Welcome to The Parent Company’s second quarter fiscal 2008 earnings conference call. (Operator Instructions) And now your host for today’s call, the Vice Chairman of The Parent Company, John Textor.

Obviously we’ve got a lot to do on today’s call. I did want to thank Mike for allowing me to open up the call. This is actually my last call serving formally in the role of Chairman. We did have some very exciting news this morning regarding our leadership architecture. I intend to remain extremely active in support of this company but now out of the role of Vice Chairman. We announced that we were able to attract Todd Edebohls, a former director of business development in sales at Amazon, a gentleman with remarkable experience that’s extremely relevant to our space. I’m going to be introducing him later on this call but of course there’s a lot of business to go through before we get to that. Barry Hollingsworth is going to go through our financials. Mike Wagner will obviously go deeper into operational details touching on our current businesses and other new initiatives as we move into what is always the more interesting time of year where well more than 80% of our revenues are left to go in this year. So we’re excited about moving into this part of the season but we’re also excited about our new initiatives. And we’ve talked a little bit about www.Toys.com today which is the first material augmentation of our business model getting into the content and search side of things and we anticipate that launch coming up shortly. With that I’ll turn it over to Barry and I’ll come back at the end of the call and we’ll introduce you to our new Chairman Todd Edebohls.

Before we get started, I’d like you to know that certain matters in this call are forward-looking statements that are subject to risks and uncertainties. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied. So although we may believe that expectations are reasonable, we cannot guarantee future results, levels of activity, performance or achievement. Please refer to the risk factors noted in our 10K filed with the SEC on May 1. We’re going to file our 10Q later today and will file the contents of this call including Q&A and 8K filing later this week or by Monday at the latest. We entered this quarter pursuing a pipe transaction believing it would be a four-week process and it turned out to last about 10 weeks, and it would have been more dilutive than we anticipated. That’s why D.E. Shaw stepped in with a $10 million note in July. Through that period we started to conserve cash and reduce our inventory purchases which impacted our sales in the quarter. You’ll note that our inventory at the end of the quarter declined by $1.5 million from $18.6 million at the end of Q1 to $17.1 million at the end of Q2. That’s a significant decline during a quarter when our cost of sales was $7.5 million. With $10 million funding in place, we’re beginning to increase our inventory levels for the holiday season. Net sales in Q2 were $9.9 million, a 41% increase over $6.9 million in the prior year on a reported basis. Our second quarter historically [inaudible] terms of revenue and earnings. Total operating costs were $8.9 million in Q2 compared to $6.3 million in the prior year. Our operating expenses are broken down to…

Hello everyone and thanks for joining us. I’m Mike Wagner, CEO of The Parent Company. On today’s call I’m going to talk about the toy business and the sales trends and new partner initiatives. I think one of the biggest things walking into the holiday season is our planned site redesign for eToys which is going to happen in a couple weeks. I will also talk about the international expansion which is going to open up 34 counties including Canada and most of Europe. We’ll talk about the progress we’ve made on the baby business under the My Twinn expansion opportunities and the proposed launch of www.Toys.com. I’ll talk about all these in the coming conversation. The Parent Company has seven ecommerce sites and three content new media sites. Our focus is on parents and their children. We try to form our relationship with that expectant mother with our content ePregnancy site and our BabyTV and our PoshCravings and migrate them into our baby businesses BabyUniverse, DreamtimeBaby, and PoshTots, and then as the child grows introduce them to our eToys business and our My Twinn business. Starting with our toy business, our toy business is made up of eToys a major online toy retailer, KB Toys which we operate under a license agreement, and eight strategic retail partners which we support the toy departments for these online retailers with merchandising and inventory control. Our eToys brand in the second quarter achieved a small positive comp sales increase. This was while our toy inventory decreased by $1.2 million through the quarter. This comp increase was made of nice comps in May and June with a negative comp in July as our inventory declined due to delays in funding and restricted cash. We experienced a 12% increase in traffic and a 21%…

