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Executives

Brett Maas - Hayden Communications

Randy S. Selman - Chairman of the Board, President, Chief Executive Officer

Robert E. Tomlinson - Chief Financial Officer, Senior Vice President-Finance

Analysts

Frederick Moran – Stanford Group

Fred Milligan – Sanders Morris Harris

Steven Sipellan

Michael Potter – Monarch Capital

Bruce Carlos

Anthony Marchez – Monarch Capital

Bill White

Seth Wilson – Westwind Capital

Onstream Media (OTCQB:ONSM) F4Q07 Earnings Call December 26, 2007 4:30 PM ET

Operator

Welcome to the Onstream Media Corporation conference call to discuss the company’s fiscal 2007 year end and fourth quarter results. (Operator Instructions) At this time, I would like to turn the floor over to your host, Brett Maas, of Hayden Communications.

Brett Maas - Hayden Communications

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 inthe 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 inthe company’s filings with the SEC.

It should also be noted that the webcast of today’s conference call may be found on the Internet by visiting Onstream Media’s corporate website atwww.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 a link to the news release we issued to announce the company’s fiscal 2007 fourth quarter and full year results webcast. An archived version of the webcast will shortly be accessible from the press releases page and will be available for at least the next 12 months, pursuant to SEC guidelines.

Finally, those interested in reviewing our recently filed 10-K-SB which contains all of the financial information being discussed today, you 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 via the EDGAR database directly atwww.SEC.gov and then search for company filings.

At this time, I would like to introduce Randy Selman, President and CEO of Onstream Media. Randy, the floor is yours.

Randy S. Selman

Thank you. Good afternoon and thank you for joining us. Today we will review our results for the fourth quarter and full year ended September 30, 2007, as well as discuss the outlook for fiscal 2008.

With me today is our Chief Financial Officer, Robert Tomlinson.

2007 was an important transition year for Onstream Media, and I am proud of the progress we have made. Our merger with Infinite was akey milestone for Onstream, rounding out our product offering, adding to our customer base, expanding our margins and helping to diversify our revenue.

Infinite contributed $3.2 million in incremental revenue to our consolidated results, pushing us over $12 million in revenues, a record year for us.

We also expanded our gross profit margin in almost all of our product lines, and we remain inan active product development phase, investing inthe technology which we believe will become akey contributor to our 2008 results.

Looking back at our results for the past year, we have seen growth in several key areas. Our webcasting business, for example, expanded from 4,500 webcasts performed during fiscal 2006 to more than 5,900 during fiscal 2007, growth of more than 30%. Just as importantly, we increased the average revenue per webcast event to approximately $803 for fiscal 2007 from $792 from the prior fiscal year.

We have built an extensive customer base, both direct and indirect, including many Fortune 1000 corporations and a wide range of entertainment organizations and government agencies. Historically, many of these customers were only seeking basic webcasting services such as earnings calls, but as we have advanced our technology, established closer relationships with our customers and added to our offerings, we have been able to leverage our new products, increasing the average revenue per client.

Today, Onstream Media is much more than a webcasting service provider. We also manage digital video content for entertainment companies and corporations alike, helping customers to deliver these videos to iPods and cell phones, as well as in a browser. Inthe coming year, we will deploy our unique abilities to provide smart encoding for these digital video assets; allow our customers to add meta data and include more traditional and advanced search engine optimization techniques. We believe this is a disruptive technology for this industry, using digital assets to bring potential customers to our clients web sites, rather than as an added feature once they have already found the web site. Our clients will use our automated smart encoding technology to make their videos search engine friendly, helping to secure top positioning on the resulting search lists.

All of this will continue to increase our revenue per customer and expand our profit margin. In addition, these capabilities set us apart from our competitors, most of which are still only providing commodity level services.

During the last fiscal year, we established several significant relationships, setting the stage for accelerated growth in 2008. Inthe beginning of calendar 2007, Akamai and Onstream partnered to enable Onstream to resell Akamai services along with value-added Onstream services to Akamai’s small to medium-sized business clients, resulting in growth of that group of DMFP subscribers to approximately 135, not including our larger DMFP clients.

We signed agreements with Qwest Communications International, and as a result we were awarded a stake in Networx Universal, the largest communications service contract inthe world. This $48 billion, ten-year services contract includes leading edge voice, data and video services, including managed and secured advanced data networks to U.S. government agencies worldwide.

Our role as part of the Qwest team will be providing comprehensive video and audio encoding services, and webcasting for live and archived distribution of content viaa wide range of digital delivery networks. While we have not yet quantified the annual revenue potential of this contract for Onstream, we are excited and confident that this will become an important part of our revenue in 2008 and beyond.

Other key contract awards include the Massachusetts Department of Revenue, which selected us to provide digital media storage and streaming services under a one-year contract, renewable annually for four subsequent years. And we were awarded a stake ina three-year, $3 million master services agreement by the State of California to provide video and audio streaming services to the State and participating local governments.

In short, this was a successful year for Onstream. We made solid progress towards each of our initiatives and set the stage for accelerated growth in 2008.

