Steve Mihaylo - CEO Clint Sanderson - COO Jon Erickson - CFO David Krietzberg - CAO Jeff Korn - CLO

Jeff Bash - Private Investor Austin Hopper - AWH Capital Jim Dowling - Jefferies Capital Craig Samuels - Samuels Capital

Good day and welcome to the iMergent Incorporated first quarter 2011 earnings conference call. At this time, I would like to turn the conference over to Mr. Steve Mihaylo, Chief Executive Officer.

Good afternoon, and welcome to the iMergent, Inc. Q1 2011 results conference call. I have Clint Sanderson, our Chief Operating Officer; Jon Erickson, our Chief Financial Officer; David Krietzberg, our Chief Administrative Officer; and Jeff Korn, our Chief Legal Officer on the call with me today. I will first ask Jeff Korn to read our Safe Harbor statement. After that Jon Erickson will provide information on our financial results. I will then have comments on our quarter and our business, after which we will open up the call to questions. Jeff, could you go ahead with the Safe Harbor Statement.

Thank you, Steve. I want to take this opportunity to remind listeners that this call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. All statements made in this conference call other than statements of historical fact are in fact forward-looking statements. Forward-looking statements include but are not limited to words like believe, expect, anticipate, estimate, will, and other similar statements of expectation identifying forward-looking statements. Investors and listeners should be aware that any forward-looking statements are based on assumptions and are subjects to risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission, including the Form 10-K for the fiscal year ended December 31, 2010, and the Forms 10-Q for the period ended March 30, 2011. iMergent, Inc. does not undertake any obligation to publicly update or revise any forward-looking statements, whether as result of new information, future events or any other reason. I'd now like to turn the call back to Steve. Steve?

Thank you, Jeff. At this time, Jon Erickson will you provide information on our financial results for Q1 2011.

I will. Thank you, Steve. This was a challenging and disappointing quarter. On a consolidated basis we had revenue of $14,568,000 compared to $17,094,000 in the prior year quarter. In the prior year we had a one-time benefit of $1 million related to a change in our Avail 24/7 contract compared with the decrease in revenue in the current quarter of $572,000 as a result of new accounting guidance. When adjusting for these two occurrences we had comparable revenue of $15,140,000 in the current quarter compared to $16,094,000 in prior year quarter, a decrease of approximately 6%. The demand for the Switzerland product offering has not been the cause for the decrease in our revenue, as we've generated 316 more buyers this quarter compared to the prior year quarter even though we held 10 less workshops. We had 29% sales rate in our workshops this quarter compared to 27% in the prior year quarter. We believe the unemployment rate and poor economic conditions has increased to demand in our StoresOnline product offering. As we have seen an increase on direct mail response rates, show rates to our workshops and close rates at our workshops. The problem we are facing is that with this increase in demand, comes an increasing customer acquisition cost, which are incurred regardless of whether or not they pay cash for the purchase or they finance the purchase. The acquisition cost for buyers is high in the StoresOnline channel and is driven by a number of customers acquired, which as mentioned earlier increased over the prior quarter by 10%, not necessary by revenue. As a result, what you see in the financials is the cost associated with the increase in gross sales as compared to the prior year, which due to the fact we recognized revenue on a cash basis does not flow through to revenue. So while we believe the unemployment rate and poor economic conditions has increased the demands for the StoresOnline product, a customer's ability to afford and pay for product offering has continued to deteriorate. We have seen a percentage of customers able to pay cash steadily decreased since 2008. We experienced a significant decrease this past fourth quarter to 33%. But given the increase in our response rate and holding steady in our sales rate were able to deal with this decrease and generate positive cash from operations for the quarter. The first quarter of this year saw another significant decrease, down to 29% compared to 39% in the prior year quarter. The customers that we are currently attracting, which produce 29% cash rate have ramifications down the stream as well. Similar to what we are seeing at our events with the low cash rate, our third-party partners have seen similar circumstances. And as a result our commission from these third-party partners decreased $673,000 when compared to the prior year quarter. Despite an increase in leads sent to these partners. Our receivables portfolio saw slight improvement in our collection rates during the quarter, but our default rate remains high. Additionally the success rate of turning a high percentage of these customers into monthly recurring customers has not been high. This strength cannot continue, but expect to become and remain profitable in the future. We need to be able to attract a customer with more financial strength and business strength to be successful, which Steve will address later in his comments. As a result during the first quarter of this year, we had a net loss of $1,851,000 or $0.17 per share compared to income of $123,000 or $0.01 share in the prior year quarter. In regards to Crexendo Web Services, we were able to generate Crexendo revenue of $479,000 compared to $242,000 in the prior year quarter and $400,000 in the prior quarter being the fourth quarter. Total operating expenses increased to $1,149,000 compared to $626,000 in the prior year quarter and $969,000 in the fourth quarter of last year. As we increased our marketing expenses and intends to generate more leads. Our bookings have been increasing each month along with our backlog which now sits at $972,000. One of the positive trends in our Crexendo Web Services division is the percentage of bookings. They are recurring in nature, which currently comprises about 50% of our bookings. The majority of these bookings are from monthly link building products, which have recurring amounts of $1,000 plus per month. Our Crexendo Telecom division was able to complete the development of Phase One of our telecom offering, which we rolled out through StoresOnline preview events starting in February 2011. We had a good initial sales response to this rollout. We're working diligently to improve our activation rates. As part of this offer, we offer two free months of service and a trial period to these customers. During the first quarter of this year that trial period had not been finished. At such we didn't have any meaningful billings in the first quarter, although we expect to have some meaningful billings in the second quarter of this year. From a cash flow perspective, during the three months ended March 31, 2011, we used $3.3 million in cash for operating activities, primarily as a result of the low cash percentage and the events throughout the quarter. With that, I will turn the time back over to Steve.

