- Reports Results for the Three and Six Months Ended December 31, 2005 -
- Files SEC Form 10-K for the Fiscal Year Ended June 30, 2005 Including the
Restated Fiscal Years Ended June 30, 2004 and 2003 –
- Files SEC Forms 10-Q for the Fiscal Quarters Ended September 30, 2005 and
December 31, 2005 –
OREM, Utah, March 9, 2006 - iMergent, Inc. (AMEX: IIG), a leading provider of eCommerce
and software for small businesses and entrepreneurs, today announced the results for the
three and six months ended December 31, 2005. Also today, the Company is filing with the
Securities Exchange Commission (SEC) its Form 10-K for the fiscal year ended June 30, 2005
including the restated fiscal years ended June 30, 2004 and 2003 and its Forms 10-Q for the
fiscal quarters ended September 30, 2005 and December 31, 2005.
Don Danks, chairman and chief executive officer, stated, “Completing our fiscal 2005 audited
financial statements marks a significant milestone for iMergent, and we are gratified to move
forward and provide updates on our progress in running the business. While we devoted
attention to completing our 2005 financial statements and restatements of prior years, we
remained focused on our established growth strategy of enhancing our technology, ensuring
outstanding customer service, increasing sales teams and workshops to leverage our
corporate and support infrastructure, and developing additional marketing partnerships.”
“We have accomplished that and more. StoresOnline™ Pro, a major upgrade to our core
product, enhances customers’ ability to manage and grow their businesses. In the last year,
we have introduced ancillary products such as our proprietary Marketing Tool-kit and a thirdparty
small business tax preparation service offering. In addition, we have broadened our
training offerings to serve existing customers wishing to drive their businesses to the next level.
Perhaps what I am most proud of throughout these past nine months is our ability to maintain
and expand our marketing relationships. To date, we have begun initial product testing with a
major national financial institution and a national marketing partner to expand our reach further
into established small business markets. The response has been quite positive.”
Financial Review
In December 2005, the Company changed its business model to: (1) limit certain “free”
services to a period of one year for all customers who purchased the StoresOnline software
prior to December 20, 2005, and (2) begin charging customers for those services as part of
customer support. This change in business model resulted in the recognition of product and
other revenue of $108.0 million of previously deferred revenue, which would have been
recognized in future periods had the change in business model not occurred. The company’s
revenue recognition policies and a table summarizing the changes within the deferred revenue
account for the three and six-month periods ended December 31, 2005 and 2004 follow in this
press release.
In addition to revenue recognized each period in the statement of operations, management
believes the net dollar volume of contracts written each period is a relevant and meaningful
statistic to the understanding of the operations of the Company. Net dollar volume of contracts
written represents gross dollar sales contracts executed during the period less estimates for
bad debts and discounts incurred on sales of trade receivables (“financial discounts”). As net
dollar volume of contracts written is not a U.S. generally accepted accounting principles
(GAAP) measure, a table reconciling GAAP revenue to net dollar volume of contracts written
follows in this press release.
Three-months Ended December 31, 2005
• Revenues for the three months ended December 31, 2005 increased to $120.5 million from
$9.8 million for the three months ended December 31, 2004. The $110.7 million increase
includes $108.0 million of previously deferred revenue, which would have been recognized
in future periods had the change in the company’s business model not occurred.
• Product and other revenue increased to $117.5 million for the three months ended
December 31, 2005 from $5.9 million for the three months ended December 31, 2004. The
$111.6 million increase includes $108.0 million of previously deferred revenue, which
would have been recognized in future periods had the change in the company’s business
model not occurred.
• Net contracts written were $25.1 million for the three months ended December 31, 2005
compared to $23.6 million for the three months ended December 31, 2004. A table
reconciling GAAP revenue to net contracts written follows in this press release.
• Total operating expenses were $21.6 million in the three months ended December 31,
2005 compared to $18.9 million in the comparable period of the previous fiscal year.
• Net income was $111.2 million, or $8.92 per diluted common share, for the three months
ended December 31, 2005 compared to a net loss of $8.3 million, or $0.71 per diluted
common share, for the comparable period of the previous year. Net income for the three
months ended December 31, 2005 includes an $11.7 million income tax benefit resulting
primarily from the reversal of a valuation allowance against the Company’s deferred
income tax assets due to those assets becoming more likely than not of being realized due
to the change in business model.