Before I go further, Robert will review our financial results for the fourth quarter and full-year period ending September 30, 2007.

Robert E. Tomlinson

Thank you, Randy. Good afternoon. For our fourth quarter ended September 30, 2007, consolidated revenues increased approximately 79% to a record level of $4.1 million from $2.3 million inthe prior year. This increase reflects Web Communications Services Group revenue increases of approximately $2.2 million, or 252% for the quarter.

Following our acquisition of Infinite in April 2007, we renamed our webcasting services group as the Web Communications Services Group. This new group includes Infinite, as well as our already existing webcasting operations, now called the Webcasting Division; and our already existing travel services operations, now called the Travel Division.

The increased quarterly revenue from our Web Communications Services Group was primarily due to approximately $1.9 million of audio and web conferencing revenues recognized since the Infinite acquisition on April 27, 2007, having no corresponding effect inthe comparable prior-year quarter.

However, the increased revenues for the quarter also represent a 43% increase in Webcasting Division revenues, resulting from continued higher webcast production services sales, and a continuation of the past growth in sales of higher-priced video webcasts.

The number of webcasts produced increased to approximately 1,700 webcasts for the quarter ended September 30, 2007 versus approximately 1,200 webcasts for the comparable quarter of fiscal 2006.

For the full year ended September 30, 2007, revenues increased by approximately 44% to approximately $12.1 million. These increases reflect Web Communications Services Group revenue increase for approximately $4.3 million, or 114% for the full year.

In addition to the effect of the Infinite acquisition, we also experienced an approximately 32% increase in Webcasting Division sales over the prior fiscal year.

The gross margin percent of 65.1% for the fourth quarter represented an increase over the comparable prior-year period percentage of 61%, and largely reflects the gross margin of 82.9% on Infinite conferencing, audio and webconferencing revenues.

The net loss for the fourth quarter of fiscal 2007 was approximately $1.7 million, or a $0.04 loss per share, which includes approximately $1.4 million of non-cash expenses comprised primarily of two items: depreciation and amortization, as well as professional fees paid in shares and options. Although the company has experienced significant non-cash interest inthe past, the company’s interest expense for the September 2007 quarter was minimal, as a result of the previous conversion and/or repayment of all of the company’s debt except for capital leases.

The net loss for the full year ended September 30, 2007 was approximately $14.8 million, or $(0.48) loss per share, which was also largely attributable to non-cash expenses, primarily non-cash interest and debt discount amortization, which as I mentioned, is no longer a factor going forward, as well as depreciation, amortization and professional fees paid in shares and options. Total non-cash items for the full year were approximately $12.8 million. I will talk more about these two remaining non-cash expenses with the next slide.

Although we had anticipated that the fourth quarter would achieve positive net cash from operating activities before changes in working capital, this was affected by circumstances related to fiscal year end accounting, seasonality and expansion of resources to meet anticipated customer demands that affected the quarterly cash flow. These included additional costs related to unused employee vacation days, lower than usual margins in our Webcasting Group due to a higher than normal proportion of lower margin production services that occurred during the summer months related to entertainment-based events, and the need to add production personnel to meet the increasing demand for our event-based services.

In addition, we experienced non-recurring start-up expenses from our auction video Japan office during the fourth quarter.

As I mentioned, with the elimination of interest expense, there are only two remaining non-cash expenses of significance affecting the company’s statement of operations: depreciation and amortization and professional fees paid in shares and options.

The company currently anticipates that consulting agreements with an equity component will be entered into on a very limited basis, if at all, in the future. Therefore, non-cash professional fee expenses should start to decrease during the first half of the fiscal year 2008 as existing agreements begin to expire.

We have seen an increase in depreciation and amortization expense inthe fourth quarter of fiscal 2007, primarily as a result of the amortization of the tangible and intangible assets acquired in connection with the Infinite Conferencing transaction. Depreciation and amortization increased more than 70% for the fourth quarter, compared to the fourth quarter last year.

In addition to record growth in revenues and gross margin, and significantly improved cash flow, our balance sheet has also continued to strengthen. The company’s stockholders’ equity was approximately $33.5 million as of September 30, 2007, a 299% increase for the fiscal year. This increase included the effect of shares issued for the Infinite acquisition, and the related private equity offering.

Second, atSeptember 30, 2007 the company had a cash balance of approximately $560,000 and working capital of approximately $1.2 million.

Finally, as a result of the conversion and/or repayment of all of the company’s debt except for leases, our assets including receivables and equipment, except for the leased items, were unencumbered. In fact, in December 2007, the company entered into a equipment financing line of credit arrangement with several individuals under which it can borrow up to an aggregate of $1.5 million for equipment purchases; including purchases made and paid for by the company during the 12 months prior to the date of the agreement.

The company has agreed to grant the lenders a security interest in the equipment purchased with the proceeds of the line; the outstanding balance bears interest of 12% per annum, payable monthly in cash or restricted stock atthe company’s option; and we have not yet drawn any funds on the line, as of today.

We also believe that we will be able to secure a revolving line of at least $1 million for working capital against our receivables, and are currently in discussions in this regard.