Thank you, Jon. Some of my remarks today are going to be a little redundant. With Jon's that I'm going to add some additional color here and then we'll open it up for questions. The StoresOnline division continues to struggle. We are very disappointed with the results. We are facing the same problems that we have discussed in previous quarters and that we have been addressing for several quarters. The market served by the StoresOnline divisions, the B-to-C customer continues to be hard hit by economic conditions. While the general economy is improving and our gross sales have actually increased, the B-to-C market we have historically served the saddle with a very high unemployment rate, general difficulty in accessing credit, increasing pessimism and increasing cost of living expenses that have negatively affected our cash flow. We believe that has created the low cash rates that Jon discussed, and the continued extremely high default rates on financing. These trends cannot continue. The company isn't profitable in the current model with these issues and we are not cash flow positive with excessive default rates. In addition to this, we continue to have a hard time getting StoresOnline customers to host for over twelve months. While that is not surprising, considering the high default rate where startup businesses in general. It is nonetheless disappointing and is striking in comparison to our Crexendo customers, which are generally stable existing businesses. StoresOnline also appears to be facing increasing competition in the direct sales market. In some of our best markets, there is direct competition to our customers, which appears to include more aggressive advertising. And we feel is prudent and appropriate. The StoresOnline model has historically faced extremely high customer acquisition cost, which is exacerbated by our hike direct mail expenses. This trend is continuing and we are working towards substantial improvement in this metric. These results are particularly disappointing compared with our Crexendo division where our customers are paying us in for and are extremely sticky. Our Crexendo customers are highly satisfied and are often our best referrals. As you know, our satisfaction rate in the StoresOnline division is not nearly as high and is prone to complaints and legal problems. As a matter of fact, as the economic conditions in the B-to-C market have deteriorated, we have seen an increase in non-specific and we believe non-meritorious complaints. Our StoresOnline team has been working to address these issues. We have tested a number of concepts including a scaled-down offer that puts emphasis on training prior to building a webstore. In this higher touch sale we continually have our customer service agents, walk our customers through the process of building their stores. We have also tested one event sale to drive sales cost down. We are thoroughly reviewing the results of our basic model and the results of the test that we have undertaken. It has become clear that what we have been doing is not working to our satisfaction and to the benefit of our shareholders. So I believe further changes are necessary. We should have the results of all of these tests fully analyzed and modeled within the month, so that we can make the necessary adjustments better in the best long-term interest of our shareholders and our business. On the Crexendo enterprise web marketing services and telecom services side of our business, we continue to be encouraged by the progress that we have made. As I discussed, our Crexendo customers are highly satisfied and the trends with our Crexendo divisions have been positive. In the Crexendo Web Services division our bookings and backlog continue to increase. And we are particularly encouraged by the trend of increasing revenue quarter-over-quarter as well as the high quality of customers we have been attracting. Our Crexendo Network Services division has started selling our telecom product as discussed previously and we have started with controlled rollout in Q1 2011, as we review our system staff and capability. The results are very promising and we are very proud of the quality of the service offered in our support. We have customers in 15 states and we are very pleased by the reaction from our customers. We continue the development of additional services, which we believe are necessary to make us fully competitive in the enterprise market. I am proud to say that the quality of our services to the point where I am confidently talking to all of you today using the Crexendo Network Services telecom service. We are fully aware of the challenges we face. We also are aware of where the business needs to go. It is for that reason we have recommended to shareholders that we change the name of the company to Crexendo Inc. to demonstrate the breadth and quality of services we are offering. I encourage all of you and shareholders to support us in approving the name change. I believe our team is ready for the challenge we are facing. And I'm also confident we will make the necessary changes to the StoresOnline model to make it a continued viable part of our business, while continuing to drive sales, service and support cost down in the Crexendo division. I will now open the call to questions.