Brandon Lewis, president and chief operating officer, said, “By executing on our growth
strategy the demand for Internet training workshops increased. Therefore, in September 2005,
we launched our sixth sales team, and the team is now fully productive and posting positive
results. During the second quarter of fiscal 2006, we conducted 200 workshops including 65
international workshops compared to 185 workshops including 51 international workshops
during the comparable quarter of the prior fiscal year. We have increased our offerings at the
workshops, and through our back-end marketing partners we have further optimized the value
of our database by selling additional training and marketing solutions.”
“Our long-term strategy is to further diversify our customer base and drive new opportunities
from multiple revenue streams. To this end, we expect to roll out new proprietary product
offerings while adding to our list of industry-leading partners. For example, our recently
announced StoresOnline Pro edition gives customers total control of their businesses on the
Internet while streamlining the operations and functionality of their web sites, creating a more
user-friendly interface for online customers. Looking ahead, we expect to further leverage our
in-house capabilities by partnering with industry-leading companies and introducing innovative
new product offerings for our StoresOnline customers,” added Lewis.
Six-Months Ended December 31, 2005
• Revenues for the six months ended December 31, 2005 increased to $131.9 million from
$17.9 million for the six months ended December 31, 2004.
• Product and other revenue increased to $126.5 million for the six months ended December
31, 2005 from $11.0 million for the six months ended December 31, 2004.
• Both increases reflect the recognition of $108.0 million of previously deferred product and
other revenue, which would have been recognized in future periods had the change in
business model not occurred.
• Net contracts written were $42.1 million for the six months ended December 31, 2005
compared to $42.0 million for the six months ended December 31, 2004.
• Total operating expenses were $38.8 million for the six months ended December 31, 2005
compared to $34.1 million for the comparable period in the prior fiscal year.
• Net cash provided by operating activities for the six months ended December 31, 2005 was
$15.3 million.
• Net income was $105.7 million, or $8.46 per diluted common share, for the six months
ended December 31, 2005 compared to a net loss of $14.8 million, or $1.27 per diluted
common share, in the comparable period in the prior fiscal year. Net income for the six
months ended December 31, 2005 includes an $11.5 million income tax benefit resulting
primarily from the reversal of a valuation allowance against the Company’s deferred
income tax assets due to those assets becoming more likely than not of being realized due
to the change in business model.
Robert Lewis, chief financial officer, stated, “Net cash provided by operating activities for the
six months ended December 31, 2005 was $15.3 million. As of December 31, 2005, the
Company had $25.7 million in cash and cash equivalents.”
Guidance
Although management is confident it will grow revenue and the net dollar volume of contracts
written in fiscal 2006, the Company will refrain from providing formal guidance at this time.
Danks added, “In 2005, we managed a number of challenges. We persevered and we
became a stronger and more focused Company for the effort. iMergent continues to be
committed to providing our customers with the most innovative and efficient tools to build and
manage their online storefronts. Our success has delivered revenue growth and we expect to
continue to remain profitable. The future is promising, and we look forward to providing
updates as we achieve the goals we have outlined today.”
The American Stock Exchange Update
The American Stock Exchange (AMEX) had taken action to have the Company’s common
stock delisted from the AMEX as the Company had not filed its Annual Report on Form 10-K
for the year ended June 30, 2005 and Forms 10-Q for the quarterly periods ended September
30, 2005 and December 31, 2005. With these documents now filed with the SEC, the
Company should be in compliance with the AMEX requirements.
Conference Call
The Company is hosting a conference call today at 1:30 p.m. PT (4:30 p.m. ET). The call will
be broadcast live over the Internet at www.imergentinc.com. If you do not have Internet
access, the telephone dial-in number is 800-639-0297 for domestic participants and 706-634-
7417 for international participants. Please dial in five to ten minutes prior to the beginning of
the call. A telephone replay will be available through March 13, 2006; dial 706-645-9291, and
enter access code 5942558.
