single investor via an unsecured subordinated convertible node. I would now like to turn it back over to Randy.

Randy Selman

Thank you, Robert, for the overview of our fiscal 2010 first quarter operating results and financial position. Today I am going to focus on the growth catalysts. Now that our legacy business is beginning to return to previous levels, we can expect to return to generating positive cash flow from operations before changes in current assets and liabilities in all probability during this current quarter, and we are optimistic that webcasting and digital media services will continue to grow during the remainder of fiscal 2010, further increasing our net cash flow.

However, we believe as a result of all the investment we made in our digital media services platform, specifically as part of our MarketPlace365 project and our iEncode appliance that we now have in place several growth catalysts which should have a significant effect on our revenue growth during the remainder of fiscal 2010. Before I discuss MarketPlace365 and iEncode, I would also like to briefly mention here 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 in Onstream Media's leading Digital Media Services Platform technology as well.

For those who missed our call a few weeks ago, let me provide background on MarketPlace365. MarketPlace365 is a self provisioned solution for creating online multimedia marketplaces, including trade shows, virtual malls, conferences all by integrating several proprietary Onstream technologies as the fully automated backend and with the primary purpose of creating qualified lead generation. This solution facilitates e-commerce and can support a variety of different venues.

With MarketPlace365, we foresee that Onstream's revenue potential could be hundreds of thousands of dollars per marketplace. Looking at this slide, we can see that a single marketplace with an average number of booths, let's say 200, will generate more than a quarter million dollars in annual revenue. Larger shows could easily be in the millions.

When you look at the constituency of the thousands of tradeshow organizers, exhibitors and vendors from just two of our new agents Trade Show News Network and Trade Show Exhibitors Association, both leaders in their respective roles in the trade show industry, it is easy to see that MarketPlace365 could easily acquire several marketplaces with their help. However, it is also possible that hundreds of marketplaces could be established and that could be a game changer for Onstream. However, every MarketPlace365 sale may not generate this level of revenue and the attainment of any revenue from the MarketPlace365 sale will be subject to various factors, including the implementation of the MarketPlace365 product by the promoter purchaser.

Finally these charts only define the booth fees that we anticipate but we anticipate additional revenues from advertising, sponsorships, marketing tools and especially webcast, webinars and conferences to further add to these figures. The platform is extremely flexible allowing for multiple permutations and vertical markets. Our unique pricing models should facilitate sales as we have eliminated the high upfront costs associated with producing and selling the MarketPlace.

To date the MarketPlace365 service has been demonstrated to more than 30 publishers, trade show organizers and associations who have given more than two dozen marketplace expressions of interest and commitments on a wide range of subjects including franchises, diving, aviation, restaurant business, design and architecture, marketing, pharmaceuticals, finance, construction, expositions and expo services. Each of these marketplaces is expected to have a minimum of 100 exhibitors with many industries potentially having more than a 1,000 exhibitors. 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 a trade show or conference existing once per year for a short period of time, a MarketPlace is available all year long as the online destination on a particular subject. MarketPlace365 is a fully automated and user provision solution requiring limited Onstream personnel to manage or support. Although its primary purpose is to facilitate lead generation, MarketPlace365 also fully supports social interaction using chat, blogs and moderated groups.

iEncode is 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 setup and on premises encoding for a higher quality signal, the iEncode appliance serves as a front end to Onstream's full featured visual webcaster software which is utilized by thousands of corporations worldwide.

This fully self service version of our industry leading visual webcaster service provides ease of use and reduced cost. For the past year, we have been developing a more user-friendly, more robust featured appliance. The new version of this product features self provisioning, the ability of the iEncode to automatically establish its connection to Onstream service regardless of where in the world the iEncode box is located.

In addition, it now has an extremely efficient and easy to use user interface, advanced reporting as well as the ability to handle flash animations, new PowerPoint formats and the ability to facilitate and archive an unlimited number of webcasts.

As I mentioned earlier, our iEncode appliance has not began to significantly impact the revenues primarily due to delays in network deployment as a result of several facilities consolidations that were occurring at the same time. Now that the infrastructure consolidation is complete, we and our network of resellers will begin selling the appliance during the coming months, although iEncode has been recently sold to another major pharmaceutical company, several audio-video production companies and several financial services institutions.

