Crexendo Inc (CXDO) 2008 Q2 法說會逐字稿

Welcome to the iMergent, Inc.

Second Quarter 2008 Conference Call.

At this time, all participants are in a listen-only mode.

Following management's prepared remarks, we'll hold a Q&A session.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded today, February 5, 2008.

I would now like to turn the conference over to Ms.

Dahlia Bailey.

Please go ahead, ma'am.

Good afternoon, and thank you for joining us for iMergent's Fiscal 2008 Second Quarter Conference Call.

With me today is Don Danks, Chief Executive Officer of iMergent; Brandon Lewis, President and Chief Operating Officer; Rob Lewis, Chief Financial Officer; and Jeff Korn, General Counsel.

After reading a short safe harbor statement, I will turn the call over to Don Danks, who will provide a review of the business and then a brief overview of the financials.

Statements and comments made on this call that are not historical in nature constitute forward-looking statements within the meaning of the safe harbor provision for the Private Security (sic) Litigation Reform Act of 1995.

These statements and comments are based on the current expectations and belief of the management of iMergent and are subject to the number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements and from management's current expectations.

For a more detailed discussion of factors that affect iMergent's operating results, please refer to its SEC reports, including its most recent Form 10-K and Form 10-Q.

The Company undertakes no obligation to update this forward-looking information.

With that, I will now turn the call over to Don Danks, Chief Executive Officer.

Don?

Thank you, Dahlia, and thank you all for joining us on our call today.

We are quite gratified to announce the positive results for the quarter ended December 31, 2007.

Our primary goal in 2008 is to drive customer acquisitions and activations.

As such, as are continuing our rollout of StoresOnline Express to appeal to a wider audience, improving sales to enhance conversion rates, developing ancillary products internally and with partners to build new and recurring revenue streams, and maintaining our commitment to superior customer service.

We are on track with all of these goals moving forward, and changes are positive.

During the quarter, we recorded revenue of $38.9 million in net dollar volume of contracts written, a relevant and meaningful statistic to the understanding of the operations of the Company's business, of $38.3 million.

In October, we began testing our newly enhanced sales model and introduced our StoresOnline Express product to a select number of preview sessions.

Since the test rollout of StoresOnline Express, we have seen a higher percentage of buying units upgrading to StoresOnline Pro software.

Through the end of January, we have rolled out StoresOnline Express to approximately 30% of all of our preview sessions, and we remain positive about our goal of rolling out to all preview sessions by the end of March.

In December, we streamlined our sales team to better align our resources with our products.

We are happy to report that for the December quarter ended December 31, 2007, we have seen an increase in buying units upgrading to our StoresOnline Pro software to 27%, compared to 25% in the same period last year.

Also, we continue to evaluate the many needs of our customer base -- training, accounting, asset protection, tax, legal, etcetera -- with the goal of creating additional initiatives to expand revenue base and to further our distribution of our partnership products, such as [Tax Club], Money Resource Network, and Professional Marketing International.

Additionally, we are launching a new program to increase AVAIL activations.

In January, we were gratified to be further recognized for our steadfast commitment to our customers when the SSPA Organizational Development Program awarded us the prestigious Excellence and Service Operation Certification.

Finally, the market continues to grow, and we remain very positive and poised for continued growth.

Our target markets remain quite strong.

According to the July 2006 U.S.

Census Bureau report, 70% of all U.S.

businesses were sole proprietorships and generated $887 billion in annual sales in 2006.

Of the 70%, 87% are non-employer or self-employed businesses.

Additionally, according to the April 2007 Wells Fargo and Gallup Small Business Index, of the 26.8 million small businesses in the United States, approximately 15 million are without websites, and approximately 9 million with websites are without e-commerce functionality.

With our new sales model in place, we are looking forward to expanding our marketing reach by targeting those segments of the market and capturing additional market share.

We continue to be excited about our rollout of StoresOnline Express to all preview conferences and believe we will be -- we will continue to see higher purchasing rate of our StoresOnline Pro software.

Additionally, we hope that this will drive higher hosting revenues, and we believe it will also improve recurring revenue and monetize an expanding customer base.

Brandon Lewis will elaborate more on our sales model and potential opportunities in a few moments.

Looking ahead, we are more optimistic about fiscal 2008 GAAP revenue guidance.

We now expect revenue to range between $132 million to $140 million, up from our guidance of $121 million to $129 million provided on December 20, 2007.

