Fred Vandenberg - CFO Steven Vestergaard - Chairman, President and CEO

Walter Schenker - MAZ Partners Hubert Mak - Cormark Securities Philip Mitchell - CM Capital Advisors

Good afternoon ladies and gentlemen, and welcome to Destiny Media Technologies Second Quarter Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. The call is being recorded on Thursday, April 14, 2016. I'd like to announce that the company will be referring to today's earnings release, which was sent to the newswires earlier this afternoon. I'd also like to remind everyone that this conference call could contain forward-looking statements about Destiny Media Technologies, within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon current beliefs and expectations of management and are subject to risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. Such risks are more fully discussed in the company's filings with the Securities and Exchange Commission and SEDAR, and the company does not assume any obligation to update information contained in this call. During the call, we'll discuss certain non-GAAP financial measures. These non-GAAP financial measures are presented in the supplemental disclosures and should not be considered in isolation of or as a substitute for or superior to the financial information prepared in accordance with GAAP and should be read in conjunction with the company's financial statements filed with the SEC and SEDAR. The non-GAAP financial measures used in the company's presentation may differ from similarly titled measures presented by other companies; and a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures can be found in the earnings press release. On today's call, we have Steve Vestergaard, Chief Executive Officer of Destiny; and Fred Vanderberg, Chief Financial Officer. With that, I would like to turn the call over to Fred. Please go ahead.

Thank you. I will very briefly highlight our financial results for the quarter, before Steve will talk more about what we do and our progress during the quarter. Total revenue grew by 3% during the quarter, year-over-year, in spite of weakness in the euro and Australian dollars, relative to the U.S. dollar. We saw Play MPE revenue grow in all geographic territories in which we operate as well, while revenue is very small at this stage, Clipstream revenue has seen progress in our enterprise and hosted solution, as well as our market research clients. Over the last year, we have reorganized roles and responsibilities within the company and have a more methodical approach to product developments. Along with a well-defined product roadmap, our staff are becoming more experienced in their roles, and we have been making progress in operational efficiencies and business development activities. We are seeing the beginnings of that reflected in the MPE revenue during the quarter and subsequent to the quarter. Quarter-over-quarter expenditures dropped by 25%, as a result of a reduction in compensation and public company costs. Offsetting these drops were slight increases in marketing and technology costs. The majority of our cash reserves are kept in Canadian dollars for use in Canadian operations, and during the quarter, that balance increased to $673,000. With that, I will turn it over to Steve.

