Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (09-08-11 02:55 AM)

Description

Crexendo. CEO, 10% Owner STEVEN G MIHAYLO bought 100000 shares on 9-07-2011 at $ 4

BUSINESS OVERVIEW

OVERVIEW

We provide a variety of cloud-based infrastructure services to entrepreneurs and small and medium-sized businesses. Our services include high-quality voice and messaging services over broadband networks, Do-It-For-Me and Do-It-Yourself content management and website building tools, online marketing, online lead generation, e-commerce technology, and training solutions that enable entrepreneurs and small and medium–sized businesses to build and maintain an effective online presence. Our services are designed to help increase the predictability of success for online businesses.

Our primary web service offerings are designed to meet the needs of entrepreneurs and small and medium-sized businesses anywhere along their lifecycles. Our Do-It-Yourself package includes our robust content management and website building solution, fully enabled e-commerce package, online marketing tools, and educational training modules. In addition to our primary service offerings for the Do-It-Yourself customer base, we also offer a variety of premium services to the Do-It-Yourself customer such as initial site design and build, logo design, drop-shipper/supplier integration, and a variety of search engine optimization and link building packages.

Our Do-It-For-Me services are comprehensive and flexible, allowing us to meet the needs of a wide variety of customers ranging from those just establishing their online presence to those wanting to enhance their existing online presence. These services include custom website design and development, search engine optimization, link building, conversion rate optimization, paid search management, and social media management. Additionally, as the online space continues to evolve our product and service offerings will continue to evolve, to keep our customers on the cutting edge of the online space.

In addition to web services, we offer a suite of high quality voice and messaging services over broadband networks. Our small and home office services are portable and allow our customers to make and receive phone calls almost anywhere a broadband Internet connection is available. We transmit these calls using Voice over Internet Protocol (VoIP) technology, which converts voice signals into digital data packets for transmission over the Internet. At a cost effective rate, each of our calling plans provides a number of basic features typically offered by traditional telephone service providers, plus a wide range of enhanced features that we believe offer an attractive value proposition to our customers.

We rely heavily on our network, which is a flexible, scalable Session Initiation Protocol (SIP) based VoIP network that rides on top of the Internet. This platform enables a user via a single “identity” to access and utilize services and features regardless of how they are connected to the Internet. As a result, with one identity, either a number or user name, customers have access to Crexendo voice, messaging, features, and personal profile information regardless of location, device, or how they access the Internet.

OUR STRATEGY

We have historically sold our content management and website building tool as a perpetual software license. During the fourth quarter of 2010 we transitioned approximately 80% of our sales from selling a perpetual software license to a Software as a Service (SaaS) model. This transition provides the foundation for our strategy on a go forward basis. Key elements of our strategy include:

Expanding Our Distribution Channels. To sell our web and hosted telecom products and services cost effectively, we must expand our distribution channels. We have historically sold our web services through an educational seminar format, which relies on direct mail marketing campaigns to attract attendees. We plan to expand our distribution channels through affiliate programs, white-label programs, strategic marketing partnerships, direct sales, and online marketing channels. We anticipate these expanded distribution channels will provide multiple revenue streams from customers across a broader spectrum. We expect Do-It-Yourself customers acquired through these new distribution channels to provide significant opportunities for up-selling and cross-selling additional online marketing, lead generation, search engine optimization and hosted telecom products.

Continuing to Target the Entrepreneur and Small and Medium-Sized Business Market Segment. We believe the entrepreneur and small and medium-sized business market segment offers us the best opportunity for future growth. We believe this is a largely underserved market with significant needs for comprehensive, affordable, and scalable solutions for their web and telecom service requirements. Our services are designed to be scalable so as to meet the needs of these businesses that often times do not have the time, resources, or technical skills to fulfill themselves.

Strengthening Customer Retention. We are dedicated to enhancing customer retention and building lasting relationships with our customers. We believe a critical element in strengthening customer retention is continuous improvement to our content management and web-building tools, including improvements to our user interface to create a more intuitive and interactive experience. We believe education is a critical element to customer retention. One of the core features of our product offering is the continuous education we provide our customers on how to identify opportunities in the marketplace, how to effectively design their website for optimal conversion, and how to market their website to increase traffic. We are constantly updating and expanding our education offerings to meet the needs of our customer base in this dynamic marketplace and expect to continue to expand and diversify our educational offerings to provide up-to-date and relevant content.

Developing Complimentary Services and Technologies. We seek to develop complimentary products and services for our customers. Our ultimate goal is to become the leading provider of hosted solutions in the entrepreneur and small and medium-sized business space. We currently provide web services, hosting services, online marketing services and hosted telecom services. We expect to expand our product offerings in the future to include bandwidth services, premium telecom services such as operator services, conferencing services, call center services, and mobile features for both our web platform and telecom service. Additionally, we plan to expand our educational offerings to not only include education on online marketing, but education on entrepreneurship and small business management.