(Operator Instructions) We'll go first to a Private Investor, Jeff Bash. Jeff Bash - Private Investor: I guess I have a couple of questions. This quarter seems to be significantly worse and immediately preceding one. Could you identify what are the key factors that within one quarter's spell that things deteriorated as much as they did?

Well there is several factors, but three of those factors are: number one, January, we practically don't have any events at all. So January has very little sales. The other factors include a much lower percentage of cash buyers, as Jon Erickson pointed out. Jeff Bash - Private Investor: Yes, 29 versus 33.

That's correct. But it's also lower than it's been in previous quarters and then of course the default rate. And Jon, would you like to add any more color to that.

Yes, and I'll speak specifically from a cash flow perspective. What you experience in, in the fourth quarter from the cash flow perspective is we shutdown events towards the end of December and we don't start events until the end of January. And so there is not a lot of cash flow going out the door in December related to January type of events. Well what happens in Q1 is we have to make up for that, so you have a lot of cash going out the door in January, for February, March and even April events, because there is no slowdown towards the end of the quarter. And so you're accelerating a lot of expenses. If you look on our cash for statement, prepaid expenses went up. Accounts payable balance went down from a cash flow perspective. But you don't get the luxury of slowing down towards the end of the quarter like we do at Q4 and like we do at Q2, which dramatically impacts our cash flow. The other significant impact on cash flow was the cash percentage as well as the $673,000 decrease in revenue from our third parties, which essentially has no cost to it. It's free cash coming in without any cost. And so that dramatically decreased by $673,000 due to really to the same reasons that we saw that the customers that we were selling and not able to get cash from, as we send those leads to these third-party partners. The customers didn't have sufficient funds to purchase from it either. So it really was kind of just a rolling effective of the amount of cash that our customers had that we saw on this quarter. It was not good. Jeff Bash - Private Investor: Next, is it only way to pre-qualify the customers that you send out mailings to in someway. Either working with a customer database is where the customers are better heeled by the nature of the database or getting some kind of simple credit check. I'm really not familiar with this area, but it seems to me that those are two things I would think of?

Jeff, let me answer that then I'm going to have Clint Sanderson give you a little bit more color. As I said in my comments, we're currently analyzing all of those metrics in our direct mail marketing endeavors here. One of the things we're doing is we're going through the last four years zip code by zip code to see where we've had the best results across the nation. It's a massive amount of data and we're approximately half or two-thirds of the way through analyzing that. But it's still going to take a couple of more weeks here to get the final results. We've already made our buyers and our mailers for the next five or six weeks. So this can't even take effect until probably the middle of June or the end of June. Once it does, we'll be mailing into locations where we know we get better results, where we have higher credit scores, we have better customer potential. Once that's done it will not only drive our cost down, because we won't be sending out as many mailers. But it will also be hopefully attracting better prospects. And we'll let Clint talk about that. He also going to talk about some of the other things we're doing, which is one sales event, so that we drive our sales and travel cost down. Clint can you takeover please?

So on the data side, Jeff, the only thing I would add to what Steve has said is, historically we've modeled our data to always do our best. To identify those buyers we think would be most qualified or those prospects that would be most qualified for our product. And that's probably more of an art than a science in many respects. But what we've found and what's happened in quarter one is with the recession we've seen swings in markets as far as how people respond, but more importantly how people purchased their ability to purchase with cash is there are far greater gaps in markets now than we've ever seen in our history. And so what Steve's talking about and what we're analyzing with our data, because of those swings in geography is remodeling by zip code. To identify those zip codes where hopefully we can find those prospects that are more qualified and that are more able or capable of using cash to purchase our products and services. So that's the data modeling side of what we're doing right now. And now also that Steve talked about, that it will be done in about a month. On the model side itself, changes we're making in the data model. We've moved to software as a service model throughout. We did that last year and we're continuing to change the model, so that we can get our preview attendees at our events. And have focus more on those attendees actually using our software and services. And again, the whole focus there is to get far more people hosting on our platform and generating that recurring revenue. Secondarily is then the up sale making that up sale, whether it's in a event, and Steve mentioned one event, while the one event would be a preview. We're testing, do we need a second live event, can we do that via webinar, are there other ways to accomplish that instead of or in place of a full-day workshop. And so those are what we're testing right now and should have results on that in the next couple of months as well. Jeff Bash - Private Investor: And I have one question. I have a couple questions about Crexendo. The fourth quarter sales were 400 and they went to 479 this quarter and the backlog was 964 and now the backlog is 972. I wouldn't call this a dramatic growth, particularly and due to the fact that I think you set a quarter or so though that you're having a bunch of new sales people. Could you comment on that? And then the second question related to Crexendo business. Do you think you can build the business around this telecom offering? I know that this has the potential to really be a dramatic success or could you scale out some for me please?