Thanks Fred, and thanks to all of you for joining the call today. It has been a busy three months, and I am happy to bring everybody up-to-date on what we have been up to here. So for new investors, same thing I do every quarter, I'd like to remind everyone exactly what our company does. So we have two business lines, Play MPE and Clipstream. And Play MPE, as most of you know, is a secure automated system that record companies use to move broadcast quality, new music releases securely to trust the recipients, such as radio, internet radio, bloggers, DJs, media and VIPs. So all the major record labels are active customers, as are a large number of our independents. There is a large fixed cost providing the service, but once that fixed cost is covered, incremental costs are extremely low. So we grow it, as we grow in the new markets, revenue that's really high margin. Our second business, Clipstream, is a new video hosting and playback solution, that delivers high quality streaming media directly to the browser with no player plug-ins. Rather than use the more traditional approach of proprietary streaming servers and playback with the HTML 5 video tag, it's transcoding into a large number of formats, we use an alternate approach to the group. We use our own proprietary JavaScript player at standard's based [ph] cloud web hosting solutions to deliver our content. So this software-only approach is extremely flexible and is allowing us to offer advantages, such as better security and a more consistent user interface. Users can drag and drop their content from any device and almost any original format through their web browsers. Our servers convert and host, providing a convenient embedded code, so customers can place the video into their own web site. So from an investment approach, both businesses have recurring revenues, and both will be really steady and predictable over time, and customers tend to be really sticky, and that's why year-over-year, our financials are pretty predictable. And I use the word sticky, but it's true. Once you are a customer, you rarely lose the customer. Also because the businesses require limited capital, margins of return should be really attractive over time. So now for the current Q2 quarter; so I will review each business starting with Play MPE. Our slowest time of the year is the Christmas Holidays, when little new music comes out. We took advantage of that last quarter, to move our backend from our five server facilities around the world, to cloud hosting system powered by Amazon's AWS service. This was a really big move, with just the transfer of the 2.7 million encrypted tracks, taking nearly a week over one of the largest gigabit internet backbone pipes. The motivation for such a big move, was to provide a much more scalable system, where we can more closely match our costs minute-to-minute to a usage with nearly an unlimited ability to scale, [indiscernible] transactions and revenue justified it. With the old way, we were physically limited, in terms of electricity, real estate, internet capacity, routers, and how quickly we could scale. Now basically, internet is completely unlimited. We are able to host content locations all over the world, so music and videos are always close to the end user. So this was a good quarter. We could do better, but we showed growth in all markets expressed in local currencies. Absolute currency fluctuations, the U.S. increased 6%, Europe 3%, and Australia 11%. We spent the current quarter working with majors to help them with expansion plans. Expanding our marketing to independents and polishing this move to the cloud, so we can continue to roll-out new products and features next quarter. So why? This is a question we get from staff too. The move to the cloud was more abated [ph] by a desire to reduce the chances of catastrophic failures and risks with core functionality not being better distributed geographically. Improved scalability and performance and a segregation of development into a separate platform from the live operating system. So new features could be better tested, without impacting anything that we are doing live and in production. So we are expecting and we expect to save money over time on hardware, staff and transactional costs, and that was one of the motivations, but that hasn't happened yet. Those cost savings have not been realized yet, and are actually, to tell you the truth, the AWS system is actually costing us quite a bit more than we spent in previous years, but it's with the big benefits, in terms of value to our customers. So, so far, we have only eliminated two of the five internal server locations, and we expect to eliminate two more over the next two quarters. So over time, we are going to be saving some money. There have been some onetime costs with the move, and ongoing costs have been higher than in the past. But we are investigating ways to reduce the AWS costs in the coming quarter. We actually expect to reduce the cloud costs quite significantly over the next three quarters. So if you take the current quarter as the starting position, we are expecting expenses to decline quite a bit over the next nine months. But anyways, cost aside, the feedback from labels has been extremely positive, as the new system is much more responsible, much more reliable, and it's in a state where it's never going to go down. So for development, we setup a full time development testing system for both products, moved all our intellectual property into a new source code control system. We introduced automated builds and centralized configuration management. The development environment we have now, also allows developers to write and verify features, without impacting production services. This allows testing to verify independent of development, and allows our dev ops team to deploy the production with confidence to four initial AWS locations around the world, from those locations, we could scale up with mini servers, as demand requires it. So for production, we now have built-in failover system, improved monitoring, and the ability to push updates really quickly. The previous deployment model was a single active-passive setup, which isn't as reliable as the micro active model, where there are many small servers dedicated to performing one service each, and we have a minimum of two of the same type of servers running with each of the four different availabilities [indiscernible]. So basically, that means that if hardware fails in an availability zone, the other server takes over, but if both fail like there is an earthquake or something, that it pushes over to the other three availability zones. So it’s a highly efficient redundant system. We went through a major outage in one availability zone. The other would continue to operate, and the same occurs for other potential hardware failures. Our database previously had been synchronized between two geographic locations, with the delay of at least five seconds. Today, our database is stored in six different