Just to wrap up on the business, I think it is important to understand that we have moved through the seasonal low periods. We have a remarkable amount of the year ahead of us. There is a lot of discussion about what may happen this holiday, and there are both good signs and bad signs as we look into the holiday going forward. What is occurring in retail and what may occur in retail in an environment of perceived or actual lower discretionary spending at the consumer level is certainly concern for retail. In the ecommerce environment, frankly that’s where we as an industry due well. Gas in particular is an example of that. As gas prices are up, people are much less likely to drive to five or six stores to find that one special product. They get the product selection with great convenience and net effective reduced cost by going to the web either because it’s priced competitively or they have access to the best selection and the best prices. Well in this environment they literally do save money going to the web as opposed to driving around in their car going out to stores, which is why you’re seeing some decent trends overall in the ecommerce space and we hope some of those trends inure to our benefit as we go into the holiday season. Again, this management team in my opinion actually dealt with a bigger negative going into last season. The China recall was a huge hit to the toy industry. As we reported previously a lot of our competitors suffered during this period of time. Our core growth at eToys.com on a year-over-year basis was actually a positive 6% while our competition and others saw a significant decline. So our management team has done…

I’m just frankly thrilled to be working with you and Mike, Barry, the rest of the company, the good people over at D.E. Shaw. I appreciate that you guys brought me in based on a great conversation we’ve altogether already had about the new opportunities that Universe, eToys, Poshtots, the other brands. It’s been about 11 or 12 years for me in the business, new media, ecommerce; eight or so of those years over at Amazon. And of course I’ve been well aware of eToys and BabyUniverse especially as the company started selling through Amazon as a merchant partner. And when I look through at the very real and reliable end-to-end shopping infrastructure that The Parent Company has today, I look at the customer base that already is buying reliably through the eToys websites, the BabyUniverse website, I realize that we’ve got some really great opportunities to put those things together in new ways. Some of the stuff that we’ve already talked about in all the meetings that we’ve had before I joined the company and certainly the meetings that we’re going to have this afternoon and tomorrow.

We are going to be coming back to the market in the coming days and we’ll announce another public call where Todd and Mike will have a better opportunity to go through their going forward mandates, some of the new initiatives, and what Todd’s going to be doing in his first several months of leadership. Again, I intend to be extremely supportive of this team doing what I can in partnership with these gentlemen. So this is truly a supplemental improvement in the architecture of our leadership and we’re really looking forward to it. So thank you everyone for being on the call today. We look forward to having a terrific last half of the year. Good day.

With that, let’s open it up to questions.

(Operator Instructions) Our first question comes from Kristine Koerber - JMP Securities.

Can you talk about the inventory levels and where you are now with inventory? I know the numbers at quarter end but are you in stock on all merchandise at this point? And where do you expect inventory to be at year end?

Since the funding in July we have been increasing our inventory nicely. In our baby space the inventory is pretty much where we want it to be probably around that $1.6 million or $1.7 million. And again we’re looking to turn that inventory about six to eight times. Our My Twinn inventory is flowing on the water as we speak and will be here in early October. The catalog drops at the end of the month. And then our toy inventory which is obviously our biggest piece of inventory is below last year but it’s increasing. I think just even last week it increased by over $0.5 million for the week. So we are definitely in the build mode. We’ve got quite a bit of merchandise out on the water coming over. We did start our first catalog drop off with a little weaker in-stock than we would have liked but that’s improving every day as the product’s coming in. So it’s really a week issue as opposed to a monthly issue.

When do you expect the toy business inventory to be where you want it to be? Is it a matter of weeks?