First of all, the holidays in both quarters have a big impact on the backlog. Also when the higher sales people take some a while to get up and running, and some of them don't ever make the grade at all and you have to change them out for other sales peoples. This was the same thing we experienced in my former business, which we had well in excessive 200 to 300 sales people. So what we're seeing is very similar to what we have there. It takes a while to build a staff, but we're continuing that process and we'll be having more sales people this quarter and in following quarters. As far as the telecom divisions goes, we have a very large backlog of telecom sales already in the form of individuals that we saw it in our sales events around the country. One of the reasons for the backlog is, it takes a while to get these folks activated and a lot of them prefer to wait until they've got their website up and running. So we're working, as Clint said, more diligently to make sure that they get their website up and running, because once they do that they'll also activate their telecom. But we're testing several things to make sure that we do everything possible to get their telecom activated, even if their website isn't activated. We're also doing some engineering things to integrate the web platform with the telecom platform. We just started selling in a very limited beta test to enterprise customers. We felt we need a few more whistles and bells. But we closed our first sale and it's already up and running and the customers are very happy with it. I'm actually talking to over our telecom service. It's basically a digital telephone service. And you can see that it's a very clear and good service. There is no interruption or loss packet or any of that stuff. We've taken quite of bit of hard design decisions here, to make sure that the network is very, very reliable. We'll also start selling network services in the form of bandwidth to our enterprise customers. This was about an $80 million or $90 million business in my former company. So a lot of the same people that are running our telecom division will be running our network services divisions. And I'm really quite encouraged, Jeff, it's just that making the transition into B-to-B when we were solely B-to-C is not an easy thing. Plus we've had over a two-year design cycle on our network service, our digital telephone services. So it takes a while. We've had to design billing software, order software, fulfillment software. And we're doing the same thing on our network services broadband side. But these things are starting to come together, it's a little bit slower than I would have liked. But I am encouraged. John, do you want to add anything about the backlog.

From the network service side, yes. While we roll down the first quarter it's basically a bundled to offer to preview. So when they purchase from a set of preview, they not only get two months of hosting of our software platform attendance at a workshop, but they also get a telephone adaptor as well as two free months of service. And we've sold several thousand of them this month. The challenge hasn't been in selling them. As Steve mentioned, it's been in actually getting them to activate. And so we've been working just diligently to get it activated, we've activated a little bit over 600 so far in the first quarter and we have several thousand more in the pipeline that we are trying to get to activate. But it's coming along and we continue to grow that pipeline and we continue to get activations everyday of the week, it's just a matter of dialing in what works to get them to activate. And that's what we're trying to figure out.

The other thing, Jeff, had actually asked about, the web services.

On the web services backlog, our bookings have been growing every month. We had a top-booking month in April of this year, which actually can close to doubling any month. We've had previously market investment. It started to payoff. And the sales people are starting to get better at. So we're actually really encouraged with the bookings and the trajectory of the booking that we're having. And you'll see it start to flow through the backlog probably even more, more sale in Q2 of this year. The most encouraging part about the bookings that we're having in a Crexendo is the nature of the bookings and that they are recurring. And they're creating a significant recurring base for us, which allow us to be profitable on a go forward basis, when we get the booking up high. Jeff Bash - Private Investor: Would you think that the 12 months hosting that you have will also affect the telecom persistence as well?

Or do you mean the activation, Jeff? Jeff Bash - Private Investor: No. How long it persist, because you said earlier that you have been trouble getting people to host for more than 12 months?

That's not true of businesses. As I pointed out in my comments, our businesses have been very, very sticky. Jeff Bash - Private Investor: I understand that, but you said before that you seem to be signing this as workshops too?

I see what you're saying. On the B-to-C side for telecom, that will by it's nature will be stickier than the hosted websites. And I tell you why. If you have a telephone in you house, you're currently paying X for it, let's say $40, $50 a month, we can provide you with telephone service for a substantial savings. So that's one reason of why it's a stickier product. We are also giving you the ability to have access to your telephone number at home, on a mobile device, that app will be available probably in the next six or seven weeks. We are actually alpha-testing it now. So on your cell phone, you can have an app that works over the 3G or the 4G network that allows you to get all your calls from your home phone when you're out and about. For instance, the phone I am sitting at right now has three different area codes and different numbers on it. I have my office number on it, which is an 801 area code. I have my office in Reno, Nevada, which is a 775 area code. And I have my office in Phoenix, which is a 602 area code, all appearing on the same phone. And it appears that way in my office, my office in Reno and my office in Phoenix. So I never ever miss a call. I will also have the ability to have those phone numbers appear on my mobile device, my iPhone, my Touch Blackberry or my Google Android device. So it gives you a much greater flexibility, especially with small B-to-C customers that have a small web store and they need to be doing all sorts of different things and they can't be glued to their phone. However, if they have a mobile device, when that application is available, that will give them even greater functionality and flexibility. So I expect the telecom services especially to be extremely sticky in both of our divisions, in our consumer division, the B-to-C, and also the enterprise division. And also I am hopeful once we have the ability to merge these two technologies to help on the hosting side for our hosted web services as well. So it's a little early in the process, but the initial results are encouraging.