places, spread across three availability zones, and the maximum delay is six milliseconds. Patches to the database server occur automatically, using the built-in failover that occurs in one to four seconds. We got a two phase authentication, using digital certificates, and that's all centrally logged. All this brand new security is an addition to existing security protocols, making us by far and wide -- we are the most secure system that's available for the media industry kind of worldwide here. So the cloud system works quite differently than the old system. The number of servers wasn't effectively unlimited. We spent this quarter rewriting core server -- spent this quarter, rewriting core server codes to take better advantage of the cloud. That allowed us to improve performance without sacrificing the security of the system. This was a really big move, and now that it's over, we will be launching products that have been near completion and on hold since last year. These include new offerings, they will be able to be demanding [ph], such as the web-based and coding system and streams in email, and streams on the Daily site. We expect these features and others to directly impact revenue positively in the coming quarters. So now I will review Clipstream; so with Clipstream, we developed a platform to overcome limitations built into the browser in a traditional way of delivering video. We have pursued seven U.S. patents and a couple dozen globally, and the status of the patent portfolio is available under intellectual property. If you go to our dsny.com site, we have been making really good progress on grants. So we have three U.S. patents that have been directly granted related to Clipstream. Patent four was granted, five was allowed, and six is about to be allowed, but as our international patents are granted, international examiners are finding prior that we were disclosing in the U.S. So it's kind of one step forward two steps back. We asked the patent office to pull back one of the [indiscernible] we can make up our disclosure. Just by slowing the process by a few months, we want to make sure that patents are rock solid, before pursuing copycats, we believe are infringing on our IP rights. We are crossing every T and dotting every I, because we expect to win, as we go after some of the infringers. So I won't spend a ton of time dwelling on the advantages of Clipstream. You guys have heard it before in previous quarters, but the headline version is that, since we are a software solution, you aren't locked into waiting for browser updates, and we are not waiting for new chips. If you want to put a new feature in, we put the feature in, that we launch it right away and reach everybody. So we can offer new feature and instantly reach basically 100% of the modern browsers with our JavaScript software, that's natively supported by any browser that claims to be HTML 5 compliant. That's what the seven patents are all about, and it's a really big deal. And it's all about giving control back to the owners of the content, so they can securely and simply provide the exact customer experience they want consistently to every device, every operating system and every browser version. So it has been slow to market. In my mind, the Clipstream service is being minimally commercially ready since about October. Revenues are up over four times, the amount is admittedly token, but it's mostly recurring revenue, and its establishing the commercial opportunity for the system. For every $29 customer that recurs over and over again for 12 months in a row, that tells us that we have a business opportunity. So based on customer feedback, we'd be rolling out new functionality and features every two weeks and have had seven full solid updates since our last conference call. More telling statistic, is we streamed 141,000 minutes in February and the backend held up well, and in the back end, we just laid up servers to match demand to costs, and that's all worked extremely effectively. So that's kind of the good news; but I also want to share the warts with the roses, and extremely high quality, we struggled with some other ISPs, where content isn't recognized as video, so ISPs have the concept and quality of service, where they provide super high quality of service, if they recognize HTML 5 video or they recognize Flash. They are just seeing us as a data stream, and we are not benefitting from that quality of service. And when we are not recognized, our data can be throttled or bandwidth can be extremely volatile, and that has caused us a lot of problems and it has taken us a couple of years to figure out solutions. So we took our own proprietary video codec, so co is compression, dec is decompression, so it's basically a way to squish video down and then blow it back up again. We took that as far as we could with our October release. But mid last year, we started a skunkworks project, in parallel to our own format. This is a secret project. I mentioned in the transcript of our last call. So the secret project is a brand new format, HEVC, which is much higher quality than what's currently available in widespread use, and I am so impressed with the team, because mathematically, HEVC is really processor intensive. By using game type techniques, we have been able to implement it in JavaScript and instantly get HEVC everywhere. We don't have to wait for new browsers to support it or for new phones to embed the chips into the phone; we could play this format cross-platform immediately and now. So according to the BBC in the U.K., the format uses half the bit rate in H.264. So H.264 is the one commonly used by sites like YouTube. So why don't you check it out yourself, the BBC study is at tinyurl.com/hevc/bbc. Again tinyurl.com/hevc/bbc. I don't have access to solid stats for Clipstream yet, we are still pretty early here, but it looked absolutely great on our 4K big screen TV at the annual general meeting. We still have CPU limitations of some devices as JavaScript is really-really slow. But this is a nice breakthrough for us. So the AGM demo was only a prototype, but since then, we are now in the final process of doing a mobile version and integrating into our production system. We plan to market it widely when it comes out, and to get press and industry publications. So the shutting from rooftop there we have been waiting for, is going to happen subsequent to this HEVC release. We are continuing to add features every two weeks and invite shareholders to try our free 30-day trial. We are signing up monthly customers and building a recurring revenue, but HEVC is a game changer, and that it takes away one of the very last objections we get from bigger customers. Publishers that like HEVC can roll it out instantly with us, rather than waiting for years and years for most browsers to support it. Again, it's a really big deal. Well I am sure, this probably stimulating a whole ton of questions. So operator, please open up the line and we will go to it. Thank you.