Beyond these new product introductions we continue to see growth in our DMSP and hosting division. As I mentioned earlier we are pleased to see a 39% increase in DMSP and hosting revenues this quarter as compared to the same quarter last year. We were at approximately 363 clients as of the end of the first fiscal quarter 2010. We continue to expand our DMS customer base. This is in part due to referrals but our other marketing initiatives are also generating leads. The agreements we've signed to-date for a new MarketPlace365 product 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 markets listing rules which has to do with the bid price of Onstream common stock being below $1 per share. The company presented a plan to regain NASDAQ compliance to a NASDAQ panel in December 3rd, 2009. Subsequent to the quarter end, the panel granted us until April 19th to meet the minimum bid price requirement.

Our common stock must close at a bid price of $1 per share greater for a minimum of 10 consecutive trading days prior to the April 19 deadline to remain listed on the NASDAQ capital market. We have been pleased to see the recent increase in our share price. We will continue to work diligently on MarketPlace365 and other initiatives and believe that as we continue to keep the market informed of our progress, it will recognize Onstream's potential success in the form of a sufficiently higher share price which will allow us to attain our goal of NASDAQ compliance.

Based on the increasing optimism for our MarketPlace365 platform as well as the anticipated increase in sales of our current products, including iEncode and our reductions in operating expenses, we are reiterating our expectation of sequential revenue growth through 2010. We also continue to believe that Onstream will return to cash flow positive status from operations before changes in current assets and liabilities by the second quarter fiscal 2010. I would 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

Operator

Thank you, sir. The floor is now open for questions. (Operator Instructions). And our first question comes from John Scrivener [ph]. Sir, you may state your question.

John Scrivener

Just a few questions here. The first question is why did TSEA select Onstream and are there other products in the market that are similar to 365. I mentioned this because I saw something I think it was ON24 or something which looks similar to the 365 but I'm more interested in why they chose you and do they have a -- is it an exclusive agreement with them?

Randy Selman

Well, there are no exclusives but TSEA and TSNN I think had the same decision process why they chose the MarketPlace365 product. Basically number one, it's a self administered product, which means that as a result there are no upfront set up costs. So right off the bat, we eliminate substantial risk that a promoter would have by having to write a check for $30,000, $50,000 or $100,000. The promoter essentially can build the marketplace himself and thereby saving all that upfront cost. So number one, unlike our competitors who will charge these big upfront fees, we don't have to charge that set up fee.

Number two, because it is a permanent venue, a number of very interesting things occur. One is, of course, the fact that as an online permanent venue, we can establish search engine optimization so that the marketplace itself can market itself. In other words, all of the exhibitors that are part of the marketplace show are all linked together in a specific search engine optimization strategy that creates tremendous relevance for the marketplace and thereby makes it very, very high in the rankings on search engines like Google.

So for all the key words and things that are related to that marketplace, we're going to come up on the very initial pages of the search results. That will drive traffic into the marketplace. So you know, primarily, there's a lot of reasons but primarily, both the setup fees, the self administration and the search engine optimization are the primary three.

John Scrivener

Another thing. If TSEA sells the 365 to somebody, do they have a minimum that they have to do per month, and if not, do they have a cut off date where if you don't do a certain amount of business with TSEA or do with Onstream, do they have to forfeit that booth or is there a penalty or how does that work?

Randy Selman

The way the typical marketplace works TSCA, TSNN, although they will probably be also promoters of their own shows, they are acting as agents to Onstream and they sell to other promoters. So they are compensated through an agent program that allows them to sell these marketplaces to promoters. The promoter has an ability to establish his show, and during the first year, he has no specific minimum requirements. But in the second year, there are minimum requirements to maintain and keep the show, so that we don't have what we'll basically call dead beat marketplaces.

John Scrivener

If there is a dead beat marketplace, do you allocate resources to that for a long period of time, which would mean a cost to Onstream, but nothing in return?

Randy Selman

No. actually, there is no real cost to Onstream. All of the work that needs to be done in the marketplace itself is essentially done by the promoter. So really our job in this process besides obviously maintaining and managing the infrastructure is customer support to those promoters when they have an issue or some question about the operation of the actual software. Beyond that extent, it's really up to them to manage their exhibitors, provide content to all the things that are necessary to make a successful marketplace. But therefore they get the lion's share of the revenues as well.

John Scrivener

Okay, assuming that the company, let’s say, I think you saw that -- this might have been on that chart there, you get let’s say 200 booths from TSEA, I am assuming they would have potential to have 200 booth times XYZ because they have so many exhibitors in their family of customers there. What would you estimate that the potential revenues to Onstream could be over years, say they had a bunch of those exhibitors buying 100 booths, 200 booths or whatever, have you put any, you got any idea of what the potential could possibly be to Onstream per year, just what are the TSEA types?