Can I just add one more comment to that, Steve?

Yes, of course.

Jeff, one of the reasons we believe in the StoresOnline channel, the hosted telecom product will be more sticky is because it's actually being presented as a replacement for the residential phone. In other words, we're going to port their existing home phone number. And that's being presented as a significant cost savings. I personally installed it in my house. I was paying Quest between $110 and $120 a month. Plus, my bill for high-speed, which is $60. I'm saving $40 to $50 a month now and I have the phone. So when we're replacing their residential phone as it is and keeping their residential number, we feel that will make them a more sticky customer.

(Operator Instructions) We'll now go to Austin Hopper with AWH Capital. Austin Hopper - AWH Capital: I was hoping you could elaborate or provide some additional color on the competitive pressures you're seeing on StoresOnline. Is it literally other players in the similar type space or how would you describe it?

What we've seen is we've seen competitors and we're not aware the names of these competitors, because they don't put their names on their mailer the way we do. But we've seen competitors using the same method of sending out mailers and inviting people to seminars in certain markets. And the way we became aware of it is customers of ours and some of the regulatory bodies thought it was our mailer. And that's how we became aware of it. Clint, perhaps you'd like to add some more background information to that.

When I became aware of it was I was contacted by at least representatives from two offices of Attorney General who thought we were (negging) on obligations we had and the matter in which we conduct business by placing our name clearly on the mailers and by making certain disclosures, which were not in there. And I assured both of them who called my office that those were not our mailers and I don't what they have done since they did not provide us a copy and we had not received a copy from any of our customers. But we know of at least in two states that happening and we were reported of it, as Steve mentioned, from customers in other states.

One of the things we're doing, Austin, that's going to improve that is if we go to a single event where we sell them training and we either have a training event after that within a few days or a training webinars that will be live and allow them to go step-by-step. We're also working on the interface to use our interface for our web services. This is software release 7, and it should be available by the middle or end of June. So all of these things are improving the stickiness of our customers, and it should drive down the complaint rate to near zero over time, which will also improve viability of that channel. Austin Hopper - AWH Capital: I can't understand the difficulty that you are having in your StoresOnline business. I mean repeatedly you've mentioned difficulties in the economy and that impacting the business, maybe its resulting in lower cash rates. We talked to a lot companies across a spectrum within the economy in wider areas. Things are kind of leveled off or improved somewhat. How do you know it's the economy? Couldn't it just as easily be that your business and your product offering has lot relevant kind of in the face of the hundreds and hundreds of services online, or you can avoid a seminar setting and set up a website and web business? How do you know it's the economy now just that your products, your services is kind of losing relevance?

I don't think its losing relevance. I'll tell you why. There is probably somewhere in the neighborhood of 600 million or 700 million websites out there and of those 600 million or 700 million websites only about 4% or 5% of them are getting mines share of all of the e-commerce worldwide. So that itself is a reason why the relevance here of what we are doing is very, very germane in this day and age. Austin Hopper - AWH Capital: I am not saying that the web is irrelevant or people aren't inclined to internet anymore. But if I go to one of your obsessions and learn what it's going to cost me to get a site online versus going to any number of hundreds or hundreds of sites on the internet that offer, in my estimation, a very similar service for a price point that looks to be substantially below that, I guess it's one of a pricing relevance as opposed to the relevance of the internet.

Austin, just let me continue, if you will, please. We have got two different kinds of customers here. We've got established enterprises, which our Crexendo enterprise web marketing services division handles. Then we have small and home offices. These are folks that may not have a website, but they are spending money currently for some sort of advertising and they could use a website. We're starting to identify them. We're doing co-branded events with one bank, and we're working with another one. We're also attending trade shows where we're going to certain verticals like florists and plumbers and things like that. We're having a very good success there. The only area that we're struggling in is the pure consumer that may want to have a website, may want to start a small business. Now the obvious market for that is people that are unemployed. As you know, unemployment actually spiked up this last month from 8.8% to 9%, and it's been stubbornly high by historical guidelines or historical reference. That's the area where we're struggling. And as Clint pointed and I pointed out, we're making some serious adjustments for analyzing all of our data for the last couple of years. We're looking for better credits and better neighborhoods which will drive our marketing costs down and should attract better customers or better prospects. But I sincerely believe that the relevance here of what we're doing is not the issue here. It is exactly what we think it is, and that's the unemployment rate. There is still a lot of pessimism out there. There is still a big problem accessing credit and the fact that people will eat and put shoes on their kids' feet before they're going to pay for something like a website is probably part of the reason. So what we're doing is, is we're driving our costs down, but we're also driving the sales price of what we have down, and we're training and we will get these people hosted through a more intense training program. And we can do it relatively inexpensive by doing it in webinars and that sort of thing and by charging them on a monthly basis instead of trying to sell them a $3,000 or $6,000 package. The monthly spend can be as little as $75 to $100 a month, which includes the web hosting, the training and a telephone service. So it's not much of a stretch for them to do that, and that will allow us anywhere from $600 to $1000 a year in recurring revenue as opposed to one-time sales revenue. Austin Hopper - AWH Capital: You conducted a share tender last year and bought a lot of stock back. You had some very, very difficult results, especially in this quarter, and I am just wondering from a long-wind perspective, is it, "Gee! Cash is becoming increasingly precious. So it's just not something that we can do. So the results have been so bad." Presumably worse than you expected. I can't imagine you spent so much money in your own stock, you need a business that's going to look like this. Is the buyback kind of dead for a while?