[Operator Instructions]. And your first question will be from Walter Schenker at MAZ Partners. Please go ahead.

Thanks. Hi Steve. Going over my head, but sort of followed all the technology, and it sounds like you have made some really significant progress on that front. However, and/or making some progress on the cost front, the real key is making progress on the revenue front, because that's where the leverage comes in. Given where you are on the music side, when might we expect -- I am not asking for a quarter-by-quarter forecast or anything; when might we expect an acceleration of the mid-single digit local currency growth that you have experienced this quarter? I suspect on Clipstream, the real growth still awaits the new development with the new technology?

So good question. So I know, I am kind of repetitive because I say this every quarter, but it's difficult for us to go after independents in new markets, until we have the majors in those markets. And so this quarter, we have done the single digit growth, which is important and something that makes us all money here, going after solid markets. So we are putting a lot of energy into like, Northern Europe and the U.S., and going into Australia, New Zealand, we did really well. I think we did over 11% this quarter. But going after growth, in markets where we already have a lot of penetration from majors, the difficulty is in brand new geographies. It's hard for us to get independents, until we have the majors. It's hard to have the majors, till we have Universal. Universal is like 45% of the market. So one of the exciting things that happened last quarter, actually subsequent to last quarters, in December, which was the first month of the current quarter, we closed the deal with Universal. Since then, we have been working with them -- we have sent staff to Europe, to go into new markets -- to explore with new markets and everything, and we are working with them to kind of roll out. Again, the same complaint I have every quarter, we have to work according to their business plan, kind of not ours. So what I am expecting with MPE, is steady consistent growth quarter-to-quarter-to-quarter-to-quarter, as we are able to roll out with the majors, which allows us to roll out with the independents. That kind of stagnated for a bit, because we went a whole year, all of last year without being under proper contract. That problem is behind us. A secondary problem was that we are in the process of migrating to this new system. Everything that's cloud based now, where it used to be tied to our five server facilities. Fixing those two problems doesn't automatically get us revenue, but not fixing those two problems hold this back. So the issues in 2015, that slowed us from growing revenue are kind of addressed. So I don't know if I can promise you double digits, quarter-to-quarter, but single digits actually start to add up, if you keep doing that on a consistent basis. With Clipstream, we can get staircase growth, because it's a little bit binary, you either get the business or you don't, and when you go fishing, you see the big fish there, but it doesn't count until you get them on the scale, and we got a lot of big fish circling, and we got a lot of big opportunities, but the complaints that they have come back with, they have been showstoppers and one of the complaints has been that, are on unpredictable ISPs, and ISPs that don't recognize us as video, and where the video or where the bandwidth can be really super volatile, and they can go down to super low bit rates, we haven't historically been providing the best performance for everybody. Providing the best performance for 80%, 85% of the people is not good enough, you need to provide it for everybody. We have slowly and surely have been going through the objections; and like I said, every two weeks, so seven times in the last quarter, we have rolled out major-major revisions. I really encourage investors to go -- the trial is absolutely free. I encourage you to go to clipstream.com and try it, to just see how far we have come in the last three months. The one of the very last objections that's still outstanding, is the quality; and like I said, we took the quality as far as we could in October. We haven't completely abandoned our own codec. We are going to use it as a fallback. But this new codec, this HEVC that we are using, its elite. So not only is it as good as what everybody else is using, it's much better. And so I gave you guys the link to the BBC study, but I encourage you to take a look at it. You can just see statistically, how much better this new codec is than everything else. And so we are just basically jumping the whole industry. And for them to catch-up and to offer this HEVC, they have to roll out new chips, they have to roll out new browsers that takes time. In the mean time, we are out there instantly with JavaScript.

Okay. And then just one other unrelated question, as you look at your balance sheet, you are comfortable given your outlook for the year of steady growth with your capital situation?

Yeah. If you take a look at it, our cash in the bank is way better this quarter than it was a year ago. And we did do a small financing, but more importantly, we have been massively reducing our cash expenditures. On a cash basis, we are well on our way to [indiscernible]. I am not going to publicly say, when I think we are going to go profitable again, but that's the goal. I can better address this one quarter to the next. I have been advised not to give cash projections going forward more in the quarter. But no, we are not looking to raise money at this point.

Okay. Thanks a lot.

Thank you.

Thank you. Next question will be from Hubert Mak of Cormark Securities. Please go ahead.

Hi guys. Just your commentary regarding how you saw growth in your MPE across all the different regions. Can you just give an idea of where the growth has come from, like what's [indiscernible], what's driving it, since it sounds like the UMC still -- like slowly pushing it out?

So we have -- I am going to turn this over -- giving Fred a heads-up and I am going to turn it over to him. But, we did sign-up a reseller in Australia/New Zealand, we did a press release there. We signed one up in Northern Europe, I don't think we bothered press releasing. But we are putting a little bit of effort into it. So we are putting effort into advertising and marketing, and in reaching out to the independents in the markets where we are already solid. So it has been really easy for us to coast in the past, but we are actually putting some effort into expanding usage. But in terms of where the big wins are, I am going to turn that over to Fred.

Hi Hubert. The increase in Play MPE has really been throughout our territories. Probably the biggest positive impact is the U.S. independent label revenue. Generally what we do is, we split our revenue into geographic territories and then split that between major labels and independents. United States, our independent label revenue grew by 30% over the previous year, and I think that's probably the largest simple impact. That's an area where we just continue to grow, and I can't state right off the top of my head, how many quarters it is, but I think it's something like 26 of the last 28 quarters that continues to grow, and -- the last, this period has been a 30% increase. So that's a pretty good indication of how sticky our revenue is. Also during the quarter, and over the last few months, we have begun more of an account management relationship with our major labels in the United States, and I think that's showing some progress in terms of identifying potential issues that we have with them, and we can address them operationally and from a business development standpoint. We do see some -- some of the growth is hidden by the fact that the Australian dollar is doing well relative to the U.S. dollar and similarly with the Euro.