OUR SERVICES AND PRODUCTS

Our goal is to provide a broad range of cloud-based products and services that enable entrepreneurs, and small and medium-sized businesses to more efficiently run their business. By providing a variety of comprehensive and scalable solutions, we are to able sell customers regardless of where they are in the business lifecycle. Our Web and Telecom products and services can be categorized in the following offerings:

Website Design and Development

Using our proprietary software and processes we design and develop websites with “conversion” in mind. The term conversion means different things to different websites. To a lead-generation website, it means getting prospects to submit their contact information so our sales team can contact them. For an e-commerce website, conversion means getting an online customer to complete an order.

Our website design packages range from a semi-custom template based design package to a completely custom design package. We incorporate Google Analytics into every site unless the customer specifies some other system. Proper analytics allow identification of weak spots in the conversion process. Once weak spots are identified, the site can be adjusted to smooth out the process and turn more prospects into customers.

Once the site is complete, we provide tutorials and tools to allow customers to make changes to their sites as often as necessary without having to pay additional programming fees. Alternatively, customers can elect to have us manage the changes to their websites for an additional fee.

Search Engine Optimization

There are two general aspects to Search Engine Optimization (“SEO”). First, the tactical level, which includes conditioning a page to be relevant and search-engine friendly. Second, strategic selection of keywords and keyword phrases. The popularity of a site plays a role in what keyword phrases a customer can compete on versus what keyword phrases might be ‘out of their league’. We focus on the strategic selection of keywords and only go after keywords that have healthy search volumes and high ‘win’ capability. Our experience coupled with our proprietary rSAT software allow us to strategically select the best choices for keyword phrases to target which provide the highest probability of getting high search engine positions and drawing maximum traffic to the website. Our SEO packages include a keyword interview, strategic keyword research, baseline ranking report, search engine optimization plan, and comparison ranking report.

Link Building

Link building is a critical component of off-page SEO. To be effective, a link building campaign must be done manually. Search engines can detect links obtained via automated submission. Also, links need to come from many different types of sites, not just one or two. Link building is closely related to search engine optimization, as such; we carefully synchronize all our link building efforts and anchor text with our search engine optimization efforts.

An effective link building effort is labor intensive, with no real shortcuts. We incorporate the following strategies in our link building efforts; live directory submissions, social bookmarks, blog postings, article submissions, regional portals, and leverage links.

Conversion Rate Optimization

Conversion is the percentage of visitors to a site that turn into action takers. A customer’s site might be an e-commerce site, a lead generation site, or it might have a goal of signing up members, newsletter subscribers, webinar registrations, white paper downloads, or accessing a specific page in the site. There are many different types of success events, and not all websites perform equally with respect to getting visitors to take the desired actions. Sites with a high percentage of action takers as compared to all traffic would be considered to have high conversion rates. For example, a lead generation website that generates four leads out of every 100 visitors would have a conversion rate of four percent.

Conversion Rate Optimization (CRO) is the process of making a site better at moving visitors toward conversion. Because the Internet is constantly changing, conversion rate best practices are moving targets. We specialize in staying on top of the latest Internet developments in order to know how best to optimize a given site for conversion.

An important part of CRO is analytics. For most companies we recommend Google® Analytics because it is free and accomplishes everything most companies need. With any analytics solution, the challenge is to configure it properly. Our CRO packages are designed to ensure proper configuration of the customers’ analytics solution and ongoing review of the data to help analyze and interpret the data to spot trends and make course corrections.

Paid Search Management

We offer paid search management services, such as management of Google® AdWords™ and Microsoft Advertising adCenter™ accounts for our customers.

Modern paid search networks are incredibly sophisticated and require a tremendous amount of experience and expertise to avoid the many potential pitfalls of paid search. We assist customers by taking a conservative approach to paid search management. By using a combination of proprietary automation tools, split test dedicated landing pages, as well as the practiced eye of an expert monitoring our customer accounts on a daily basis, we are able to consistently raise conversion rates and lower the cost-per-acquisition.

Do-It-Yourself Websites

We offer a variety of Do-It-Yourself website building and marketing solutions for entrepreneurs and small businesses that intend to build their own websites or enhance their websites with online marketing. These solutions include hosting services, web building tools with e-commerce capabilities and online marketing training. Our online marketing training courses instruct on the following subjects: affiliate marketing, Amazon® and eBay® training, comparison shopping engines, competitive reconnaissance, conversion rate optimization, keyword research, link building, localization and regionalization, paid search campaigns, permission marketing, search engine optimization, social media marketing, and Google® analytics.

Telecom Plans

We completed development of Phase One of our hosted telecom offering in the fourth quarter of 2010. We currently offer the following plans and equipment:

Small Office, Home Office Plans

Crexendo Adaptor Plan – this plan is a professional business communication service for small office/home office (SOHO), which operates with a user’s high speed internet connection. The Adaptor unit supports the connection of up to two analog phone devices including support of fax machines, home phones, or cordless/wireless phones.


The Crexendo Adaptor Plan includes unlimited local and long distance calling in the US/Canada using VoIP technology. Porting of a local number and an audio conferencing bridge account with pin for up to 10-parties are included in the monthly service. The user account includes a web user interface for management of voicemail, email and inbound fax. Features include 3-way calling, find me/follow me, and interactive voice response for customized greetings and routing. Toll-free service and local number services may be added for an additional monthly cost.