Well, we still have a buyback in place, and we do it based on the circumstances at the time. If we were to do another tender that would take Board approval, and we haven't discussed that with our Board, so it's probably not a good idea to speculate where the Board is. But I can tell you this. I have been a buyer of the stock ever since I came into the company. I know own above 3.7 million shares of the stock. And depending on where the stock is and the liquidity in the stock, I personally will probably continue to buy shares of this company, because I believe in what we're doing. I know we had some of the same issues in my previous business and these things take a little bit of time. But I am just as optimistic, probably more so now because I see the potential of what we can do with our telecom services. We still have a lot of work to do and making the transition from a B-to-C company to a B-to-B company is not an easy thing, sort of like threading a needle in a hurricane. So you can appreciate how hard it is, but we're getting traction. We're seeing good and positive results from the customers that have these new services. We're getting bigger customers. We've posted some very large companies on our Crexendo enterprise web services side of the business. We're starting to get some good co-branding opportunities with other businesses that deal with B-to-B customers that they want to offer additional services to their customers. I know it's not a question of 'if'; it's a question of 'when'. I am encouraged by the fact that this quarter our cash flow should be probably neutral, either slightly positive or slightly negative, but nothing like you saw in the first quarter. Maybe you could comment a little bit about cash flow, John, if you would.

From a cash flow perspective for this quarter, again it's a month end. But what we're seeing, specifically from the StoresOnline perspective, our cash percent at event has gone up in April. And if we continue on the trend where we have been at in April on the first week of May, I would expect that you wouldn't see a decrease in cash for the quarter. But it's still too much locked in the quarter. But right now, the trending in April in the first week of May has been much better than it was in the first quarter of this year.

The other thing is we will continue to drive down our marketing expense and other related expenses. For putting mailers out of lower rate, because we're only going into zip codes where we know we've had success over the last four years. That automatically drives the cost of marketing down. We don't know exactly by how much, but I think it will be substantial. We're also getting a better utilization out of our sales teams. We're going to transition some of our salespeople into the Crexendo division. So there is a lot of positive things going on here, but it's not something that's easy or will be easy. And I pointed this out on previous quarterly conference calls.

(Operator Instructions) We will now take our next question from Mr. Jim Dowling with Jefferies Capital. Jim Dowling - Jefferies Capital: What I'd like you to do to the degree you feel comfortable is to try to translate your enthusiasm on the ultimate B-to-B business model as the company goes from one to the other. Is this the $25 million business? Is it $50 million? Is it $250 million? What is it and what kind of financial metrics are we talking about?

First of all, we have the potential for mostly our recurring revenue model here, quite a bit north of 50%. As John pointed out, our recurring revenue in the Crexendo division was a little bit over 50%. As we get more hosting revenue in there, more network services and more digital telephone services in the mix, this will become even greater than 50%. The thing I like about this business over my previous business, and we were doing over $450 million a year in revenue in the previous business, but we were selling telephone systems to businesses. In this business, it's services that we're selling. We can sell the trunk lines, the internet service and the web services to businesses and we get paid on a monthly basis. So you're not selling a big chunk of hardware that has to be financed or something like that. The revenue is sticky and it's recurring. Now we can also sell the phones, but the switching gear is shared in a datacenter. So that automatically drives the cost down. Every single business out there could use our digital trunk services and our internet services and our web services. On the consumer side, it's more of a training proposition, and we teach people how to use the tools properly and how to get a little supplemental income or in some cases actually wind up with a small business. I think this company can be bigger than the previous company. I'm not in a position right now to tell you when I think that will occur, but I think that we have a very good opportunity here. The way we are going about marketing, our products on the enterprise side, we very seldom run into competition, especially when we're co-branding with these industry vertical conferences or with partners like banks and insurance companies and so on, virtually no competition. And every single company out there is interested. It's usually just a timing issue if they don't sign with us when we make our presentation.