Okay. And then just on to Clipstream then, and just sort of to summarize this again; just -- maybe just the key things that you -- how do I say it, from a technology side, just to round on that technology, since you kind of highlighted that 80% that we are expecting that got sort of the [ph] 20%. Can you just kind of hone in exactly the key things, [indiscernible] the quality and when do you expect it to heat up?

So I can kind of address some of that. So there is two completely different ways of looking at it, because we have got a rock Clipstream engine, which is JavaScript. Big huge advantages to being JavaScript based. But there is a commodity offering, and that's the hosting system. And so on the hosting side, we are competing with a whole bunch of commodity providers. Even our own supplier Amazon, in a way, is a competitor when it comes to commodity hosting. And there's probably about a hundred companies that have a big role in commodity hosting of video. And so when we look at it, we look at every single competitor, and we say, here is a feature they have that we don't have. Here is a feature, another one has that we don't have. And we made a big list, and we have been chipping away at it. And like I said, there has been seven updates in last quarter. There have been seven updates the quarter before, and we are starting to run out of features that we need to match. But we haven't run out yet, but we are becoming more and more competitive, when it comes to commodity hosting. The problem is the commodity hosting customer is maybe $30 a month, maximum $400 a month. $400 a month is $1,200 a quarter. We are not going to get rich off that. That's not what's going to drive the business. On the other side, on the big side, we are dealing with the ad customers. We are working with one big one, we are not allowed to say their name, but they have been doing some real big stuff. I kind of implied that, when I mentioned some of the impression numbers, in terms of minutes at least three, in February. But we have chosen not to chase the whole pile of them, because they are coming back to us, they are saying, in the ad space, here are some features that we need, that you guys aren't offering yet. So we are building that out. In my little transcripts, I spent a lot of time talking about development, but the reason is, the fish in the pond are telling us -- for us to bite. Here are some of the features that you're missing. But the real big one is the API customer. The API customer could be acquisition corporate customer that wants to offer to their own users or ISP or -- I can list thousands of different types of API customer. They have come back to us, and they have had some big complaints, but the biggest one is the quality. And so, really again, I kind of mentioned that with the MPE is solving the problem with the Universal contract and solving the contract with moving to the cloud, is necessary, but it doesn't automatically get revenue. It's kind of the same thing here, is until we solve the quality, it's hard for us to grow revenue. It's not overnight that you get revenue just because you solved it, but it's one of those things that's necessary. It's one of those things that you got to do first. We demonstrated that at the AGM. The feedback that we have got from investors that viewed it on our big screen TV at the AGM is like, this is the best of the best. No complaints. But until we roll it out, it's tough for us to get those big customers. In terms of timing, I am not going to give a date, but we expect it to happen in the current quarter.

Just wanted to clear, so the quality lies -- I know you haven't really rolled out to the customers, but from a quality standpoint, you are satisfied that it meets the level that customers want, and what you are working on right now is, the sort of --

So Hubert, what we are trying to do, is be very scientific about it. So with our own stuff, it was hard to be scientific. And so quarter-to-quarter, we improved, improved, improved. The version we came out within October for -- call it 85% of customers, is absolutely awesome, they all get a good experience. But it's because they have internet connection through not volatile, that aren't throttling or anything like that, and they get like a really good performance. With our old system, there is a certain percentage that didn't. So what we have done is, forget any claim that we make, we went out to the industry and we have licensed one of the -- well basically the current state of the art. So the old state of the art is something called H.264, that's what YouTube uses, that's what almost everybody uses, and we skip that, and we have gone to HEVC. So that's high efficiency video codec. I gave you a link to the BBC, I don't have it handy here, but if you go back. You click on that link, they have done a scientific study, and they can mathematically talk about how much better it is, how much you save on bit-rate, how much better the quality is. Not only have we been able to adopt that, we have been able to get that to work in JavaScript, which means we instantly work anywhere. I don't have to make a claim, the BBC has made the claim for me, it's significantly better than what everybody else is using. So everybody else is planning on rolling out to that at some point, but for them to roll out, they need to get the phones to put in the HEVC chips. They need the browsers to support the HEVC codec. That hasn't happened yet. So we can get a bit of a first mover advantage, where we could take as much -- we could skip from being a little bit behind the curve to being way ahead of the curve, and we can do that almost instantly, as we roll out the next version.