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

Randy S. Selman

Thank you, Robert, for overview of our fiscal 2007 fourth quarter and full year operating results and financial position. As I mentioned earlier, we are clearly executing on our business plan; the growth of our customer base attests to that and we continue to expand on our powerful and unique suite of services, many of these solutions have been recently completed or arein the final stages of development and will begin to positively impact our financial results during fiscal 2008.

We have cross-selling opportunities, and we are focused on upselling our existing customers. Not only can we introduce webcasting and web conferencing services to our existing EDNet and DMFT customers, vice versa, but our Infinite acquisition provided more than 2,000 active and loyal customers that we will be introducing to our expanded offerings. We are already seeing the results. Infinite’s revenue base grew to approximately $1.9 million for theSeptember 30, 2007 quarter and subsequently reached record revenues during the month of October.

Though the acquisition of Infinite Conferencing has already proven to be a major plus for our company, so to has been the March 2007 acquisition of Auction Video and Auction Video Japan. As a result of this acquisition, we have been able to move forward in a variety of new directions, including the ability to offer web-based, user-generated content applications that are used in social networks, video classifieds advertisements, online auctions and other Web 2.0 applications.

One key new direction made possible by the Auction Video acquisition is our new relationship with eBay, as they recently designated our Auction Video Services as an approved video hosting service available to alleBay sellers. As a direct result, in June we signed an agreement with Infopia, the leader in multi-channel online selling solutions, particularly for eBay PowerSellers to seamlessly integrate our auction video web services application with Infopia’s ecommerce platform.

Also in June, HammerTap, a leading online market research firm, became an affiliate partner of our Auction Video program. Under the agreement, Onstream Media will extend its high quality Auction Video transcoding and hosting solutions to participating HammerTap clients. This innovative program allows eBay sellers to include video clips in their auction listings and About Me pages to increase trust and enhance the selling process.

Most recently, our purchase of Auction Video led to a distribution agreement with ASPA Japan Company Ltd. which expands our presence into the Middle East. The agreement calls for ASPA to pay $1 million to us in advance for the exclusive territory rights, which will be recognized as revenue over the term of the agreement. As a result of the agreement, ASPA will shortly begin marketing all of Onstream’s products and services and will be paid commission on all sales made by them in the region. To date, we’ve only received a portion of the territory rights payment.

As I mentioned previously, our webcasting business continues to grow. This growth is due to an increase in the number of customers we provide webcast services for; an increase in the number of participants inthe webcast; and an increase in the revenue per webcast. In fact, we achieved a 43% revenue growth in the fourth quarter compared to the prior year quarter.

We continue to upgrade our webcasting service. Recently, we completed development and implementation of several enhancements to our Visual Webcaster platform that are designed to allow the company to maintain its technology lead inthe webcasting marketplace.

Notably among the new enhancements to the platform are live QuickTime streaming to reach Apple users; Flash streaming; corrective polling, a webcast feature that offers corrective feedback to training program participants; a comprehensive online editing tool for audio and video webcasts; client agent customization tools for player design; instant messaging for communications between multiple presenters. Additionally, the Visual Webcaster platform, as well as all of our web-based communication services, will soon be fully integrated with the digital media services platform, DMSP, for automated processing including meta tagging, hosting, searching and streaming archived webcasts, audio conference calls, webinars and web conferences.

The goal remains to differentiate Onstream from others inthe webcasting space, first by offering the highest quality webcasting services available, then by adding unique features to make these webcasts more effective and more interactive; and third, by giving them access to new technologies which utilize digital video assets as tools to sell, communicate, link people together and increase brand loyalty

During the last fiscal year, we made great progress in establishing our digital media services business. This segment grew from just a few DMSP customers at the start of the year to approximately 135 small to medium-sized business customers and ten larger customers to-date. Inthe past, revenue in this segment has been somewhat inconsistent; short duration, high revenue producing projects may occur from time to time which may impact results, as we saw inthe fourth quarter compared to the prior year. This was due to a large professional services encoding contract ending inthe first quarter of fiscal 2007.

However, we will be reporting our professional services, which are typically non-recurring revenues, separately from our digital media services revenues, in future quarterly financial statements.

Also, we expect in addition to our growing relationship with Akamai, which continues to represent an important referral source for Onstream, our newly launched search engine marketing and optimization program will result in our growing this segment.

As I mentioned last quarter, we signed an agreement to provide a full suite of digital media services to help power Bonaire Corporation’s new social networking and online community, building an initiative for its more than 40 leading magazine brands, which include Parenting, Baby Talk, Popular Science, Field and Stream, Outdoor Life, Yachting, Motorboating, Ski and Skiing. In addition, our largest DMSP clients – Televisa and Dell – continue to expand their use of our user generated content technology and other DMSP services.

Looking ahead, we are nearly complete with our first fiscal quarter. We already announced that both our webcasting and Infinite Conferencing divisions had record Octobers and we expect that our consolidated first quarter revenue will represent new records for Onstream. This is a powerful start to what we expect to bea very successful year for Onstream.