Randy Selman

John, again it’s hard to give what the results would be, but as I said in the presentation, basically we are looking at shows that will have average of a couple of hundred booths and potentially many shows to be thousands of booths. If you multiply the numbers, you can start to see that even an individual show can range as low as, let’s say 200,000 to as high as $1 million. The potential, if you have read the press release on TSNN and TSEA, they literally represent thousands of these types of the shows, I mean if they can deliver a few 100 of them to us, you are talking about tens of millions of dollars to Onstream. The number can certainly be astronomical, that's why I used the word game changer. This is a product that has a very, very high top-end.

John Scrivener

Is there any minimum that Onstream will make from any one booth or how does that work?

Randy Selman

We try to pick marketplaces, promoters that can deliver in that range of booths. In another words, we are not just going to give a promoter, we don't think its going to be able to attain a 100, 200, 300 booth, the opportunity. We are being selective in who we are going to bring on board and so the chances are that we are going to try to pick some promoters we think that have the best opportunity of success and hope that they do. And not everyone as I said will attain those numbers, but if we have enough of them and enough of them do, this could be a breakout for us.

John Scrivener

Yeah, just talking or talking to somebody who is going to use, present the MarketPlace365 system, and I was reading some other place a guy who's actually has one set, up and there is an argument going around that says that Onstream will make a minimum of $150 per booth, and somebody else says no that is not the way it works. Can you clear that up for us?

Randy Selman

Well, the pricing structure is something that we discuss with promoter, but the way the whole entire program works is that we get a certain percentage of every booth sold and we do have minimums. But I don't think we need to go into all the specific details that would be information our competitors could use against us at this point.

John Scrivener

Will we be hearing anything about actual placements of 365 by TSEM or anyone else that you have signed an agreement with by the end of this month or next week or what ever?

Randy Selman

You can count on you will hear announcements. The only hold up -- and I know I did promise a lot of announcements -- the only hold up has been getting a legal agreement that we can use to scale the business with. It has been quite challenging but we are finally there and we are going to have it done here in the next day or so. And then from that point you will start to see announcements of the promoters and we are very excited about the number of promoters we are going to be talking about.

John Scrivener

Yeah, I know about the legal hassles and things. I have been getting the feedback from what I know and you know so another question.

Randy Selman

The fact that the products are already hitting people in Hawaii should be a good indication.

John Scrivener

Well, I have done my best to help do that? Anyway another question, another thing some people are saying that the increase in the authorized shares is because it anticipates some of the reverse split, but I said I don't think that's the case. Why was there an increase? There could be a lot of reasons, but what is the primary reason to do it?

Randy Selman

The primary purpose was in order for us to implement the employee stock option plan to retain and to attract additional employees who have no shares available left in the plan. As a subsequent, I guess benefit or subsequent thing that occurs with that is that in case we have to, we will have the number of shares we need. In fact, if we have to do the reverse, if we have to do the reverse, and I am hoping that we won't, those shares will be more additional shares, so we will have some left over from the reverse. It is not necessary that we had to do more shares for that purpose. But I am planning that we are not going to have to do the reverse and that we are going to need these shares for our employee stock option plans going forward.

Operator

(Operator instructions). And our next question comes from Fred Milligan [ph] from SMH [ph]. You may state your question.

Fred Milligan - SMH

In the next quarter, if you start getting revenues from MarketPlace365 in the next quarter, should we see something in terms of the bottom line as well?

Randy Selman

Yeah, obviously if the revenue starts. I mean our March date is basically the date when we are going to start taking on what we call not just beta customers but actual customers. It will take them several months to ramp up the marketplace and get it working. Although you can build it very quickly, there is a lot of marketing of exhibitors and (inaudible) and stuff like that going on. So it will take some time. We are estimating 60 to 90 days to actually build an initial marketplace. So if we start in March and we're looking at 30, 40 let's say two or three months from there March, April, May, June, that will start to see the revenues maybe start to come in the July to September quarter. So that would be the first indication of the marketplace revenues. But the good news is that once it starts, it should ramp up quickly because we will have a number of simultaneous marketplaces once we get through the beta period.