Okay. And so basically what you are saying is that the quality is obviously based on having that codec. So right now, what you are working around is, round out the features that are being offered by the competitors out there, is that what you --

So kind of both. So in terms of rounding up the features of the competitors, we made really good progress. We are starting to run all the features. We expect, by the end of 2016, we will be matching everybody. But we made really good progress last two quarters, and again, I encourage people to log in and try for free and set up your own free trial, and see all the features we have built out into our cloud hosted system, which is the commodity hosting system. But in the meantime, we are implementing this brand new video codec. We had a desktop version that was extremely solid, which we showed at the AGM. Since then, we have had to get that desktop version to play everywhere and implement it into our production system. What we are currently working on, is expanding that new HEVC systems to work with mobile. Mobile is a little bit more challenging, because a lot of the phones have very limited processing, have very limited memory. And like I said, I am not going to give a date as to when that's going to be ready, but I am expecting it to be ready sometime in the current quarter.

Okay. So the new codec, you're still working on it to have it work on the [indiscernible] outside that?

That's right.

Okay.

It's already working on a lot of mobile, if you call iPad mobile, or the latest iPhones, works great. We are working more and trying to get it to work on some of the legacy devices, which are a little more limited in their processing.

Okay, great. Thanks.

Thank you. Your next question would be from Philip Mitchell at CM Capital Advisors. (sic). Please go ahead.

Yeah. Hi Steve.

How's it going?

I had a couple of questions; one, you had said that there was like big fish sort of circling around Clipstream, and then come back with certain issues that need to be addressed, that are showstoppers. And it sounds like you have addressed one of them at least, which is the video quality, which is HEVC incorporation into JavaScript. Are there other significant showstopping issues that need to be addressed as well?

Yeah. So I would say the biggest ones are features in our -- so we provide an API, which is basically like a gateway. We have our backend, we have our technology, I mean it's like a gateway that lets them plug -- almost like Lego, lets them plug into their system. They have a lot of feature requests, wishing we had better reporting or wishing we had this or wishing we had that. None of them are showstoppers. They could do a deal with us, without them being fixed. But on an ongoing basis, we are always going to be working and building and addressing their requests. But in terms of showstoppers, I would say the real last one is just -- I say quality, and I don't want to say it, because it makes it sound like we had something bad before, for -- call it 85% of the market, we were great. But it's just unfortunately, some ISPs throttle, some ISPs have real limited bandwidth, and some ISPs are not recognizing us as videos, and they are just treating us like ordinary data, and when that happens, the video just kind of drop. So that had to be addressed. And so with that being addressed, yeah, we are ready to go, and it's like -- I said, the PR that we have been promising for three years, we are ready to kind of reach out, start getting magazine articles and start making noise. But it didn't make sense to do that, until we had all of the problems addressed.

Okay, thanks. That makes sense. And my second or last question, deals with the intellectual property, and you mentioned in one or two calls, there are some people who observed are probably violating at least one or more of your patents. And you said this time, that you want to make sure that patents are already claimed, before you go after them. Are these people violating them in their own video streaming solution or how are they -- what kind of products do they have that they are violating?

Really good question. So in terms of anybody that's offering what we are offering, there is not really anybody out there, and it's because what we have done is a little bit difficult. We are embarrassed in how long it is taking. We have been working on this for six years. I mean in six years, we are still running up against some challenges. And since JavaScript is not intended to be a programming language, so it has been difficult for us to get this to work. So that said, I don't want to name anybody, but there is some extremely well funded startups that are trying to copy what we are doing. And so that's kind of the one side of it, they have not been successful, but they are chasing the holy grail, and as they chase it, they are definitely infringing on things that we patented way back in 2011. We had a tremendous first mover advantage. Where people are actually making money today, is in the ad space. So as an example, I am not going to give you all the examples, but as one example, when you won't look at a webpage on your iPhone, there is little tiny videos on the page, you won't necessarily want that video to go full-screen. The video is just an ad. You don't mind the little IBM ad playing in the corner, but you don't want it to take over your phone. And unfortunately, using the standards -- well fortunately for us I guess, but the iPhone, when you watch a video, the video will take over the entire phone, and advertisers can't do that. And so JavaScript is basically the only solution, they call it the in-screen ads, and it’s a really big deal. We have a whole bunch of companies that are out there, making money, that they are basically taking it out of our wallets, doing in-screen ads, using JavaScript. So they are not doing anything difficult, because the ad is small and they are just playing back like a tiny little ad. They don't have to do all the difficult things that Clipstream has had to do. But they are infringing on our patents. And I can give you a whole bunch of examples like that, my lawyer will probably get mad at me, if I went into too much detail. But we have identified about two dozen groups that are infringing. Now patent investors come to me and say, oh, you are not going to be one of these patent trolls that are suing everybody. Well not necessarily, you can enforce your patents to make money without infringing. So we will be open to licensing, royalties, partnering, and only suing when somebody is egregiously hurting us. But the bottom line is, we invented this technology, and our investors deserve to basically get the value out of it.