Net dollar volume of contracts written guidance remains the same and is expected to range between $132 million and $140 million.

With that, I will turn the call over to Jeff Korn for a legal update.

Jeff?

Thanks, Don.

I want to take this opportunity to give you an update on our legal situation.

First, I will discuss StoresOnline Express.

This sales model, although adopted because of the business benefit, is an advantage for the Company and in compliance, in general.

I have been spending much of my time lately traveling and explaining to various regulatory agencies how iMergent does business and the changes that have been made with Express.

To date, Express has received universal praise.

Everyone who purchases Express comes to a workshop having already received a license to our basic software and having had the opportunity of working with our award-winning customer service.

This goes a long way in demonstrably making clear our longstanding intention of making our business model transparent.

Express also and ambiguously makes clear that anyone who purchases Pro has an understanding of our business and the software and has had the opportunity to test-drive our best-of-breed software and service prior to upgrading to Pro.

I have previously detailed that we are willing to speak and engage in settlement discussions with the regulators, and I normally do not detail private discussions in which I have engaged.

It is, however, necessary that I provide you with an update on the discussions with the State of Florida.

Approximately eight months ago, the State of Florida issued a press release indicating it was investigating iMergent.

While that was going on, we were engaging in discussions with the both the Commissioner of Agriculture and the Office of the Attorney General.

Our counsel was told that if all open complaints were resolved, there would be no lawsuit.

We resolved the outstanding complaints that were given to us, but nonetheless, a lawsuit was filed seeking to have the Company register as a business opportunity and claiming deceptive practices.

We immediately engaged in settlement discussions with the State.

The discussions had many points of agreement, but however, the State, while apparently conceding the Company does not sell a business opportunity, was seeking certain concessions required only of a seller of business opportunities.

Some of those concessions were not acceptable to us.

The State then decided to dismiss the original complaint without issuing a press release and then filed a second lawsuit with issuing a press release, which made it look like it was a brand new lawsuit.

The amended complaint still alleged misrepresentation and still had complaints that the Company sells defective software.

After six months of discussions and our offer to let the State test-drive our software, which the State did not accept, it's surprising that we still get claims that the software is defective because, as we have made clear, our customers have the opportunity to host the software on StoresOnline or download onto the licensee's computer.

As such, the software cannot be selectively defective, and a claim of defective software is simply not sustainable.

We were shocked by the claim in the press release of 80 complaints received by the Office of the Attorney General.

In all our discussions before the press release, there was only information provided on about 20 complaints, so it was quite surprising that these alleged complaints would be disclosed in a press release.

Florida singularly has a very open public records law, and we were able to get copies of the complaints -- 8 of the complaints were from customers -- were from people outside the State of Florida; 19 of the complaints were from non-customers; 35 of the complaints were already resolved; and 20 complaints were unresolved.

Of those we indicated resolved, it included refunds agreed to and customers the Florida Attorney General determined did not respond to legitimate questions and others where the Attorney General determined there was no basis for the complaint.

Of the 20 we indicated that are not resolved, we did not receive some of those five- and six-year-old complaints until the AG responded to our open record request.

Of the others, there were at least 7 that the Utah Department of Consumer Affairs reviewed and closed either because the customer would not respond or there was no evidence to support the claim.

There was also at least one discharged claim in bankruptcy.

We are asking our counsel in Florida to review what actions we may have against non-customers who have filed complaints with the Attorney General's office.

Still, we would welcome a settlement with the State, but we will only do that on terms which are appropriate, fair, and in the best interest of our shareholders.

Let me now update you on the status of activity in California.

As you know, there was a temporary injunction entered which prohibits iMergent from selling any product that has initial required consideration of more than $500 without first registering as a SAMP, which is California's Business Opportunity Statute.

We had a previous settlement with the State, and part of that settlement included the provision that we not violate the SAMP Act.

All settlements with all states require a provision that you not violate the law.

We are required to follow laws in the jurisdictions we do business and obviously attempt to follow those laws.

No state will give a safe harbor and agree that your business model is in compliance with the law.

Such simply will not be provided.

The only way to get a determination like that is to have a trial and the Court make a ruling with the extended delay incident with that.

We believe that our Express model under any circumstances is outside the scope of the SAMP Act with its initial required consideration being less than $500.

Our California counsel is of the same opinion.