Fred Milligan - SMH

Now if you have 20, 40, 60, 80 or 100, what does that mean in terms of your capital outlay, anything?

Randy Selman

Not really. The infrastructure is same whether we have ten concurrent shows or 500 concurrent shows. I'm sure our operations people will probably scream at me on that one, but most likely the increase of capacity is not going to be that costly to add a lot more shows, but I firmly believe the current infrastructure will handle quite a few hundred.

Fred Milligan - SMH

Is there a contract between Onstream and the people who have booths or just Onstream and the promoter?

Randy Selman

No. Onstream and the promoter have the contract. The booth is signed by virtue of an electronic license agreement. They click on it when they open up their booth. And that license agreement which is actually provided by the promoter, but it contains certain requirements that Onstream legally puts in through the promoter agreement, so that they put into their exhibitor agreement, so that we're protected for all kinds of privacy and usage and controversial content, and illegal and all that kind of stuff.

Fred Milligan - SMH

So the guy who is the promoter when he signs a contract, is that for some duration?

Randy Selman

Yeah. The contract has an initial term and then automatic renewal term based on them maintaining and creating a revenue flow that becomes as long as it continues to pay the bills, the marketplace can stay in place.

Fred Milligan - SMH

So if say a contractor signed for a year with a renewal for another year, if during the – the guys, the promoter fails to deliver, is he liable for anything?

Randy Selman

During the first year of his show, he has no minimum requirements. From the second year on, he has minimum requirements. If he fails to deliver during the second year, then the show can obviously be shut off. He does not have a take or pay scenario where you have to continue to pay for the balance of the time. The structure, the way we are offering it, makes it much more I think a broader appeal, and I think that the promoters in the tradeshow industry really like this business model. And the truth of matter is, we can start a show, it could be unsuccessful, we don't really lose any money out of it and the promoter took a shot at it. But the good news is that, we are really just looking for promoters, we think (inaudible) really good shot at being successful, so we are betting them to a very substantial degree.

Fred Milligan - SMH

And it is just promoters or is it publishers as well?

Randy Selman

This includes -- our target market is the trade show industry, the publishing industry, both B2C and B2B, primarily B2B, and also trade associations, and then to some degree some entrepreneurs that have wherewithal. I am not looking for somebody to just say, hey, I want to do the show, he has got to be a subject matter expert, they got to have capital behind them, they have to demonstrate that they have a good high chance of success.

Fred Milligan - SMH

Is there competition for the marketplace?

Randy Selman

Well, there are definitely competitors that provide virtual trade shows online. They are different. And as I mentioned with John's question, they all have substantial upfront fees and such, and they typically design for an event based service. In other words, during the time that a conference is running, they can put on a virtual conference, maybe leave it up for few months. But they are not really looking at permanent venues like we are. That is the difference.

Operator

(Operator Instructions) And our next question comes from John Scrivener. Sir, you may state your question.

John Scrivener

A question on this iEncode mobile streaming, I figured it’s what you call it, have you had any enquiries from any of the big companies like Apple or have you presented this to them? And do you anticipate getting any deals as a result of the introducing of this any time in the near future?

Randy Selman

Okay, you’ve got two products connected there. iEncode is different than the mobile streaming service. The mobile streaming service, primarily we're looking at partnerships with some of our existing partners, companies like Akamai and others that will be able to use that service. We don't have any direct connection with Apple at this point. But after we've put some rock concerts into the mobile phones and some other things that we do, maybe Apple will come looking for us.

John Scrivener

Is this by subscription basis or how does it work?

Randy Selman

We sell it to a third party who provides it either in a subscription or it's sponsored. There's a whole of different ways. We just provide the infrastructure. We don't actually run the business model. We get paid by the megabyte.

John Scrivener

The settlement of that lawsuit that was in the filing, $365,000 settling for $115,000. Is that the Narrowstep thing out of your hair or was that something separate?

Randy Selman

No, that was certain legal fees that were part of the Narrowstep suite that went through a third party, our previous legal advisor. Some of the things that they had provided us were in question and we settled at that number.

John Scrivener

What is the status of that Narrowstep frivolous complaint that they filed?

Randy Selman

We have filed a motion to dismiss and we're waiting for court action.

Operator

And sir, there appear to be no further questions at this time.

Randy Selman

Okay. Well, I thank you all for joining us today, and I look forward to announcing the results of the current quarter in the middle of May. Thank you for joining us. Bye-bye.

Operator

Thank you. This does conclude 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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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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