Great. Just last comment or question was, once your IP is claimed and you got a mature product, if you could go to these guys and say, we notice that you are using our intellectual property. No one wants a war. Why don't you look at our solution which is better than yours, and we will let you use it for a certain amount of money of licenses. Is that what you ideally like to do?

Well ideally, there's companies out there that have raised $50 million to try and do JavaScript video. Instead of fighting them tooth and nail, maybe they can use their $50 million to become one of the best Clipstream resellers. That said, if they don't want to do that, we aren't afraid to litigate. I have already dealt with three different firms that will do it on contingency, so it doesn't have to cost their shareholders anything. But enforcing patents isn't necessarily just about lawsuits.

Thank you. I will hang up and listen. Thanks Steve.

Okay. Fair enough.

Thank you. Next question is from Bill Hudson, Private Investor. Please go ahead.

Hey Steve. Thanks for taking our call. You actually answered my question. The last question was the same question I had about the infringement on the patents, and how big that market was, you address that, and also, I think is --

Well I think that market is going to get bigger and bigger, and the reason is, we started this six years ago, computers were a lot wimpier back then, and JavaScript was a lot weaker. We would have never thought of doing something like HEVC -- well even H.264, which is a previous technology, we could have never got that working in JavaScript. But things have come a long way, browsers have gotten better, computers have gotten better, and the possibilities have increased a lot. Our patent claims aren't limited to video. Our patent claims expand to a lot of things that are done in JavaScript, especially when you talk about decompression. When you look at new things that are coming down the pipe, like for example, some of the virtual reality stuff; not natively supported by the browser, but if we were to implement a JavaScript, we are protected by patents, and we could immediately be cross-platform. We had the advantage of kind of seeing the vision before the technology was there, ready to take advantage of it. So like I said, there is a couple of dozen infringers right now, but the expectation is, there will be a lot more over time. Market is so big, I mean, it doesn't make sense for us to be obstructionists. It makes more sense for us to use other companies, other startups. They are raising money, they are trying to do something big. In most cases, it's probably better for us to work with them and take a royalty and kind of let everything succeed. But the more we work with that equal system of other companies, that see the JavaScript vision, the more that ecosystem gets locked down, and we are caught up on the dark side, and our investors are, they are able to take a little bit of a royalty off the back of a lot of transactions.

Sounds good. Thanks Steve.

Thank you.

Thank you. Next will be Dave Shannon, private investor. Please go ahead.

Yes. I have a couple of questions, one was, back a few years ago, there was some big company that was looking to buyout Clipstream, I believe; and at that time you said that you couldn't mention who it was. Is that possible now?

I am giving Fred like about three seconds to object, but I think it's okay, it was Sun Microsystems; and in particular, was their Netscape Group. And the reason why, they owned Java, and I know JavaScript sounds similar, they are actually completely separate technologies. The only thing similar about them is that the programmers drank coffee from Java, but they ended up selling out to Oracle.

Okay. Yes. I do remember that. And the other question is, I have noticed that there hasn't been any board or officers that have bought any new share since January of 2015. I just wanted to tell that, are you guys satisfied with the amount of shares you have or just things -- let's say, if one or two didn't, but all of them at the same time, just made me sort of curious about it?

I can't speak for everybody else, but I am starting to run out of money. But if you look back, I think there has only been a couple of years that any officers or directors have ever sold shares, including at the peak. Peak was $4, the recent peak was $3, you won't see the insider trading. But almost every year, insiders have brought. But yeah, we are a little frustrated with this tough pullback as well. We are a little more focused on the business and the market has kind of got a mind of its own.

Yeah. Yeah I read an article, oh gosh when it was hitting at almost $3 levels, alpha, omega or something like that, had a guy publish an article, and I just watched at that point. [Indiscernible] after they had just promoted their stock a whole bunch a few quarters in a row, and then all of a sudden all the way down to where it is now. In fact, the guy actually said something that the price shouldn't only be around, I think it was $0.11 or $0.12 a share.

Well I mean, if you look at market cap, just take our revenue, that doesn't make any sense.

Doesn't make any sense to me either.

The bottom line is, the stock price is just what our audience thinks we are worth, which is complete -- its not completely out of our control, we probably have some influence in, where we put out the press releases and everything. But what we have the most influence in, is just pure profit. And so, MPE is a very profitable business, we have chosen to put that profit back over the last six years into Clipstream. We think investors are going to be well rewarded. We have built something that we think is pretty special and is protected by dozens of patents around the world. The proof is -- its easy for us to make a lot of promises. It's better to be a little retroactive and kind of look back at what we have succeeded on. But now it's up to us to go and get the business, and that's what everybody is waiting for. My expectation is the share price will look out for itself, as we are able to perform. But the only thing that's in our control, is to perform.