CEO BACKGROUND

Robert Kamm

Mr. Kamm has served as a director of the company since September 2005. Mr. Kamm has over 20 years of experience in large and small companies and since February 2003, has been the President, Chief Executive Officer and director of Viewpoint Capital, Inc., a provider of management consulting, investment banking and real estate financial services. In addition, since August 2008, Mr. Kamm has been the President/CFO of RealAgile, Inc. a provider of mathematical modeling software for the real estate industry. In addition, Mr. Kamm operated his own investment banking firm from 1987 to 1988 and previously worked in various capacities for TransDecisions, Inc., Union Bank, Ernst & Whinney and General Motors. Mr. Kamm holds a masters of business administration degree in finance from UCLA and a bachelor of science degree in marketing and economics from Alfred University. Mr. Kamm is a Class II director and his term will expire at the meeting. Mr. Kamm is nominated for a term which would expire at our 2013 annual meeting of stockholders.

Craig Rauchle

Mr. Rauchle has been a director of the company since November 2006. In April 2008, Mr. Rauchle formed The Rauchle Group, LLC which provides business consulting services. Beginning in April 2005, Mr. Rauchle was President of Inter-Tel, Incorporated (“Inter-Tel”), which was acquired in August 2007 by Mitel Networks, Inc., and he served as President of Mitel US through April 2008. Mr. Rauchle was previously appointed Chief Operating Officer of Inter-Tel in August 2001. In this capacity Mr. Rauchle was responsible for Inter-Tel’s sales and sales support functions, operations, technical support, marketing, procurement, distribution and research and development activities. Prior to his appointment as Chief Operating Officer of Inter-Tel, Mr. Rauchle held a variety of positions with Inter-Tel including Senior Vice President and President of Inter-Tel Technologies, Inc., a wholly owned sales subsidiary of Inter-Tel. Mr. Rauchle joined Inter-Tel in 1979 as Branch General Manager of the Denver Direct Sales Office and in 1983 was appointed Central Regional Vice President and subsequently Western Regional Vice President. From 1990 to 1992, Mr. Rauchle served as President of Inter-Tel Communications, Inc., a subsidiary of Inter-Tel. Mr. Rauchle holds a bachelor of arts degree in communications from the University of Denver. Mr. Rauchle is a Class II director and his term will expire at the meeting. Mr. Rauchle is nominated for a term which would expire at our 2013 annual meeting of stockholders.

Anil Puri

Dr. Puri is the Dean of the College of Business and Economics at California State University, Fullerton and co-director of its Institute for Economic and Environmental Studies. Prior to becoming Dean in 1998, Dr. Puri was department chair and professor of economics at California State University, Fullerton. Dr. Puri is a noted economist and scholar who has served as the Executive Vice President of the Western Economic Association International, the second largest professional association of economists in the United States and is a member of the American Economic Association, the National Association of Business Economists, and a board member of St Jude Medical Center in Fullerton, California. Mr. Puri is a Class II director and his term will expire at the meeting. Mr. Puri is nominated for a term which would expire at our 2013 annual meeting of stockholders.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW

We are a provider of cloud-based infrastructure services to entrepreneurs and small and medium-sized businesses. Our services include high quality voice and messaging services over broadband networks, Do-It-For-Me and Do-It-Yourself content management and website building tools, online marketing, online lead generation, e-commerce technology, and training solutions that enable entrepreneurs and small and medium–sized businesses to build and maintain an effective online presence. Our services are designed to help increase the predictability of success for online businesses.

Our primary web service offerings are designed to meet the needs of entrepreneurs and small and medium-sized businesses anywhere along its lifecycle. Our Do-It-Yourself package includes our robust content management and website building solution, fully enabled e-commerce package, online marketing tools, and educational training modules. In addition to our primary service offerings for the Do-It-Yourself customer base, we also offer a variety of premium services to the Do-It-Yourself customer such as initial site design and build, logo design, dropshipper/supplier integration, and a variety of search engine optimization and link building packages.

Our Do-It-For-Me services are comprehensive and flexible allowing us to meet the needs of a wide variety of customers ranging from those just establishing their online presence to those wanting to enhance their existing online presence. These services include custom website design and development, search engine optimization, link building, conversion rate optimization, paid search management, and social media management. Additionally, as the online space continues to evolve our product and service offerings will continue to evolve to keep our customers on the cutting edge of the online space.

In addition to web services, we offer a suite of high quality voice and messaging services over broadband networks. Our small and home office services are portable and allow our customers to make and receive phone calls almost anywhere a broadband Internet connection is available. We transmit these calls using VoIP technology, which converts voice signals into digital data packets for transmission over the Internet. At a cost effective rate, each of our calling plans provides a number of basic features typically offered by traditional telephone service providers, plus a wide range of enhanced features that we believe offers an attractive value proposition to our customers.

We rely heavily on our network, which is a flexible, scalable Session Initiation Protocol (SIP) based VoIP network that rides on top of the Internet. This platform enables a user via a single “identity” to access and utilize services and features regardless of how they are connected to the Internet. As a result, with one identity, either a number or user name, customers have access to Crexendo voice, messaging, features, and personal profile information regardless of location, device, or how they access the Internet.