We'll now take our next question from Craig Samuels with Samuels Capital. Craig Samuels - Samuels Capital: How many sales guys do you presently have for Crexendo?

In Crexendo, I think we've got 12 or 14. Craig Samuels - Samuels Capital: Are you tracking the plan there or ahead or behind?

We're about where we expected to be. Unfortunately we've got a couple that are on the bubble. So we're going to have to replace them. I'd like to be able to add at least five or 10 per quarter. So that by the end of the year, I'd like to have at least 30 or 35 producing salespeople. Craig Samuels - Samuels Capital: What's been the average revenue for these guys?

It's growing. It's currently at about $40,000 per month, but it's tracking upward from that. Our best sales guys are doing right around $90,000 or $100,000 per month.

In bookings, not in revenue. Craig Samuels - Samuels Capital: I was going to say then the others must be doing zero or negative.

No, there is a lag. If you sell $90,000 worth, it's usually over a six or 12-month period that the revenue is collected. Craig Samuels - Samuels Capital: What's been the largest sale to date?

I think the largest single sale in just web services, it did not include telecom or internet, was about $80,000 or $90,000. Is that right, Clint?

Yes, $90,000 in April. And it's actually an 18-month contract for link building services. Craig Samuels - Samuels Capital: And that's to a company that's about how large?

I believe the company's revenue is probably in the $30 million range. Craig Samuels - Samuels Capital: When do you guys go up the food chain and attack corporations with revenue?

We are already doing that. One of our salespeople that came out of my former business just started with the company two weeks ago, and he is already contacting much larger customers and prospects. Craig Samuels - Samuels Capital: How many customers?

We have about 100,000 active customers. Craig Samuels - Samuels Capital: And is anybody currently pursuing that list?

We will be. Craig Samuels - Samuels Capital: What are you waiting for?

We are not waiting for anything, but I wanted to have a full product offering before I went out there. We won't have our network services up and running for at least another couple of months. But as soon as we've got all of our telecom products and network services and the web services, we are going to attack that customer base with a vengeance. Craig Samuels - Samuels Capital: Are there any opportunities for you guys to partner? These may be extreme examples with the likes of Googles, Amazons, eBays, Facebooks?

I don't think they're the natural partners for us. I think a natural partner would be someone like a bank that has business customers and they want to offer their customers more services. Craig Samuels - Samuels Capital: I am talking about on the B-to-C side.

Banks are a much better natural insurance companies, brokerage companies, because they handle both businesses and consumers. And we can stratify their customer base, offer them services that we share. We pay them a commission. Plus, it drives services to them in the form of merchant services, credit card services and so on. Craig Samuels - Samuels Capital: So if that's a logical partner, are you in discussions with anyone now?

Yes, we're in discussion with actually four banks currently. Craig Samuels - Samuels Capital: Talking about banks and talking about large national money centers or small local?

Small to large. Craig Samuels - Samuels Capital: As far as cash breakeven, where are you now on a quarterly basis?

The current quarter?

Is that from a Crexendo perspective? Craig Samuels - Samuels Capital: No, just overall company-wide.

Well, as I said, I expect this quarter to be up a little or down a little. It's going to be much improved over the last quarter, because we're driving marketing expenses down, we're driving headcount expenses down and productivity up. But some of these changes won't occur until the third quarter. But we'll make the bulk of the changes this quarter. Craig Samuels - Samuels Capital: So basically in last few years, you are kind of stuck in the $10 million or $11 million revenue area?

I think it's premature to speculate. Craig Samuels - Samuels Capital: What are the offerings you will be introducing in Q2, Q3 that can further drive revenue and/or make the bundled offering more attractive to prospective customers?

We'll have broadband services by Q3, and the average business is spending anywhere from $1,000 to $10,000 a month for broadband services. We'll have our telecom offering available at the enterprise level. But a lot of this is driven by The Street on the B-to-B side. On the consumer side, the StoresOnline side is driven by marketing. Craig Samuels - Samuels Capital: Is there any competitive edge to your offering or basically you're selling commoditized products?

We're the only ones that you can get it from a single source, and that makes it a lot more convenient for the customer. Instead of having to deal with three or four different vendors, they deal with one vendor and a singe bill, a single customer service representative.

What makes us unique on the web services side is we are not only providing commoditized SEO services or a website, one of our differential advantages is the training suite that we have. And this is our message to our potential customers is, "It does not matter if you have a website. You have to market it. So you can market it using our services. We will do it for you. Or the option that customers take is start in our training programs to learn how to do it." So once you build the site, you not only build a site, but you also have the knowledge and the capability to promote the site. Craig Samuels - Samuels Capital: So net-net, I think overall you guys were expecting your business to be significantly stronger. It continues to stall, right?