Yes. It’s probably not even weeks. It’s probably days. We have our second drop for the catalog happens early October but we feel that we will be in a very high in-stock position prior to that. And we are doing some SKU rationalization, making sure that with the economic environment that we’re avoiding lumps, so we are spending a lot of time on inventory flow to make sure that we’ve got the right stuff for the customer when they want it and not walking into the holiday season with overstock position, especially on imports. You have to get those reads by the middle of October. That’s one of the reasons we send out the catalog in September to our best customers because it’s that first sense of what’s taking off and what’s not from an import standpoint where you can only source product from China. So we’ll have those reads and we’ll make those adjustments as we go to the season. But we plan to end the inventory at the end of the year $2 million in the toy side below where we were at the end of last year.

Looking at your partnership with Sears, are they or you planning anything different as far as the Wish Book? I understand the issues that you went through last year with them but are they planning any cutbacks in distribution just given what’s going on in the environment? And then lastly on the content side of the business, what are you seeing on the advertising front? Any pull back with advertisers?

Let’s talk first about the Wish Book. I had mentioned in my presentation that we did integrate real-time inventory with a couple of partners. Sears was one of those. What we do with all of our partners today is we allocate a piece of the pie and give them a fixed quantity to sell. Some of the partners could sell more or less. We do that as best we can based on history. What we did with Sears this year to keep them, they seem to have more trouble because of their complex systems that they’re in to keep our product in stock because of the orders that are in transit between taking them, passing them to us and getting them back. So we believe this real-time inventory is going to keep product up on their site a lot longer. As far as their catalog, they are launching two versions of a toy only catalog that we are supporting product in. The first one will actually hit homes next week. Now last year their first catalog went out in October and that was their combined gift and toy catalog. This year there will be a toy only book like I said that hits homes next week and then in October they’ll hit their toy and gift catalog, and I think they have another toy only catalog that hits in November. So definitely a better focus on toys than last year, so we’re expecting much better business there, and they are too.

And then on the advertising?

On the advertising side, we have been doing quite a bit of testing with advertising on our own ecommerce sites. Right now it’s up there more as a test. The new site redesign for eToys will make it fit and look much more coherent with the site and I think that’ll be an improvement. But we are definitely getting a lot of interest in advertising. We have a lot of name brand advertisers that are out there. Even in our content business, a lot of these people that are in our content business are looking to also leverage our other ecommerce brands.

I think it’s also important to understand that Toys.com is itself really an advertising model. With the search features that we’re talking about, it’s really on a product selection, diverse and robust catalog basis positioned to be sort of the Google of the toy space or maybe there are some better examples in some of the shopping sites. It’ll launch in relatively basic product comparison form and then will be enhanced over time with deeper content. So as we think about what’s going on out in the market place, understand this is the first time that we’re really seeing an augmentation of our business model to bring advertising revenues in. It’s the same kind of commitment that you see us making to buying Google keywords and putting our products out on various other sites. A lot of those players in the toy space are going to be doing that at Toys.com. So as we compare advertising revenues that you have at our content sites which are relatively low traffic sites or you talk about the tests that we’re doing in advertising at ecommerce which we hope to expand and we get a lot of traffic on that site; sorry, I meant the test on eToys; these are still relatively small in comparison to the business model of Toys.com which we expect to be a high visibility site where it’s sole purpose is attracting people to this robust catalog where they see products of many different providers; not just eToys. And given the exposure that site already has it’s a perfect domain in the space. I think it’s just important that I make this point because we’re talking about advertising revenues at hopefully two different orders of magnitude between what we’ve tried previously; even the testing on the eToys site and what is the business model augmentation that comes through Toys.com which we expect to be much more meaningful.

Our next question comes from Shawn Milne - Oppenheimer & Co.

I know obviously the inventory caused a bit of a comp issue in the second quarter. Can you talk about how eToys is performing; without giving any guidance, talk about any performance as we get closer into the third quarter? And I realize there’s a site redesign but any kind of real-time update there? And secondly, I just want to make sure I understand the changes in your shipping policies and clearly one of the big drivers in ecommerce is actually obviously free shipping thresholds. Are you lowering or removing any? Are you potentially risking growth or trying to trade off growth for shipping margin? If you can kind of talk a little bit more about that.