SOURCES OF REVENUE

We derive our revenue from sales of a variety of services to entrepreneurs, small and medium-sized businesses, including sale of software licenses, web design, SEO, paid search management, hosting, link building, and commissions from third parties. Leads are generated primarily through direct mail marketing campaigns, online advertising campaigns, and through strategic partnerships.

LICENSE REVENUE

We currently derive a substantial majority of our revenue from cash collected on the sale of our content management and web building software licenses at workshop events held throughout the year, as well as principal collected on the sale of software licenses sold through extended payment term arrangements (EPTAs). In the fourth quarter of 2010 we transitioned approximately 80% from a software license model to a Software as a Service (SaaS) model. However, as we recognize revenue on our EPTA contracts as cash is collected, we will continue to derive software license revenue for the next two to three years as the original sale that derived the EPTA contract was a software license.

PROFESSIONAL SERVICES REVENUE

We generate professional services revenue primarily from website design and development, search engine optimization services, link building, paid search management services, and conversion rate optimization services. These services are typically billed on a fixed price basis or on a monthly recurring basis with an initial term of six to twelve months.

SUBSCRIPTION AND HOSTING REVENUE

During the fourth quarter of 2010 we transitioned approximately 80% from a software license model to a SaaS model which provides access to our software for a monthly fee. We also derive revenue from monthly web hosting fees from our software license customers who utilize our hosting services. Revenue is recognized ratably on a daily basis over the life of the contract for all subscription and hosting services. The typical contract is a recurring monthly contract, although terms range up to 12 months. As we progress in this transition from a software license model to a SaaS model, key metrics, such as net subscriber additions and monthly churn become increasingly important metrics in measuring fluctuations in revenue.

PRODUCT REVENUE

We generate product revenue from the sale of DVD training courses covering a host of online marketing topics, including affiliate marketing, Amazon® and eBay® training, comparison shopping engines, competitive reconnaissance, conversion rate optimization, keyword research, link building, localization and regionalization, paid search campaigns, permission marketing, search engine optimization, social media marketing, and Google® Analytics. These services are typically billed on a fixed price basis.

COMMISSION REVENUE

We generate commissions from contracted third-party companies who telemarket complementary products and services to our customer base. This commission is typically paid as a percentage of revenue generated by these third-party companies on products and services sold to our customer base.

As we are currently reliant upon sales generated through our workshop channel, for both current revenue in the form of cash collected on the initial sale of the software license, DVD training courses, or professional services sold through our events, as well as future revenue in the form of principal cash collected on EPTA contracts, our revenue will fluctuate based upon the quantity of sales teams we have deployed at any point in time, quantity of events held, average cash percentage of buyers at events, average number of buying units at events, average purchase price, and average sales rate at each event. In addition to the metrics associated with our workshop events, our revenue will fluctuate with the dollar volume of collections on our receivables, as we recognize revenue upon receipt of cash from our customers and not at the time of sale.

We have historically sold our products and services through an educational seminar model which has subjected us to claims by governmental agencies that we are required to register as a seller of business opportunities, as well as raised questions about the manner in which we sell the product. While we have successfully defended the claim of selling a business opportunity, except in the State of California which has a statute with different requirements than other jurisdictions, we have made changes to the manner in which we sell the product at our seminars in an effort to be more transparent. We do not believe our model constitutes a business opportunity, but we have the ability to adjust our model if there are changes in the law relative to selling business opportunities. Our ability to effectively align our business model with the needs of our customers will impact our future growth opportunities.

Economic Factors

The tight credit markets in place over the past two years has adversely affected our business as consumers and businesses continued to be limited in their ability to obtain alternate sources of financing. Since the tightening of the credit markets began, we have seen an increasing percentage of customers elect to utilize our financing option, which have terms of between two and three years. Because we recognize revenue as cash is collected, and not at the time of sale, this increase in the percentage of customers utilizing our financing option has negatively impacted our current revenue, but will result in additional future revenue as customer payments are collected.

Opportunities

Technological and product innovation has been the foundation of our long-term growth, and we intend to maintain our commitment to invest in product development, engineering excellence, and delivering high-quality products and services to customers. Recognizing that one of our primary business objectives is to help entrepreneurs and small and medium businesses increase the effectiveness and visibility of their online presence, we organized Crexendo Web Services. Crexendo Web Services offers a wide range of services, including content management, SaaS, SEO services, search engine management services, website and logo design services and conversion rate optimization services.

We believe our long-term focus on investing in products and developing new and alternative sales channels is enabling us to build a foundation for growth by delivering innovative products, creating opportunities for potential channel partners, and improving customer satisfaction. Our focus continues to be to execute in key areas through ongoing innovation on our integrated content management software solution, responding effectively to customer and partner needs, and focusing internally on product excellence, business efficacy, and accountability across our Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements have been prepared in accordance with US GAAP and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis we evaluate our estimates and assumptions. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management has discussed the development, selection and disclosure of these estimates with our Board of Directors and its Audit Committee.

A summary of our significant accounting policies is provided in Note 1 to our consolidated financial statements. We believe the critical accounting policies and estimates described below reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements. The impact and any associated risks on our business that are related to these policies are also discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results.