For fiscal 2008, we announced we are expecting approximately a 40% increase in revenue compared to $12.1 million reported for fiscal 2007. This would indicate total revenue of approximately $17 million for fiscal 2008. However, with two full months completed, we are already tracking ahead of that figure and we believe that our other catalysts for growth including Qwest, eBay and ASPA Japan which potential revenue is currently excluded from our growth estimates, could significantly improve our results for the year.

Based on the additional revenue anticipated inthe first fiscal quarter of 2008, coupled with a return to our typical higher margins from our webcasting business, and no significant resource requirements over last quarter, as well as normalized costs associated with our Japan office, it is likely we will reach our goal of achieving positive net cash from operating activities before changes in working capital for the first quarter of fiscal 2008.

In closing, we have positioned Onstream through two key acquisitions, several major contract wins, strategic partnerships and the development of new, potentially disruptive, technology to clearly become the market leader and set us apart from our competitors. Onstream Media is fast becoming the go-to company that is sought after by customers and service providers alike. We are proud of the progress we have made and believe we will soon be recognized by the market for the value we have created and continue to build.

On behalf of our dedicated employees, management team and board of directors, I would like to thank each of your for taking the time to be with us today, and with the help of our operator we will now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Frederick Moran – Stanford Group.

Frederick Moran – Stanford Group

Thank you. Randy, now that you are going to be producing positive cash flow from operations, what do you plan to do with the cash on the books for working capital and these proposed credit lines that you are working on?

Randy S. Selman

The credit line purpose was just to make sure that we had sufficient cash on hand in case we see this significant increase in customer demand, especially from some of those larger contracts. We don’t anticipate right now any specific need for the credit lines; however, if we do need to expand the infrastructure we have it available. We do have cash on hand to cover our operating activities. So this was just kind of set up primarily as a back up.

In addition to the credit line for equipment, we are also making sure we have a back up for receivables in case we need quick access to additional cash, especially in light of some of these large contracts we are anticipating to hit pretty soon here.

Frederick Moran – Stanford Group

What about possibly buying back stock, given that the shares are below a dollar? Would you allocate a couple million for stock buybacks at some point?

Randy S. Selman

If we had substantial cash on hand, obviously that would bea good idea to do. The company has done those types of programs in the past. But the truth is, right now that is not a really good use of our capital. I believe that what we are putting in place right now the market will recognize and I think it will improve our stock price over time, especially as we turn cash flow positive, we get some of these big contracts online and generating revenue. If the stock is still down here at those times, we will consider to do it, but I don’t expect that it will be. I believe the market will realize the value of what we are building here and begin to recognize it and do something about it.

Frederick Moran – Stanford Group

Can you reiterate your thoughts about guidance for fiscal 2008 and how the first quarter is trending in that direction?

Randy S. Selman

As I said inthe initial speech, the guidance was that we would reach a 40% increase over the prior year, and yes it is definitive, just even looking atthe announced first month of the quarter, that we are certainly tracking well above that level. I am not going to revise guidance on the call today, because we want to make sure that we geta good snapshot of the quarter so that when we tell you what the numbers are going to be, that is what they are going to be.

Right now, we will continue with our current guidance, but right now we are tracking better than the guidance and we anticipate that to continue.

Operator

Your next question comes from Fred Milligan – Sanders Morris Harris.

Fred Milligan – Sanders Morris Harris

Good afternoon, great quarter. Where is breakeven in terms of profits? Not cash flow, but profits?

Randy S. Selman

In light of the acquisitions that we’ve just acquired over the past year, obviously there is a lot of non-cash expenses related to the amortization of those newly acquired assets. So we are estimating that the number is probably a little bit north of the guidance we are going to give for the year, which is around that $17 million, $18 million range. I think we will get to earnings per share hopefully by the end of 2008. It may come sooner. I mean, if these big contracts hit early enough inthe year, we should be able to overcome any of the outstanding non-cash expenses and start to show an earnings per share basis.

Robert E. Tomlinson

One thing I would add is of course, right now we are virtually at that place of the cash flow breakeven and we are realizing between $1.4 million and $1.5 million of non-cash expenses during a quarter, which is about therate we areat right now. So that is what we would have to cover. Obviously, we would have to have some level of increased revenues to cover that amount. But I will say that our incremental margins at this point are pretty good, because our infrastructure is pretty much fixed, so we won’t have a lot of incremental costs over and above our normal margin; to add revenues for the rest of this year.

Once we start to cover that – there is some margin there, but the $1.5 million in non-cash expenses is really what we have to cover with additional sales.

Fred Milligan – Sanders Morris Harris

How much of the business is a recurring nature? Really what I am getting at is, how much of a base do you have to build on?

Randy S. Selman

The whole point of the business at this point in time is to establish subscribers, which is all recurring business. Sothe MFP is totally a recurring business; although webcasting is event-based, most of our client base are recurring clients. A very substantial portion of our revenues from webcasting come from four conference calls given every year by public companies. Of course, very substantial recurring revenues come from our EDNet product line which is a recurring revenue base.