The State has indicated that it is their position the SAMP Act contemplates a capture of any additional purchases within six months and, therefore, to sell Express with an upgrade to Pro would violate the injunction.

Let me make clear, however, we dispute that and find no statutory authority whatsoever to support that claim.

That leads us to a decision, and I will you the alternatives that we believe exist.

One, we could simply sell Express without an upgrade to Pro.

That would unquestionably [be] outside the scope of the injunction; however, we do not believe that would be in the best interest of our customers.

Secondly, we could wait for a judicial determination and a possible appeal, which could take at least two and as many as four or six years.

Third, we could do as suggested to us by counsel we conferred with, who was a former California appellate judge and an expert on appeals, who suggested we hold one preview session and follow up with an upgrade sale to Pro.

We would do this with notification to the State and the Court to make clear our belief that this action would not violate the injunction.

If the State moved to hold us in contempt, there would be a quick hearing.

If the Court found the injunction would violate it, that would in all likelihood require the Appellate Court to hear the matter on an expedited appeal basis, which thus far, the Appellate Court has refused to do.

Finally, we could attempt a settlement with the State, and while we have no guarantee the State would do that, the settlement would obviously be with full disclosure as to how our model works.

We are considering all of these options.

We will work with our counsel to make an informed and appropriate decision.

We will keep you advised of progress in what occurs.

We are also faced with an injunction in North Carolina.

The injunction was badly composed and disappointing.

That it was consented to was a poor decision based upon what I believe is poor advice by counsel to our employee who was there.

We no longer employ the party who agreed to the order and have new counsel in the case.

We have also implemented a policy that no settlement may be entered into that has not been specifically approved by me, together with either Brandon or Don, and if appropriate, our Board of Directors.

The State has tried to get refunds for amounts in excess of what customers have paid to us.

We have rejected this over-reaching and have filed a motion showing our intent to pay the proper amount.

We have even provided that amount to our counsel to hold in trust to make clear to the Court our good faith.

We have filed a motion before the Business Court to determine that our sales do not violate the Business Opportunity Statute of North Carolina.

We believe that our contract, which includes a trademark license, is exempted from the purview of the statute.

We also believe we do not under any circumstances violate the Business Opportunity Statute of North Carolina.

Our motion was heard by the Court, who took it under advisement.

The Court, however, seemed to feel it may be a little premature at this point.

Nonetheless, we intend to move this as quickly as possible as we believe an ultimate determination is in our best interest.

With that said, as in any jurisdiction, we would consider a reasonable and appropriate resolution to this matter.

Finally, we continue to be in litigation in Australia, where we successfully fought an attempt to get a temporary injunction entered against the Company.

We continue to hold seminars while engaging in discovery with the ACCC and expect that a trial date will be set.

We will continue to attempt to work in good faith with regulators to settle all disputes.

We also continue to improve our product, our services, and our sales techniques.

These are both our best defense and our best method to avoid any problems going forward.

With that, I now turn the call over to Rob Lewis for a financial review.

Rob?

Thank you, Jeff.

As mentioned earlier, in addition to revenue recognition each period in the income statement, management believes that the net dollar volume of contracts written is a relevant and meaningful statistic to the understanding of the operations of the business and represents gross dollar contracts written during the period less estimates for bad debts, discounts incurred on sales of trade receivables, and estimates for customer returns.

During the quarter -- or for review of our operating statistics, during the quarter, we conducted 313 workshops, including 89 internationally, compared to 297 workshops, including 82 internationally, in the same quarter of last year.

This brings a six-month total to 602 workshops, including 109 internationally, compared to 540 workshops, including 103 internationally, in the same period of last year.

The average number of buying units and attendance in our workshops during the second fiscal quarter was 82, compared to 96 in the prior-year quarter.

The percentage of buying units making a purchase at the workshop was 27%, up from 25% in the same quarter last year.

As a result of changes at our workshops, the average purchase during the second quarter decreased to $4,800, compared to $5,200 in the prior-year quarter.

Finally, cash sales at our workshops were 57% of total workshop sales in the quarter, compared to 60% last year.

For the quarter ended December 31, 2007, total revenue was $38.9 million, compared to $35.7 million for the quarter ended December 31, 2006.

Net dollar volume of contracts written was $38.3 million, compared to $37.6 million for the prior year's quarter.

Total operating expenses were $39.1 million, compared to $30.8 million for the same period last year.