Revenue Recognition

In general, we recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is probable. Specifics to revenue category are as follows:

Software License and Product Revenue

Cash sales of software licenses and DVD training courses, are recognized as revenue when the cash is received, net of expected customer refunds, upon expiration of the customers’ rescission period, which typically occurs three days after the licenses are delivered or when the Internet training workshop takes place, whichever occurs later.

Software licenses and DVD training courses sold under EPTAs are recognized as revenue upon receipt of cash from customers and not at the time of sale. Although we believe we are able to reasonably estimate the collectability of our receivables based upon our history of offering EPTAs, accounting standards require revenue to be deferred until customer payments are received if collection of the original principal balance is not probable. Additionally, if we subsequently sell the receivables on a non-recourse basis, accounting standards require that the related revenue be deferred until the customer makes cash payments to the third-party purchaser of the receivables. There are no receivable balances outstanding that are subject to recourse by our Company.

We have bundled products in two types of arrangements at our Internet training workshop. During the fiscal year ended June 30, 2009, the six month ended December 31, 2009, and the first three quarters of the year ended December 31, 2010, we primarily combined our software license with other complementary products and would assign fair value using the residual method in accordance with accounting guidance for software arrangements. We use the residual method as we have vendor specific objective evidence for all undelivered elements in the software arrangement. During the fourth quarter of 2010, we primarily sold our software under a SaaS model and would combine it with other complementary products and would assign fair value using the residual method in accordance with accounting guidance for multi-element arrangements. We use the residual method as we have vendor specific objective evidence for all undelivered elements in the multi-element arrangement.

Professional Services Revenue

Fees collected for professional services, including website design and development, search engine optimization services, link-building, and paid search management services are recognized as revenue, net of expected customer refunds, over the period during which the services are expected to be performed, based upon the fair value for such services. Fees related to EPTA contracts are deferred and recognized as revenue during the service period or when cash is collected, whichever occurs later.

Subscription and Hosting Revenue

Fees collected for subscription and hosting revenue are recognized ratably as services are provided. Customers are billed for these services on a monthly or annual basis at the customer’s option. For all of our customers, regardless of their billing method, subscription revenue is recorded as deferred revenue in the accompanying consolidated balance sheets. As services are performed, we recognize subscription revenue ratably over the applicable service period. When we provide a free trial period, we do not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services.

Commission Revenue

We have contracts with third-party entities with respect to telemarketing product sales to our customers following the sale of the initial software licenses. These products and services are intended to assist the customers with their Internet businesses. These products are sold and delivered completely by third parties. We receive commissions from these third parties, and recognize the revenue as the commissions are received, net of expected customer refunds.

Change in Avail Contract

In April 2007, we began marketing and selling Avail 24/7, an all-in-one communications service which assists small businesses and entrepreneurs to manage phone menus, voicemail, email, and fax in one online application. Customers purchasing the Avail product are charged a non-refundable activation fee along with a monthly service fee. The non-refundable activation fee is deferred and recognized ratably over the estimated customer life, which is currently estimated to be four and one-half years. The monthly service fee is recognized ratably over the service period.

In January 2010 we changed the contract that is associated with the sale of our Avail 24/7 subscription. Effective March 31, 2010 any customer that has not activated their Avail 24/7 subscription was assessed an activation fee of an additional $34.95. Prior to this change in contract, this activation fee was included in a bundle of items sold at the workshop and there was no time limit on activation. All existing customers were notified of the change in contract in January and were given 60-days to activate Avail 24/7 without paying the additional activation fee. As a result of this change in contract, we recognized approximately $1,000,000 in revenue upon expiration of the 60-day notice in March 2010 for the Avail 24/7 activation fees described above as we no longer had an obligation to provide the activation. In addition to the change in the Avail 24/7 contract, this product will not be included in the bundle of items sold at the workshop. Avail 24/7 will continue to be sold as a standalone product.

Fees collected related to sales tax and other government assessed taxes are recognized on a net basis.

Allowance for Doubtful Accounts

Since 1999, we have offered to our customers the option to finance, through EPTAs, purchases made at the Internet training workshops. We record the receivable and deferred revenue, along with an allowance for doubtful accounts, at the time the EPTA contract is perfected. The allowance represents estimated losses resulting from the customers’ failure to make required payments. The allowances for doubtful accounts for EPTAs we retain by the Company are netted against the current and long-term trade receivable balances in our consolidated balance sheets. All allowance estimates are based on historical collection experience, specific identification of probable bad debts based on collection efforts, aging of trade receivables, customer payment history, and other known factors, including current economic conditions. If allowances prove inadequate, additional allowances would be required. Because revenue generated from customers financing through EPTAs is deferred and not recognized prior to the collection of cash, adjustments to allowances for doubtful accounts are made through deferred revenue and do not impact operating income or loss. Trade receivables are written-off against the allowance when the related customers are no longer making required payments and the trade receivables are determined to be uncollectible, typically 90 days past their original due date.