First of all, from a sales standpoint our catalog which is one of our biggest marketing features on the toy business just launched so it’s almost too early to start to predict where that’s going. The consumer definitely appears cautious. We did cut back our September catalog for eToys by 17%. We did that intentionally because we felt that response rates were going to be lower this year and we’re using those marketing dollars for online marketing but those won’t happen until later in the year because at this time of year the catalog’s driving what it is but from an online standpoint as our conversion rate gets up in the 5% to 6% range as we walk into the holiday seasons, it’s much more effective to use those dollars in the October-November-December period. As far as the shipping Shawn, today we have over 500 items that ship free on our website. We will continue to do free shipping all the way through the holiday season. I think that you have to do that to be competitive. But it’s an item level free shipping. So if somebody buys two of those free shipping items but buys one item that’s not free shipping, they’ll still pay some shipping on that one item but it’s typically a smaller piece. What we’re doing on the shipping on our how we charge the customer for shipping is more in line with some of the other retailers out there such as Wal-Mart where they basically say we’re going to charge you the lowest rate we can find to get it to your product. We’re not going to penalize people for being in different parts of the country just because our warehouse is in Virginia, so we’re taking our average zone and we’re saying, okay a five pound box in this zone is going to cost us X and put a slight markup on there. In a lot of cases it’s going to be a savings to the customer from what we do today especially as we walk in the season on those bigger boxes. It will probably penalize a little bit the smaller purchases which are from an economic standpoint much less effective and efficient. Does that answer your questions?

There was a technical issue about regarding guidance around the recent 8K that was filed. Is there anything that’s changed with the company’s at least looking to try to drive EBITDA profitability by the end of the year?

I think one thing that we did certainly imply when we issued the 8K, and by the way for those of you that may not have picked up Shawn’s question, when we originally put guidance out into the market place we were in the middle of a financing process. That financing process was looking at both debt and equity alternatives to the company back earlier in the year. We wanted to level the playing field of information because it was a process that a number of parties on both the equity and debt side of the ledger were involved, so we came out with guidance at the advice of our investment bankers to make it really a fair process. And it was not our intention to have a continuing guidance model, to do so quarter to quarter. We believe as a Board that it’s very difficult to do that in a business that’s so highly seasonal. And the technical issue is that when we were filing an S3 which was the registration of the shares that were underlying the warrants, they were issued in connection with the D.E. Shaw financing. Again that was not a registration to sell shares but a registration of the shares underlying those warrants. We really had to attach all prior material events to the registration statement and because that 8K was out there, that was included as an exhibit in that F3, which in a way is reaffirming guidance. The Board met, talked about the logic of a continuing guidance model. We never intended to do that with that issuance of one-time guidance. So we issued an 8K just basically saying that. Now that said, one of the reasons that you wouldn’t want to have a continuing guidance model, 80% to 85% of our business…

We have no further questions on our roster.

Since most of you heard my closing remarks a few moments ago, I’ll be brief. Thank you again for being on the call. We are excited to get into this final stretch in the year where really our business gets very, very serious. This is the time of the year that we love. I’ve seen this facility in high gear shipping enormous amounts of products out to the market place. We do think there’s going to be a nice balance of ecommerce as against total sort of consumer spending come this holiday and we’re equipped to deal with it very well. We’ve got a management team that has dealt with extremely tough times in the past. We’ve got a new leader working as a partner with us in the process that’s going to help us pursue some quick wins and some strategic situations that will help drive shareholder value while Mike is blocking and tackling and running what we expect to be an efficient business over the next few months. So we’re looking forward to it; we’re finally at the time of the year that we love. The North Pole has not closed and we expect people to buy a lot of toys this year and we’re certainly a leader in that space. Thank you again for being on the call and we look forward to talking to you again.