Fred Milligan – Sanders Morris Harris

So when you put into print here, “select Onstream Media customers include AOL, Equitable Life, Dell, Deutsche Bank, Disney….” Those are all recurring customers?

Randy S. Selman

A lot of them are, yes. AOL is certainly a recurring customer; I mean, all of our Infinite Conferencing clients are pretty much recurring customers, they areall on contract. So I would say a very, very substantial amount. We could probably getan exact number. It is probably, I would say, inthe between 70% and 80% of the revenue base. I am giving a guess here, guys, but that is where I think it is.

Operator

Your next question comes from Steven Sipellan.

Steven Sipellan

Great quarter. My concern is, how concerned are you about possibly the delisting of the stock?

Randy S. Selman

Well obviously there is always a concern of it, but we’ve been through it before and we’ve been able to recover. The delisting scenario, it doesn’t actually occur as a delisting; what happens, the next phase of the process is by the 30th day the stock doesn’t return to $1 bid price or above, we get notified by the NASDAQ that we have six months to correct the situation. Typically the NASDAQ in the past has also extended that if necessary.

Then the rules that we understand are as long as you can getthe stock over $1 for ten trading days, sometimes they hold you to 15, but typically if you are very close to the edge, but ten trading days, then the whole issue goes away and that is the end of it.

I think that the company has a higher value than the current stock price, and I think the market will start to realize that. If it doesn’t happen by the 30th day, it will happen shortly thereafter that we will get back into that position.

I mean, we have got an entire year to fix the problem, and even then there are other things that can be done before you actually get delisted.

Steven Sipellan

Any comments on the Soft Screen CD Network raising $97 million to get into the international?

Randy S. Selman

I am not familiar with that, sorry.

Operator

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

Fred Milligan – Sanders, Morris, Harris

Two points: What is the cash at the end of the year? Can you tell us?

Randy S. Selman

The cash balance was $560,000.

Fred Milligan – Sanders, Morris, Harris

At the end of the calendar year, I am talking about?

Randy S. Selman

At the end of this calendar year?

Fred Milligan – Sanders, Morris, Harris

Yes.

Randy S. Selman

I don’t have that figure right now.

Fred Milligan – Sanders, Morris, Harris

It would be more than what you had in September, I would assume?

Randy S. Selman

We expect that it will be, yes.

Fred Milligan – Sanders, Morris, Harris

The other question is, this is December 26th. It is pretty late to be reporting. The inference one could draw is there is some disorganization. Could you, in effect, give us some reason why it was done at this time?

Randy S. Selman

You have to understand that there were a lot of things that happened in Onstream during 2007. We made two acquisitions, we did a financing, we had several transactions and other things occurring during this year. This is not just a company issue, it is also an auditor issue, in explaining and getting all of the information down to the auditors and how to present the financials took a little bit of time.

But the truth is, this was actually ahead of schedule from our last year and we are going to try to improve it each year. But the year end audit is a little difficult in our business, especially in light of all of the transactions that we do as a company. Hopefully the transactions will slow down, hopefully we will getthe reporting, significant growth in revenues, which is a whole lot easier to audit than all of these different transactions, especially with international transactions involved too, such as our Auction Video Japan.

So we do understand that it is a little late inthe year, but it is still on time and we will improve this over time as we stabilize some of the financial activity.

Operator

Your next question comes from Michael Potter – Monarch Capital.

Michael Potter – Monarch Capital

On the gross margin target for ’08, you’ve had a very good improvement for ’07. Where do you think the gross margins could be for the year?

Randy S. Selman

We are going to see some additional trending upward. We are seeing growth in our digital media services platform, which has probably the highest margin or the potential for the highest margin of our product line; of course, we are seeing I think almost an 83% margin out of Infinite which will be another major contributor.

So with those two areas being substantially north of the current corporate combined gross margin, I think we will start to trend upward, certainly in the first quarter and on, just as a result of those divisions improving each quarter.

I think our combined margin –

Robert E. Tomlinson

Our combined margin for the last quarter that we just reported was about 65%, but as we’ve indicated, we know there was some seasonality in that margin and expect the subsequent quarters to improve above that 65% as we move into the quarter we arein now and moving forward.

A lot of our infrastructure is fixed, we do have some variable costs, but there area lot of fixed costs and as our volume continues to increase we do expect the margins to continue to increase.

Randy S. Selman

In addition to just the general growth in the margins in our two divisions I mentioned, we also arein the works of developing some technology that will enhance EDNet’s revenues as well as their margins substantially. As soon as we are completed with that technology, once we implement that, that will also have a very positive effect on the corporate overall margin.

Michael Potter – Monarch Capital

Do you think we can get above 70% for the year? Is that realistic for fiscal ’08?

Randy S. Selman

It is realistic. It is one of our goals, and I think it is doable.

Michael Potter – Monarch Capital

Can you give us a little more color on where we currently are with Qwest and eBay? When do you think we will begin to see revenue, material revenue, coming out of those relationships?