Income Taxes

In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating current income tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These temporary differences result in deferred income tax assets and liabilities. Our deferred income tax assets consist primarily of the future benefit of net operating loss carryforwards, certain deferred revenue, accrued expenses and tax credit carryforwards. We may recognize the tax benefits from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

OVERVIEW

We provide a variety of cloud-based infrastructure services to entrepreneurs and small and medium-sized businesses. Our services include high-quality voice and messaging services delivered over broadband networks, Do-It-For-Me and Do-It-Yourself content management and website building tools, online marketing, online lead generation, e-commerce technology, and training solutions designed to enable entrepreneurs and small and medium–sized businesses to build and maintain an effective online presence. Our services are designed to help increase the predictability of success for online businesses.

Our primary web service offerings are designed to meet the needs of entrepreneurs and small and medium-sized businesses anywhere along their lifecycles. Our Do-It-Yourself package includes our robust content management and website building solution, fully enabled e-commerce package, online marketing tools, and educational training modules. In addition to our primary service offerings for the Do-It-Yourself customer base, we also offer a variety of premium services to the Do-It-Yourself customer such as initial site design and build, logo design, drop-shipper/supplier integration, and a variety of search engine optimization (“SEO”) and link-building packages.

Our Do-It-For-Me services are designed to be comprehensive and flexible, allowing us to meet the needs of a wide variety of customers ranging from those just establishing their online presence to those wanting to enhance their existing online presence. These services include custom website design and development, SEO, link-building, conversion rate optimization, paid search management, and social media management. Additionally, as the online space continues to evolve our product and service offerings will continue to evolve, in an effort to keep our customers on the cutting edge of the online space.

In addition to web services, we offer a suite of high-quality voice and messaging services over broadband networks. Our small and home office services are portable and allow our customers to make and receive phone calls almost anywhere a broadband Internet connection is available. We transmit these calls using Voice over Internet Protocol (VoIP) technology, which converts voice signals into digital data packets for transmission over the Internet. At a cost effective rate, each of our calling plans provides a number of basic features typically offered by traditional telephone service providers, plus a wide range of enhanced features that we believe offer an attractive value proposition to our customers.

We rely heavily on our network, which is a flexible, scalable Session Initiation Protocol (“SIP”)-based VoIP network that rides on top of the Internet. This platform enables a user to access and utilize services and features via a single “identity” regardless of how the user is connected to the Internet. As a result, with one identity, either a number or user name, customers have access to our voice, messaging features and personal profile information, regardless of location, device, or method of accessing the Internet.

RESTRUCTURING AND OTHER CHARGES

In July 2011, we initiated plans to restructure and improve efficiencies in our operations as a result of the continued lack of profitability and other challenges in our seminar sales channel for our StoresOnline division. Restructurings have begun in the third quarter of 2011 in an effort to better position our Company for long-term growth, profitability, greater competitiveness and improved efficiency across our business. Actions taken in connection with our restructuring plan include the suspension of our direct mail marketing campaigns and sales of our products and services through our StoresOnline seminar channel, refinement of our product portfolio focused towards recurring subscription-based products and services, and redeployment of our sales and marketing resources in an effort to increase our direct sales, inside sales, and online sales channels.

Through these initiatives we expect to incur aggregate pre-tax restructuring charges and pre-tax non-recurring transition expenses of approximately $1.375 million to $1.675 million during the twelve months ending December 31, 2011. Of this estimate, $1,075,000 was recorded for inventory write-downs and intangible asset impairment charges for the three and six months ended June 30, 2011. The remaining amount primarily consists of the cancellation of certain lease agreements which is expected to occur in the third quarter of 2011.

SOURCES OF REVENUE

We derive our revenue from sales of a variety of services to entrepreneurs, small and medium-sized businesses, including sales of software licenses, web design, SEO, paid search management, hosting, link building, and commissions from third parties. Leads have historically been generated primarily through direct mail marketing campaigns, online advertising campaigns, and through strategic partnerships.

LICENSE REVENUE

We have historically derived a substantial portion of our revenue from cash collected on the sale of our content management and web building software licenses at workshop events held throughout the year, as well as principal collected on the sale of software licenses sold through extended payment term arrangements (“EPTAs”). As a result of the restructuring plan we initiated in July 2011, we will no longer generate revenue from cash collected on the sale of our content management and web building software licenses at workshop events. We believe we will, however, continue to generate revenue from principal collected on our EPTA contracts for the next two to three years at a decreasing rate over that time period.

PROFESSIONAL SERVICES REVENUE

We generate professional services revenue primarily from website design and development, SEO services, link building, paid search management services, and conversion rate optimization services. These services are typically billed on a fixed-price basis or on a monthly recurring basis with an initial term of six to twelve months.

SUBSCRIPTION AND HOSTING REVENUE

We derive revenue from monthly web hosting fees from our software license customers who utilize our hosting services, software access fees for our SaaS offering, and subscription fees for our voice and messaging services. Revenue is recognized ratably on a daily basis over the life of the contract for all subscription and hosting services. The typical contract is a recurring monthly contract, although terms range up to 12 months.

PRODUCT REVENUE

We generate product revenue from the sale of DVD training courses covering a host of online marketing topics, including affiliate marketing, Amazon® and eBay® training, competitive reconnaissance, conversion rate optimization, keyword research, link building, localization and regionalization, paid search campaigns, permission marketing, SEO, social media marketing, and Google® Analytics. These products are typically billed on a fixed price basis. These products, which have historically been sold through our direct sales seminar channel, will now be sold through our expanded inside sales channel.