This increase reflects the higher cost structure prior to the streamlining of the sales force on December 20, 2007.

General and administrative expenses were $5.3 million for the quarter, which is primarily attributed to an increase in legal and operating expenses.

General and administrative expenses for the second quarter of fiscal 2007 were $3.8 million.

Other income was $2.6 million, which included $2.4 million in interest income that was earned on our trade receivables.

Income tax provision for the three months ended December 31, 2007 was 400 -- $844,000.

During the three months ended December 31, 2006, we reversed the remaining valuation allowance against our deferred income tax assets, and consequently, we recognized an income tax benefit of $5.2 million during that period.

Net income was $1.6 million, or $0.14 per diluted share, in the second quarter of fiscal 2008, compared to net income of $11.7 million, or $0.90 per diluted share, in the second quarter of the prior year.

For the first six months of fiscal 2008, total revenue was $71.4 million, compared to $64.7 million in the same period of fiscal 2007.

Net dollar volume of contracts written was $73.9 million, compared to $70.1 million for the prior-year period.

Net income for the six months ended December 31, 2007 was $846,000, or $0.07 per diluted share, compared to net income of $14 million, or $1.07 per diluted share, in the same period of last year.

On to our balance sheet review --

As of December 31, 2007, we had $29.5 million in cash and cash equivalents, compared to $36.9 million as of June 30, 2007.

During the quarter, the Company repurchased 325,800 shares for approximately 400 -- $4.5 million.

At December 31, 2007, we had working capital of $27.9 million and current deferred revenue of $33.5 million.

The deferred revenue balance represents historical sales for which the Company cannot immediately recognize revenue.

The costs and expenses we incur as these deferred revenue amounts are recognized as product and other revenue are expected to be insignificant.

Consequently, we do not consider deferred revenue to be a factor that impacts our liquidity or future cash requirements.

Working capital net of current deferred revenue as of December 31, 2007 was $61.4 million.

Now, I'll turn the call over to Brandon, who will provide you with a review of the business.

Brandon?

Thanks, Rob.

As Don mentioned, it's been a very busy period.

We're implementing the StoresOnline Express model, and we've optimized our sales organization, which now consists of top-performing speakers and sales representatives.

As such, we've reset the bar and are focused on delivering growth from our new employee base.

To be more specific, on December 20, to improve distribution of our product line, we streamlined our sales force, reducing preview teams to around 20 from 32 and workshop teams to 6 from 9, as well as supporting travel and administrative functions.

The benefits are twofold.

We're creating annual savings, and we have a stronger sales force.

Our ultimate goal is to drive profitable sales, and with the introduction of StoresOnline Express, we give buying units the opportunity to test-drive the product before attending the workshops.

Plus, we are well positioned to expand our reach to a wider market, and we now have direct access to those small business owners and entrepreneurs who are not wanting the complete functionality now of the StoresOnline Pro platform.

Also, as theorized, Express has been providing an upgrade path to potential purchasers of our Pro software, thereby improving conversion rates and enabling us to increase recurring revenue streams.

The key to our success is to continue to adjust preview presentations and to get all speakers up to speed and get more customers to use our software between the preview sessions and workshops.

We are preparing to capture a greater share of the global e-commerce software market.

We're leveraging our scalability and penetrating other parts of the market through the launch of the StoresOnline Express platform.

We've also integrated AVAIL into our StoresOnline Pro platform, and we're excited about the progress of an activation program to help increase AVAIL activations launched in late January.

In addition, we continue to develop our suite of products to address the needs of the entrepreneur and small businesses.

Current marketing partnership programs, including (sic) Tax Club, Money Resource Network, and Professional Marketing International.

We're excited to provide an update on our Tax Club Partnership program.

We introduced new services approximately six months ago to include bookkeeping and payroll.

These new services are now generating more sales than even the core tax services.

Also, we continue to evaluate other products and services offerings, which include training, accounting, asset protection, tax, legal, etcetera.

These services create additional revenue streams and greater customer loyalty.

As previously mentioned, StoresOnline received the SSPA certification in January.

In September, we were first awarded the 2007 Star Award for Service Excellence and Customer Support.

Then to achieve the Excellence in Service Operations Certification, StoresOnline had to meet and exceed 290 best practices criteria developed by the SSPA and validated by 50 leading technology companies, and it passed a rigorous onsite audit conducted by service executives with more than 20 years' experience.