Randy S. Selman

I think as far as Qwest, we have been waiting for the other members of the Qwest team to complete all of the required legal activities so as a team, we are approaching that. We were told by the Qwest group that all of the documents were in and they were being final reviewed by the lawyers, even though our documents have been in for about a month or two; some of the bigger members of the team I guess had more to discuss with them.

Once those arein place – and specifically, these arethe companies that are partnering with us on the project such as companies like Akamai and others – once those arein place then we anticipate a pretty fast start to the revenues.

We have been saying any day now. It is still an any day situation. There are constant meetings going on with representatives of the Qwest sales team and other members of Qwest management and they are already promoting it into the different divisions, so we believe it is [inaudible] to see those revenues and I would anticipate the new year we will start to. We will report on it as soon as it starts.

As far as theeBay situation, we are working very closely with eBay on some very new product technology, and we look forward to launching that technology in the first quarter.

Michael Potter – Monarch Capital

Have they given you any sort of indication as far as revenue to expect out of it?

Randy S. Selman

Not really – unfortunately, large corporations don’t let thecat out of the bag. But just the fact that we have got the top technology for them, designed for them, patent pending on the technology for them, I think we’ve got the leverage to build a very good relationship with them over the year.

Michael Potter – Monarch Capital

So the eBay, that product launch, that is a calendar Q1?

Randy S. Selman

That would bea calendar Q1, yes. Inthe March ending quarter.

Michael Potter – Monarch Capital

As far as Qwest goes, is the government sending out any RFPs? Have we responded to any RFPs yet?

Randy S. Selman

We’ve been through the RFP process. We have been awarded the contract. It is a matter now of once we understand the requirements of each of the different divisions, all of the request for services documents will only go to us. There are no outside parties allowed anymore; the Qwest team and the other members of the Qwest contract, I want to make sure that is clear.

Michael Potter – Monarch Capital

Outside of Qwest, dothe other – I guess this was a three-way win, or a pie that is split up in three, Verizon, AT&T – is there any opportunity to be working with those providers as well?

Randy S. Selman

Yes, we believe those providers don’t have comparable services, and to the extent that they are awarded any further contracts that refer to webcasting or digital media services, that they are aware of us and that they would bring us that business. And of course, we are expecting that our partners, companies as I mentioned like Akamai that are serving on other companies, will bring that business to us as well.

Michael Potter – Monarch Capital

In order to get that business, will we have a formal agreement with them or do you think it is going to be one-off business?

Randy S. Selman

I think it will be a formal agreement.

Operator

Your next question comes from Bruce Carlos.

Bruce Carlos

At the beginning of the year, the stock price was at $3.50. Since then, everything I have read about Onstream Media was very, very positive. Why would the stock go from $3.50 at that point to where it is now, in your opinion?

Randy S. Selman

Well obviously there is a lot of discussion on this subject and it is obviously a big thorn in all of our sides here. One, we have seen a segment decay. All of the companies that are inthe streaming media space have essentially fallen off from their highs, virtually everyone inthe segment; I don’t think there is anyone who is more than 50% of where they were, maybe with the exception of Akamai who is in that ballpark.

But if you look atall of them – Limelight, Internap and Sonic Foundry and some of the smaller ones, Roo Group and NarrowStep and several others – all of them are inthe same ballpark we are or worse than we are. So we’ve had a segment issue. For some reason, the market looked at the segment differently than they did atthe beginning of the year here at the end.

Towards the end of the year we’ve seen a rapid decline inthe price; some sayit is because of tax selling, some say it is because of short selling; some even have gone as far as indicating to us that they thought there was some manipulative selling. So as a result, the company has launched an investigation and we are asking the NASDAQ to look into the trading practices on the stock to find out if there is something going on as far as naked shorting or disruptive kind of trading inthe stock.

I think that the company is certainly better today than it was at the beginning of the year. Our revenues are better, our margins are better, our product line is better, our balance sheet is better. I don’t think we could say that it is anything that the company has failed to do, with the exception of reaching cash flow positive which is imminent, as we all know.

So to the extent that I think it is not a company issue, it is a stock issue and we hope that if we just keep improving performance and executing that it will take care of itself.

Bruce Carlos

It is just that everything I read sounds so, so positive and to see the stock drop 66% is just shocking to me.

Randy S. Selman

Well there is a cure, buy a lot of stock. Maybe that will fix it.

Operator

Your next question comes from Anthony Marchez – Monarch Capital.

Anthony Marchez – Monarch Capital

Good afternoon. This is a good segue actually, from the prior question, talking about the stock price. The stock is down substantially yet I don’t see one officer or one director buying a single share during the year, so I am trying to reconcile how you saythe stock is undervalued, it is fantastic, everything is wonderful yet we don’t see management putting their money where their mouth is. Not only you specifically, but directors, officers… I would assume inthe not to distant future, you guys can buy stock. That would be the best way, in my opinion, to show the market that you guys are not just with hard work, but with your pocketbooks like we are.