Okay. There is another question --

Basically the answer to your question, is that it's very rare for a share price to accurately value a company. Usually it's either ahead of the curve or behind the curve. It's pretty rare for it to be right on the money.

Right, right. So I missed the first part of this call, so I didn't actually get to hear the -- what was the total increase of revenue from Clipstream in dollar amount this last quarter?

Well, we are going to get audited on this, so I will be really odd. It’s a huge percentage, I think it was like 400% or something, but to tell you the truth, in dollars, it was only $14,000.

Okay. That's what I was looking at.

But you know, $14,000, $29 at a time, it basically speaks to a business that we can scale, as we are able to make it work.

And then one more question, you invited to go to your web site to check out for investors, to check out how the Clipstream is looking and everything. As far as -- I haven't done that the free 30-day trial, because I have no desire to put any kind of video to it. So how do I -- you are just saying there are some examples there, and that would just show or what?

You can reach out to our salespeople. I am not sure if it's still there. I think we have a real time chat. I haven't looked myself for a while. But either way, either the chat or by email, reach out to our salespeople. Just say you're an investor, and can you show me some of the latest and greatest, and you'd probably get a chance to even take a look at the HEVC, even though it's not ready yet. But in terms of the trial, you go to clipstream.com. I do have the link in front of me, I will read it one more time, the BBC link. The BBC study is tinyurl.com/hevc-bbc.

Hbbc did you say?

hevc-bbc.

Oh okay. All right.

And so like I said, this isn't our format, this is a format that we have to actually pay patent fees on it. It’s a new format that the industries come up with. But we are able to support this format way ahead of everybody else, because we don't have to wait for check.

So when is this new format supposed to be rolling out? Is it ready now, or is there something --

Don't ask me where, because I don't know. But some browsers and some chips are probably already starting to support it. But these kinds of things take time, it's going to take a few years to roll out.

Okay.

So the current formats that are common are VP8 and VP9 which are Google formats. More of the industry format is H.264. The HEVC is branded as H.265, so it's kind of -- its intended to be the replacement for H.264. One of the reasons it is coming out, is all the old H.264 patents are expiring and going into the public domain. So for them to collect royalties and maybe come up with something new.

I see. And this is supposed to be brighter and clearer and better and all that other stuff?

There's a couple of formats that the industry is going to be adopting. There's another one that looks like it may have some opportunity. But yeah, this is kind of the big next one. But we are in a nice position, because being software based, we can either do one of them or all of them or whatever the flavor of the month, we can instantly support it, and we are instantly cross platform everywhere.

I wondered if there is a way that you could sort of let them though to get their product out a little quicker, saying we are already for it. Is that something that they could push to use?

Absolutely; because they make a lot of money in rolling out and charging patent fees. And so, anything we can do to speed up the process, I am sure that they would be happy with. We have intentionally not --

Have you spoken to --?

That's what I was just going to say. We have spoken to them enough to get to -- figure out what we need to do to get a license. But in the last conference call, I intentionally referred to this as our secret skunkworks project, I didn't mention what it was. The only reason I am mentioning it now, is because we are close to rolling it out. But whether rolling out to the magazines into the press, and rolling it out to the patent holders, we wanted to work first, and so we are trying to get all [indiscernible].

Okay. And you have spoken to them, is what you said about -- your system is pretty much ready, other than you want to make sure you got all your bugs out of the way?

We have spoken to them in terms of legalities in getting licenses to use their technology. We have intentionally not gone into detail on what we are doing with JavaScript and everything.

Okay.

No. But I am blabbing this on today's call, I am sure they will know more over it. But today, we have been a little quiet.

Okay. Well that sounds good. I am still patiently waiting.

Well you see good things, it has happened to people that wait, right?

Yeah, yeah, right. All right well thank you very much.

So operator, looks like we have probably other calls here. So we can probably wrap up. One of the things I'd like to say every call is, it's kind of intimidating to ask questions in this type of forum. Both Fred and I welcome people to reach out, either by email or by phone or staff as well, feel free to reach out to our salespeople, going to Clipstream, pretend to be a customer if you want to. But we kind of learn from constructive feedback from our investors, and we really welcome it. So feel free to reach out to myself personally or anybody else in the company. Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, we'd like to thank you for attending. And at this time, we do ask that you please disconnect your line. Have yourself a lovely evening.