COMMISSION REVENUE

We generate commissions from contracted unaffiliated companies who telemarket complementary products and services to our customer base. These commissions are typically paid as a percentage of revenue generated by these unaffiliated companies on products and services sold to our customer base. As the lead source for the commission revenue has been our direct mail seminars, which we discontinued in July 2011, we do not anticipate we will generate significant commission revenue in the future.

Economic Factors

The tight credit markets in place over the past two years have adversely affected our StoresOnline business as consumers and businesses continued to be limited in their ability to obtain alternate sources of financing. The tight credit markets contributed to our decision to suspend the sale of our products and services through the seminar sales channel. The high unemployment rate has had a negative impact on our StoresOnline customer base and has continued to result in high default rates on our accounts receivable. While we have seen our collection rates stabilize and improve slightly over the past three quarters, our default rate remains high. As we recognize revenue when the cash is collected on our accounts receivable portfolio, an improvement in our collection rates will result in additional future revenue, while a deterioration in our collection rate will decrease future revenue.

Opportunities

Technological and product innovation is the foundation of our long-term growth strategy, and we intend to increase our commitment to invest in product development, engineering excellence, and delivering high-quality products and services to customers. Recognizing that one of our primary business objectives is to help entrepreneurs and small and medium businesses increase the effectiveness and visibility of their online presence, we organized Crexendo Web Services. Crexendo Web Services offers a wide range of services, including content management, SaaS, SEO services, search engine management services, website and logo design services and conversion rate optimization services.

We believe our long-term focus on investing in products and developing new and alternative sales channels is enabling us to build a foundation for growth by delivering innovative products, creating opportunities for potential channel partners, and improving customer satisfaction. Our focus continues to be to execute in key areas through ongoing innovation on our integrated content management software solution, responding effectively to customer and partner needs, and focusing internally on product excellence, business efficacy, and accountability across our Company.

CONF CALL


Steve Mihaylo

Good afternoon everyone. Today I have with us Clint Sanderson our President, John Erickson, our Chief Financial Officer, Jeff Jarvey, our Controller, Dave Krietzberg, our Chief Administrative Officer and Jeff Korn, our Chief Legal Officer.

Before we get started today, I’d like to have Jeff read the forward-looking Safe Harbor statement.

Jeff Korn

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 facts are forward-looking statements.

Forward-looking statements include that are not limited to words like, like, belief, expect, anticipate, estimate, will, and other similar statements of expectations identifying forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. The risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission including the Form 10-K for fiscal year ended December 31 2010 and the Forms 10-Q for the periods ending March 31, 2011 and June 30 2011.

Crexendo does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or any other occurrence.

I’d now like to turn the call back to Steve. Steve?

Steve Mihaylo

Thank you, Jeff. As all of you are aware, I’m sure we made a decision in the first part of July to change the way we sell our StoresOnline products to our SOHO customers, our entrepreneurs, and individuals. We are aggressively pursuing sales through online marketing, inside sales and affiliates. We have however discontinued seminar sales. We think this will be a better way to reach those customers and we also think that it will reduce our expenses tremendously.

In addition, we beefed up our customer service towards those customers so that we can even help them more in the future. Rather than going through all the numbers at this time, I just want to state that as a result of the sales from the previous quarter probably aren’t that meaningful, what’s more meaningful is the amount of cash on our balance sheet which is nearly $12 million and the net receivables which are fully reserved in approximately $24 million to $25 million.

Going forward, of course the important things are the number of sales people that we have the sales through our Crexendo, which would be our Crexendo Business Services and Web Services as well as Crexendo Telecom and of course the number of customers that we have in our StoresOnline division.

At this point what I’m going to do is, turn the meeting over to John Erickson to go over all of the granularity and the individual information.

John Erickson

Thank you, Steve.

Steve Mihaylo

You bet.

John Erickson

In order to provide you more clarity on what to expect from our operations in coming quarters as a result of our decision to suspend seminar operations

I’d like to provide detail of our revenue and cost by channel and provide guidance on what remains after the suspension of the seminar channel and what no longer exists. But what you will see is that we are eliminating approximately $11.5 million in revenues based upon actual Q2 results and approximately $15.3 million in expenses. Here are the details.

From a revenue perspective, we had approximately $17.5 million in revenue for Q2 which is broken down as follows. Crexendo Web Services revenue was $550,000 which grew at a quarter-over-quarter rate of 15% from $479,000 and a year-over-year rate of 51% from $365,000. This revenue remains and is expected to grow in the future, our rate of growth will be dependent upon our ability to hire sufficient qualified sales reps and increase the productivity of our current sales reps.

Today we have 15 sales reps and hope to hire an additional three to four reps per month.

StoresOnline revenue was $16,928,000 which grew at a quarter-over-quarter rate of 20% from $14,89,000 in Q1. The increase from Q1 is primarily due to the seasonal nature of the StoresOnline business and that we don’t conduct seminar events in January. We also had a slight decrease year-over-year in StoresOnline revenue of 1% from $17,83,000 last year.