I'd like to thank and give credit to our great group of customer service representatives and their leaders.

I am gratified that our commitment to customer support was recognized by the SSPA.

Our customers have another reason to be confident about -- to be confident StoresOnline has the people, processes, and technology in place to provide quality support.

Our customers are truly our greatest asset.

And with that, I'll turn the time back to Don.

Don?

Thank you very much, Brandon.

In summary, we are targeting new market segments and increasing customer acquisition rates as goals.

To that end, we've developed StoresOnline Express and an improved sales model.

Now, we are implementing the change.

We aligned our resources more effectively and are evaluating new products developed internally or by marketing partners.

To date with the rollout of our StoresOnline Express model, we have expanded our core business and distribution channels to reach a greater audience.

Through this and other improvements, we have increased our StoresOnline Pro conversion rates.

We remain focused on rebuilding growth, and as previously mentioned, our target markets continue to grow and our newly streamlined infrastructure has positioned us to build upon our strengths and strategic vision to deliver value to our shareholders.

With that, I will open the call -- open to questions.

Operator?

(OPERATOR INSTRUCTIONS)

Our first question comes from the line of Neal Goldman of Goldman Capital Management.

First, I guess, Rob, SG&A -- selling and marketing were up 5 million 4, 5 million 5 or 5.6, up 37% on a sales increase of 9%.

How much of that was tied to the ineffective sales teams that we've eliminated on an annual basis now?

The majority of the increase in the sales and marketing was attributed to the sales teams that we had to eliminate and reduce during December.

We were spending the -- the dollars that we spent in December -- in the December quarter, what we wanted to spend, it just didn't drive the amount of revenue that we had expected to generate with those dollars spent.

Okay, but on an ongoing basis, I mean that percentage was much higher than historically, right?

That's true.

The percentage increase -- we would expect that the increase in revenue would, hopefully, outpace the increase in SG&A expenses.

Okay.

In terms of incremental legal costs this quarter over the last quarter?

Over the last year's quarter?

Yes.

It was about a $600,000 increase.

Okay.

I wait for the day that we no longer have to listen to Jeff on these conference calls.

As much as we enjoy Jeff, we feel the same way.

I'll take that as a compliment, Neal.

Brandon, why don't you give me what you're seeing so far in the model in terms of number of people showing up at the preview under the new model of the Express versus historically under the old model, and then how many people are going to the all-day seminar and how many people are converting to the upscale version?

Sure.

Well, first of all, I don't think we're really seeing necessarily any additional attendance at our preview conferences because of the new model change because we don't necessarily disclose the model change in our marketing pieces.

However, we are seeing very good reception at the previews to the sale of our Express software, and we are -- as we said in the script, we're seeing higher conversion rates throughout the process, and that would include the preview conversion rates and the workshop conversion rates.

So I maintain a lot of optimism that this new Express model is our future and that it will continue to prove out.

One of the things I think, Neal, that's really great about this new model is that when we sell the Express software at the preview, it allows these customers to take that product home and go home and test-drive it, talk with our customer support before they come to the workshop, and what we've found is that the people who are actually test-driving the software or working with that software between the time of the preview and workshop, those people are more likely to upgrade to Pro than the ones that aren't necessarily using the software.

So we think we have a lot of up side as we better that presentation at the preview and get more of the people to actually log on and use the software between the time of the preview and the workshop.

We think the conversion rates will just -- there's the opportunity to really grow those conversion rates at the workshop -- or increase the conversion rates, excuse me.

And on the recurring revenue side, how many of those people buying the Express are opting for the hosting?

Every one of the people that purchase Express opt in to the hosting.

Now, they have the opportunity to cancel or turn off that hosting at any time, but so far, we're seeing some real positive things there, as well, in terms of the people actually paying the hosting and activating sites.

So we have a real push, as I think everyone knows, for activations, and we're seeing real promise there with all of our different activation programs throughout the Company.

Okay.

Rob, what's the size of the tax loss carry-forward that remains now?

Just one moment.

Let me pull that up here.

Right now, tax-affected -- our deferred tax assets right now comprise about $10.1 million, and that's -- primarily consists of the net operating loss carry-forwards.

So that's against pre-tax income?

That's -- that would be -- that's tax affected, so that's after tax.

After tax, so the next 10 million of tax liability, okay?

Correct.

We are basically just going to generate the cash, right?