Randy S. Selman

I don’t disagree that we should have been buying the stock all along, but we have been in several transactions that precluded us from even doing soat times when we could afford it. The management team of this company are entrepreneurs so we are not wealthy people that invest in companies like you guys, but to the extent that we can buy a few shares here and there, it is possible for us to do so. However, because we have been in acquisitions and we have been involved in transactions, our legal staff has told us to stay out of buying or selling or doing anything with securities while that has been going on.

As far as the board is concerned, we have discussed this with the board. We have said to them that once theK has been filed that they are clear to purchase shares if they would like. There has been indication that will occur.

Operator

Your next question comes from Bill White.

Bill White

When arethe investor conferences coming up? Are we scheduled to have any?

Randy S. Selman

We have been invited to a couple of conferences. I have to check our schedule. I know that we are obviously going to be involved in several of the ones that area couple of clients of ours as well, such as Red Chip and Value Rich, but I also believe that Brett Maas who is our IR/PR firm is working on getting us into several of the prominent conferences coming up. I don’t have definitive ones. If Brett wants to come off of the hold he is on right now, he can possibly make a statement to that.

Bill White

Okay, because I think it is pretty important to getin front of more than like the Red Chip, bigger name investor platforms. Because I think that is the main thing, is there is a good story out there and it is not being heard.

Randy S. Selman

Doug, do you want to bring Brett back on?

Operator

Sure, just give me one moment.

Randy S. Selman

Obviously we want to appear atthe different banking conferences. We were at Roth Capital in New York, we hope to be invited to the California conference, we think we will be invited to B. Riley shortly as well. So we will be out there and I will definitely be out talking to a lot of people in the coming year.

Operator

Brett, your line is now live.

Brett Maas - Hayden Communications

Just to add a little bit here into what Randy said. Roth Capital, we arein discussion with them; hopefully we will secure an invite for the February conference. B. Riley as well, which takes place early April; and the most near-term is a one-on-one conference that takes place in Dallas, Texas which is an area we have not been through in quite some time to do meetings, where it is the soft list security conference that is just a one-on-one format where Randy gets exposure to a lot of different investors throughout the day in a 30-minute or 45-minute one-on-one type setting.

So I agree with you; we are going to be more aggressive on the road here where I will take him through Minneapolis, Chicago, theMidwest area where we have already had some pretty good indication of interest, as well as the West Coast and down through into Texas.

Bill White

Because without the institutional support here, we are really going to be floundering no matter what you guys report; I think we are pretty much going to be set at this price range. I think we need to getin front of some bigger names, for sure. And then with the space kind of floundering as a whole, what about consolidation? Are you interested at allin joining forces with anybody else out there?

Randy S. Selman

We are always open to ideas of that sort where we’ve talked with several of the other companies. When we seea product technology and a client base and the right kind of growth ina business, we will probably get more serious about it. I think there are some opportunities out there and we will look at them.

Operator

Your next question comes from Frederick Moran – Stanford Group.

Frederick Moran – Stanford Group

Randy, you announced a string of contracts early inthe year. Hasthe ramp up in revenue met your expectations relative those partnerships? If not, when do you think you start to seea more material ramp up? Can you quantify how the backlog of new client wins looks in 2008 versus a year ago?

Randy S. Selman

I think the contracts that we’ve signed we’ve been talking about already. We would expect those contracts to ramp up. No, they haven’t met my expectations. I really expected to already see revenues from some of these key major transactions such as Qwest and theMiddle East, et cetera. But I do expect that they will come in and they will be substantial contracts. As I’ve said, these processes that we have gone through are time consuming, but inthe end, they generally pay off.

Frederick Moran – Stanford Group

Would you say that we’ve seen less than 10% of their potential or less than half? How would you quantify what we’ve seen so far?

Randy S. Selman

On thebig ones I would say we have seen minimal revenues from them, sothe growth that we’ve been seeing is only from our normal course of business contracts. There is always those type of contracts coming in; small companies doing $50,000 or $100,000 or $200,000 worth of business split over the year. It is when we find a new partnership or have a potential substantial hit for the year, those are the types that we announce.

But I think you will find that as these bigger contracts actually start to hit, they will hit ina big way. So no, I would sayit is very small, minimal.

Frederick Moran – Stanford Group

Well do you have any forecast as to when we will start to seethe real impact of these bigger deals?

Randy S. Selman

Well like I said, Qwest is imminent, we are expecting to provide technology during the second fiscal quarter, first calendar quarter of 2008. We expect to see some business out of our Middle East partnership here shortly; probably during the first quarter. So they are all imminent.

Frederick Moran – Stanford Group

How does the backlog of new business potential for the early half of calendar 2008 look versus a year ago?

Randy S. Selman

I would saythe type of businesses we are looking at right now are substantial companies that are looking to expand their web experience and presence. But I think what is really going to be a catalyst for substantial additional growth is by our search engine marketing and optimization program which we will bring in, which has been very successful in both webcasting and in Infinite conferencing.