StoresOnline revenues broken down as follows; cash sales at our seminar events were $9,558,000. As a result of the suspension of our seminar sales channel this revenue will cease. During the second quarter we saw an improvement in our cash as a percentage of sales from the first quarter to 39% in Q2 from 29% in Q1. Historically, we found that we really need to be at about 50% cash percentage in order to have sustainable profitability.

Though the 39% was an improvement, it was not sufficient and it was even more problematic considering the better markets we serve that quarter. We were able to hold steady in our workshop close rates which was 30% in Q2 compared to 29% this past Q1. However we began to see significant negative trends in our marketing results as the progressed as we found it difficult to attract a sufficient number of quality prospects at our events as evidenced by significant decrease in the number of attendees at our events throughout the quarter which started out in an average of 92 in April, dropping to 82 in May and bottoming out as 58 in June.

In order for us to have sustainable profitability in this channel, we needed to average around 90 attendees. Given the current state of the economy and the impact it has had and continues to have, on the StoresOnline seminar customer base, it appears that we would experience significant negative cash flow if we continued in this channel in the future. Cash collected in our accounts receivable balance was $4,383,000, a 5% increase over Q1, which was $4,204,000 and a 5% decrease over Q2 last year, which was $4,615,000.

This revenue stream will continue in the future despite the suspension of the seminar model. However the revenue we receive from our receivables will continue to decline in the future. Based upon our current collection rates, we expect to collect approximately $24.8 million in revenue from our receivables over the next two to three years with approximately $12.9 million expected to come in the next 12 months. The remaining $11.9 million is expected to be collected in years two and three at a decreasing rate.

Hosting revenue was $1,05,000 a decrease of 10% from the prior year which was $1,121,000. This revenue will continue in the future despite the suspension of the seminar model and while we expect to add to our hosting revenue through other sales channels the base of customers representing this hosting revenue number is expected to decrease in the future as a result of high historical customer churn of our StoresOnline seminar base.

That said, we have increased our customer service average programs to assist these customer and hope to retain a high percentage of them. Commissions from third-parties was $1,978,000 in Q2, which showed a slight increase from Q1 which was $1,908,000, but more importantly a 41% decrease from the prior year, which is $3,336,000. Commissions from third-parties which has historically been one of the largest contributors to our profitability and the seminar channel has been hard hit by the poor economy and is not expected to continue in the future as our own internal insight sales force will be used to sell the additional products and services our customers need.

In summary, based on this quarter’s revenue results, we expect to retain on a go forward basis about $5.4 million of the $16.9 million in StoresOnline revenue or approximately 32%. In addition to the $5.4 million revenue retained, we also retain approximately $1.3 million in interest received on our accounts receivable balance for the quarter which is included in other income. I will point out however that both the principal received on our Accounts Receivable and the interest on that balance will run out over the next two to three years.

In addition to these items, we will have approximately $3.2 million in operating deferred revenue which will roll into revenue over the next six months. From an expense perspective, we had $21,955,000 in total operating expenses which is broken down as follows

Crexendo Web Services expenses totaled $1,149,000 in Q2, compared to $808,000 in the prior year quarter. These expenses remain and will increase as we add additional sales reps.

Additionally, you will see expenses increase as a percentage of revenue as it will take time to get the new sales reps to an efficient sales level. Crexendo Network Services expenses totaled $507,000 in Q2 compared to $339,000 in the prior year quarter. These expenses remain and are expected to increase in the future as we open different customer acquisition or sales channels.

StoresOnline expenses totaled $18,103,000 in Q2, compared to $15,270,000 in the prior year quarter. The majority but not all of these expense is related to the sale of products and services at the seminar channel will go away as a result of the suspension of seminars we expect approximately $15.3 million of these expenses will not be retained, while $2.8 million of these expenses will be retained primarily in the customer service and support of our customer base.

Unallocated corporate expenses which related mostly to R&D, corporate salaries, depreciation, stock option expense, accounting and professional fees, totaled $2,196,000 in Q2, compared to $2,73,000 in the prior year quarter. These are expected to remain at those same approximate levels for the short term.

In summary, as a result of the decision to suspend the StoresOnline seminar channel, based on Q2 actual results, we are eliminating approximately, $11.5 million in revenues, and approximately $15.3 million in expenses. At the same time, we will be adding to our expenses as we increase our direct sales force, inside sales and online sales channel.

Now for a discussion on cash flow and the balance sheet. During the second quarter, we generated positive cash from operations of $538,000 compared to a use of cash of $3.3 million in the first quarter of this year. As of June 30 2011, we have cash, cash equivalents and restricted cash of $11,666,000. Our Accounts Receivable balance is $24,787,000 which as we discussed earlier as expected to result in future revenue over the next two to three years.

From an income tax perspective, given consecutive quarters of loss, we have experienced and the uncertainties surrounding our operations in the future, we determine it was necessary to place the full valuation allowance on our deferred income tax assets. As a result of this valuation allowance, our income tax expense in the second quarter was $6,162,000. With that, I’ll turn the time back over to you Steve.

Steve Mihaylo

Thank you, John. At this time, what I’d like to do and is open this up to questions from the folks that are on the online with us.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

6378 Views