Correct.

I would assume with the reduction -- this is for, I guess, either Don or Brandon -- with the reduction of the expense levels plus the new model, that you're confident that you will start showing increasing results in the third and fourth quarter versus the first half?

Well, that's obviously the reason that we did this, Neal, is that we feel like the restructure is going to help our business and help our margins, and we've cut these teams back to our best sales people, our best speakers, and so we -- it gives us a better opportunity to train those better-performing people on the new model, but we also think we get a huge gain in terms of their better performance, which will help dramatically in the SG&A side.

So that's obviously why we did it, and that's what we're working towards, Neal.

Okay.

And anything new on other distribution channels, i.e., VARs or business to business versus the seminar model?

We don't have anything to report on that, but that is something that we are working on and that we're serious at evaluating.

Okay.

One last thing.

It looks like you had a fairly meaningful buyback of shares, [inaudible] under 11.5 million as of January 31.

We're going to generate about what, 6, 7 million just from the receivables, Rob, in the second half?

That's probably about right.

Okay, so plus whatever -- assuming we're in the 55 to 60% on cash on the seminar side, so we could generate -- I don't know.

It's my numbers, but we could generate as much as 10 to 12 million in cash in the second half?

One of the things -- I'll let Rob maybe respond to that, but I just -- it kind of gives me maybe an opening to talk about what we talked about on our last call and just kind of a reminder.

Some of the trends that we're seeing, people are a little more reluctant to use their cash, as we talked about on our last call --

Right.

-- and so it's one of the things that we're working on because I think people are opting to use financing where normally they wouldn't have, but -- so, anyway, that's just a comment from the -- a reminder from the last call, one of the things that we are seeing a lot of in the economy today.

Rob?

Yes, I mean with regards to -- we've generated over $2 million in cash flows for the first six months, and we've streamlined our sales staff in December, and we hope that, of course, we'll get better leverage off of our sales teams and our sales and marketing dollars over the next six months as a result of the streamlining.

I can't really comment about what our guidance -- or what our projections for cash flows have been, but obviously, we've done very well on our cash flows during the last half of our fiscal years in the past.

I would just urge you to get -- I mean while I'm pleased with the buybacks to date, I would urge you guys to get very aggressive over the next six months, especially with the stock down at these levels, as the new model churns out and rebuild recurring revenue, okay?

We will continue to be repurchasing shares opportunistically.

Okay.

Thank you.

Our next question comes from the line of Mike Shonstrom with Emergent Growth Equity (sic).

Had a question on seminar teams.

You're going from nine to six, which is a reduction of about a third.

My assumption is the number of seminars given is going to drop about a third.

So inverting that relationship, it would seem that in order to maintain the results that you would generate from your entire team, you would actually have to increase conversions and/or combination of conversions or the -- about amount of purchasing by about 50% to maintain a consistent revenue flow.

Can you talk to me a little bit about the six seminar teams that you've maintained, that you've continue to hold, what kind of performance numbers they are showing versus the averages that you showed in the last quarter?

Well, there's -- I guess there's a couple of things that maybe I'd comment on, and that is that if -- as you noticed, we actually -- we're seeing fewer buying units at our workshops, and so one of the opportunities we have is to get the average number of buying units at the workshops back up to some more of our historic highs, and so that's -- so us putting those people in those workshops and then putting them in front of our better workshop teams provides a real nice opportunity.

The other thing that we've been doing is focusing heavily on our other revenue and building better customer loyalty and better revenue on the back end of our workshops, and so that has been a huge help and will make up a lot of that difference, as well.

We're really, really excited about the teams that we do have out there right now and their ability to close sales of our software.

The other thing that we really believe will be important is our ability to continue to prove out the Express model, which is bringing better conversions on both the preview side and the workshop side, and we hope that we'll continue to prove that out and be able to roll out full force by the end of March.

This is a question on the conversions.

I mean the comments that I've heard in the past is that people go to the workshop, they get pretty excited about the opportunity, they buy the product, they take it home, and they really don't have whatever it's required to get things up and running, to select the right product, and they sort of run out of gas or start losing money or the concept that they've thought about just isn't going to work.

And it would seem to me the more persuasive your sales team is, the more marginal customers you'll bring into that environment and, therefore, increase the issues that you've continued to run into in the courts.