I won't call it stalled. It's in transition. We have had some difficulties in the StoresOnline division, but this is nothing new. We've talked about that through the last couple of quarters. Craig Samuels - Samuels Capital: But ultimately if you are trying to get it from a B-to-C to B-to-B, you got to replace $40 million worth of StoresOnline revenue ultimately?

We'll still have a StoresOnline division. It's going to be a lower sale, but it's going to have a lower cost structure also. And we believe it will be stickier. Craig Samuels - Samuels Capital: When you were modeling Crexendo six, nine and 12 months ago, would you have expected it to be overall corporate revenue higher than today or is that tracking at or below?

It's a little bit below expectations, but it's partly because it's taken us a little longer to get our telecom products up and running. Craig Samuels - Samuels Capital: I know you consider telecom to be a significantly large opportunity. Anything under development that could be similarly large forthcoming, under development behind closed doors?

We're just now starting to sell the telecom products on the enterprise side. So that's just coming out of development. We are selling it in the consumer side, because it's a plain-jane vanilla product, but it will still have greater flexibility than just about everything out there and especially greater flexibility than whatever they currently have from Verizon, AT&T or Quest or one of the cable companies. But on the enterprise side, you have to have a few more whistles and bells. And we'll have the products and the whistles and bells necessary here in the next six or eight weeks. I would suspect that we'll be able to start selling enterprise in a much more aggressive manner by the end of this quarter, the current quarter. Craig Samuels - Samuels Capital: I didn't hear anything about Asia, India in particular, any progress there?

Yes, we are making progress there. Perhaps, Clint, you'd like to talk about that.

Yes, our partner in India, we're just on the brink of launching the website and proactively going to their base with our services there. So the website is almost complete and their sales teams are being trained right now to take this offer to their customer base. Craig Samuels - Samuels Capital: What about in other Asian countries? In China, English translation is a challenge, but other places like the Philippians where English is pretty prevalent, have you guys been exploring any opportunities in any other countries where English is widely spoken?

We're not exploring other opportunities in other countries. And the reason we're not is we don't want to dilute our efforts in the most developed market in the world, the United States. Once we start to get proper traction and things are paving their way and making a profit, then we'll look at other countries. India, we already have the relationship and we're nurturing that opportunity, and it's starting to get there. That has great potential, but the prices that we're able to charge in that market are substantially less than what they are in the U.S. Craig Samuels - Samuels Capital: What's it going to take to turn your negative commentary back to more positive discussion? I know that you're kind of an eternal optimist and I am a optimist. That's the message. We've had this discussion before, right?

Yes, we have. Craig Samuels - Samuels Capital: What can investors look for from you to feel a bit better?

We're actually going to show you the number of hosted customers we have starting with our second quarter results. Now you have to remember that it's going to be a small number, because it will be the first time we've ever done that. But you'll be able to start marveling the ramp and that will give you a better visibility into what the future looks like. But all of this, like I said, it's like threading a needle in a hurricane. I know personally and maybe I am a very optimistic person, but you certainly wouldn't want a pessimist running your business for you. But I know that the potential is great. I'm going to continue to take advantage of dips in the stock. Obviously I can't do anything for 48 hours because of our blackout period. But I continue to put my money where my mouth is, plain and simple.

We'll now take a follow-up question from Private Investor, Jeff Bash. Jeff Bash - Private Investor: When you first came on Board, you talked a fair amount about VARs, hoping you'd sell the product. And now it seems that the focus is more on the direct sales force. Given that the telecom offering by itself seems to be so compelling, wouldn't that be something that will be a natural product for the VARs that used to sell for, let's say, your product strength to go into the marketplace and penetrate much more rapidly than we might get 15 sales person or 30 sales person direct sales force could deliver, at least in the terms of short-term progress?

Well, that's certainly a good observation. We are going to be looking at what I would call a reseller program. In fact, this afternoon I'm actually meeting with some individuals to talk about just that. So no question about it; that's a good opportunity for us and we'll be exploring that that. But we are not quite ready yet as far as the robustness of the product on the enterprise side. We can probably do it. If we're just replacing our company's trunk lines, but when we start replacing their telephones and their desktops, that's going take a little bit greater capability than what we currently have. And that probably won't occur until the third quarter or maybe even the fourth quarter that we can start adding VARs. And once we get the telecom VARs, I am confident that over time we'll get folks selling the web services or at least we'll get some co-branding opportunities where we sell it and we pay them a commission.

It appears there are no further questions at this time. Mr. Mihaylo, I'd like to turn the conference back over to you for any additional or closing remarks.

Well, this has been one of the longest calls we've had. It's about an hour and sixteen minutes according to my timer on my phone. I appreciate everyone's interest in the company. I appreciate your support. And we look forward to talking to you after the second quarter. Thank you and good day.

This does conclude today's conference call. Thank you for your participation.