I think that the ability to provide our new automated meta tagging service is going to bethe calling card for a lot of new business. Think of the difference when people go to web sites, they experience video; but we are talking about using video to get people to go to the website. It is a completely different trend, and it is the way of the future. It is made possible by the way we can provide a very substantial amount of information about a video so it can be found by a search engine. That is thekey processing. Now if we can do that fast and automated without having people keying in information about the video, you eliminate the cost and it becomes a much wider used service. As a result, we should be able to get a lot of new customers signing up for that program alone, and then they will all migrate into the other product lines.

The beauty of this is they become DMST customers; as we mentioned, they can become Infinite Conferencing customers, they can become webcasting customers, so there is a great upsell going on there.

Frederick Moran – Stanford Group

Do you still think you make your guidance for fiscal ’08, do you still think you can doa 20% cash flow margin?

Randy S. Selman

I am sitting here trying to calculate that. I mean, it is possible. I am not going to give a definitive guidance on that now, Fred.

Operator

Your next question comes from Seth Wilson – Westwind Capital.

Seth Wilson – Westwind Capital

I am curious about the Thomson relationship; that was a customer you had that certain services you aren’t selling to them anymore? Because I noticed that they have this Thomson Corporate Communications Services division where they are offering webcasting, on-demand video services and production services. Are you providing some of those services and some not, or how does that work?

Randy S. Selman

There are three primary companies in that business: there is Thomson Financial, who provide webcasting for essentially investor relations; there is PR Newswire and its division, Multivue, which provides those services; and then of course there is the NASDAQ or Shareholder.com that provide those services.

For Shareholder and PR Newswire, we arethe prominent provider. If it is not 100%, it is almost that much; I would sayit is up to 99% of the business that they do goes through us. In Thomson Financial’s case, Thomson decided a few years back to make an investment in buying technology and actually doing webcasting services themselves, and sothe audio portion and audio with slides business – which was a pretty substantial amount of business we used to get from them – they took in-house. But they still give us high end video on occasion; it is still an account of ours, but it is not as substantial as it used to be.

Seth Wilson – Westwind Capital

That’s all, I just wanted to ask about that. Good quarter, by the way. Pretty impressive.

Randy S. Selman

Thank you very much.

Operator

Your next question comes from Bill White.

Bill White

Randy, just one more question on headcount for employees. How many are you currently at, and where do you see yourself atthe end of the year.

Randy S. Selman

I think we are right at 100 employees right now, and other than a few additional sales people and maybe a couple of support people, we probably won’t go more than four or five more than that.

Bill White

And how much is that over the prior year?

Randy S. Selman

You are comparing it also with two acquisitions in there. So if we eliminate the 25 I think that came with Infinite and five that came with Auction Video, I think we were in the 60’s. It was 65, so most of it has been, maybe three or four, five tops employees were added this year from our organic business, and the rest were acquisitions.

Bill White

And those are mostly sales and marketing, not technical?

Randy S. Selman

No, this year we actually added engineers. That was our primary – we had a lot of consulting engineers, and we made them full time.

Operator

Your next question comes from Steven Sipellan.

Steven Sipellan

You talked several times about Akamai. How much do you believe your partnership will grow with Akamai in ’08? Is it possible Akamai will make you an offer in ’08?

Randy S. Selman

Well, ’08’s end of year revenues is not quite the level I want to be at, when we will start to look at offers for the company. I think we are going to see nice growth, it is going to be I think substantial, but it is not yet the level that we would like to see when we are ready to getan offer from a larger company.

Our partnership with Akamai continues to grow. As you know, we provide fulfillment services for virtually all of their low end clients; we are one of only two companies that has that status. We are introducing some additional products based on Akamai’s input to us as to what they were looking for, what they believe the industry is going to require so as those products come out, especially in our digital media services platform, we think Akamai is going to take an even bigger role.

We’ve partnered together, we are part of the Qwest team together, and we believe that as a result of that, there will be further government partnerships in federal, state and local government projects as a result.

So I see it growing very, very well. We’ve known Akamai since its birth, basically so we are getting closer and closer as the years go by.

Steven Sipellan

So at this point right now you are not in negotiations for anything?

Randy S. Selman

Not to sell the business at this point, no. We want to build significantly higher value here, and it is certainly with a stock price where we are right now, this is not anywhere near levels we would even consider. We would need to be ten or 15 times this level before we would even think about it.

Operator

(Operator Instructions) Sir, there appear to be no further questions over the phone.

Randy S. Selman

Okay, I have a couple here from emails, let me answer those quickly.

Gary Minsner, an investor, asked “is the company needing additional capital, and if so, how are they planning on raising it?” We don’t need additional capital, as I mentioned, we also put in place both an equipment financing line and an accounts receivable financing line. If we need capital, we can go to those lines.

We have another question, “are there any plans for other acquisitions in the near future?” We are always looking. If there is something from a technology or customer base standpoint that is accretive, cash flow positive and will complement the existing product lines, we certainly will look at it.

I think we answered the other question about what has happened to the stock price. When do we expect to see a higher stock price? That is more for you guys in the investment community than us.

Anyway, if that is allthe questions, I thank you for joining us today. I look forward to reporting on our next fiscal quarter. It should be sometime in mid-February. Everyone, have a Happy Holiday.

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