The one thing that I think Express does to really curtail a lot of that is that because we're selling software at the preview instead of a ticket to the event, I think that we have an opportunity to acquire better customers, so to speak, and customers who have done a little bit more due diligence, that are making a decision based upon purchasing software.

That's the first piece.

The second piece is that now it gives this customer some time before they even consider purchasing an upgrade to Pro to test-drive the software.

So I think that prepares them even better for the workshop and for their decision to purchase the Pro software.

So one of the -- again, I think the value of this new model, if we can continue to prove it out, is that we -- I think we eliminate a lot of those kinds of customers.

Now, regardless, like in any business, some people are successful with the products that they sell and some are not, and so we're going to continue to have people, as you pointed out, that do get frustrated because they weren't as successful as they had hoped to be, and what we've done here at the Company is tried to put better and better support and tools in place so that the customer can rely on those to help mitigate some of those downfalls in their business and, hopefully, have more success.

On another line of questioning, response rates you've talked about in the last quarter are down, and I recall at one point last year you were talking about your mail response rates had gone up from 0.5% to 0.8%.

Obviously, it's gone back down.

Any comment on what it's gone back down to and what the trends you've seen in the most recent quarter or two?

Well, the marketing or the selling and marketing expense is a combination of the response to the marketing piece and the conversion at the previews.

And we've historically not released those responses and talked about that, but those response rates are typically driven by market and by time of year, and they vary throughout the year.

But we're very optimistic about the response rates that we're seeing and some of the test-marketing pieces that we've -- that we're working on, and so I think things look good.

We hope -- we're always trying to improve.

We have a philosophy here that when you stop testing, you die, and so we're constantly testing and trying to improve upon the cost of putting these people in the seats, and we're constantly trying to improve on our conversions at the previews, as well.

And a question on the Other Income line.

It was up sequentially, up year over year, and up substantially year over year.

Are these revenues divorced from or separate from the revenues -- are all of those revenues separate from the revenues you generate out of the workshop?

Are these aftermarket revenues?

These are revenues that are after the workshop.

One of the reasons why we had such a big increase this period compared to last year was, if you recall, back in August/September timeframe of last year, we made the decision to delay providing leads to our third-party partners or affiliates for a period of about 45 days -- from two weeks up to 45 days, and we were feeling the effects of those through the first two quarters of last year.

But despite that, we've continued to do very well with regards to those revenues and those other products that Brandon was talking about as far as the Tax Club, offering bookkeeping and payroll-type services to our customers, and those revenues are coming through after the workshop.

All of that occurs after the workshop.

Great.

And who is doing your buyback, the stock buyback?

We have a number of firms that are doing it.

Merrill Lynch is the lead, I think.

Okay.

Thank you.

We do have time for one more question today.

Our next question comes from Chuck [Bennett] with Janney Montgomery.

Congratulations on the quarter.

Just two questions really.

First question, who would file a lawsuit against you if they're not a customer?

And the second question is, with your company currently paying about a 4% yield, with the interest rates coming down, would it be out of the realm of possibilities that perhaps you borrow a little money to buy back stock if you need it?

This is Jeff.

I'll answer the first question.

I didn't say non-customers had filed suit against us.

What I said was a large number of non-customers had lodged complaints with the Attorney General.

Many of them when we got the letter simply said, "Hey, there is this dishonest group in your state who is selling here.

You need to investigate them." And I am as confused as you are as why a non-customer would have any concern to contact the Attorney General.

And in regard to your second question, I'll let Rob answer that.

With regards to borrowing money in order to repurchase stock, the Company's evaluating the possibility of taking out what our credit possibilities are.

We're going to evaluate all sources of liquidity at this point, and our capital resources determine what the best use of capital is, but that is something that the Board is investigating and management's looking into.

But right now, obviously -- right now, money is a little bit more difficult to come by and borrow, but we are looking into those.

Excellent.

Thanks.

I'd like to thank everyone again for joining us today on the call.

To reiterate, we have begun the rollout of StoresOnline Express and our new sales model with our newly realigned sales force, and we remain committed and -- to growth of our core business, and we're very excited about all of our prospects going forward.

We believe the positive changes we've made over the last few months will potentially open new sales channel opportunities, thereby increasing our recurring revenue, and we look very much to updating you on our third quarter 2008 conference call in May.

Thank you.

Ladies and gentlemen, that concludes your conference call for today.

We thank you for your participation and ask that you please disconnect your lines at this time.