Revenue Recognition Prior to Change of Business Model in December 2005
Product and Other Revenue
On October 1, 2000, the Company began selling licenses to customers to use the Company’s
StoresOnline Software (SOS). The SOS software is a web-based software product that
enables customers to develop Internet websites for commerce without requiring additional
assistance from the Company, if the customers desire. When customers purchase an SOS
license at one of the Company’s Internet workshops, they receive a CD-ROM containing the
license, a password and instructions that allow immediate access to the Company’s website
and servers where all of the necessary software programs and tools are located to complete
the construction of their websites. Additionally, the Company provides website setup services
and customer support for incremental fees. When customers complete their websites, those
websites can be hosted with the Company or any other provider of such services at the
customers’ option. If the customers choose to host with the Company, the Company will host
the websites for an additional fee. Customers have the option to create their websites on their
own completely without access to the Company website and the option to host their websites
with another hosting service. In fiscal 2005, the Company completed its certification as an
eBay solution provider. Consequently, the Company began selling on-line auction training
workshops designed to instruct participants on successfully selling products and services
through on-line auctions and the utilization of the on-line auction functionality of the
StoresOnline software.
From October 1, 2000 through December 20, 2005, the Company allowed its customers
unlimited access to the SOS software on the Company’s servers (access service), even
though the Company was not legally obligated to do so. This access service was provided at
no additional cost to the Company’s customers with the expectation that it would generate
revenues under future hosting arrangements and because there was no incremental direct
cost of providing such access service. Consequently, the Company had not established
vendor specific objective evidence (VSOE) of fair value for the access service.
The American Institute of Certified Public Accountants Statement of Position 97-2, “Software
Revenue Recognition,” (SOP 97-2) requires that all revenue from the sale of software products
and related services in multiple-element arrangements be deferred until the earlier of the point
at which (a) sufficient VSOE of fair value exists for each product and service in the
arrangement or (b) all elements of the arrangement have been delivered. However, SOP 97-2
does provide for an exception if the only undelivered elements are services that do not involve
significant production, modification, or customization of software. In that instance, fees for the
bundle of software products and related services may be recognized as revenue over the
period during which the services are expected to be performed. The Company has determined
the access service period to be five years.
Therefore, all fees collected for the software products, setup services, customer support,
hosting services, and on-line auction training workshops are deferred and recognized ratably
over the five-year access service period, net of expected customer refunds. Fees related to
extended payment term arrangement (EPTAs) contracts are deferred and recognized as
revenue over the access service period or when cash is collected, whichever occurs later.
Commission and Other Revenue
The Company has contracts with third-party entities with respect to telemarketing product sales
to the Company’s customers following the sale of the initial software licenses. These products
and services are intended to assist the customers in being successful with their businesses.
These products are sold and delivered completely by third parties. The Company receives
commissions from these third parties, and recognizes the commissions as revenue as the
commissions are received in cash, net of expected customer refunds, in accordance with EITF
No. 99-19.
Impact on Revenue Recognition Due to Change of Business Model in December 2005
Product and Other Revenue
In December 2005, the Company changed its business model to: (1) limit the “free” access
service to a period of one year for all customers who purchased the SOS software prior to
December 20, 2005, and (2) begin charging customers for access services as part of customer
support. The Company’s general counsel has reviewed the agreements between the
Company and the Company’s customers and is of the opinion that the Company has the legal
right to limit the “free” access service to one year for all existing customers and that such
position would be upheld by a court of law. In December 2005, customers who were beyond
their one-year “free” access service period began renewing and paying for their customer
support and access services on either a monthly or an annual basis.
Additionally, beginning December 20, 2005, all new customers are no longer offered the “oneyear
free” customer support and access services in connection with their purchases of
software licenses. All sales after that date require the customers to pay separately for
customer support and access services either on a monthly basis or an annual basis.
As a result of this change in business model in December 2005, the Company: (1) established
VSOE of fair value for the combined access and customer support services, and (2) delivered
all remaining elements of the multiple-element arrangements for all customers existing prior to
December 27, 2004. Therefore, in December 2005, the Company recognized revenue for all
fees collected for delivered elements, less the VSOE of fair value of the undelivered element
(the residual method). The Company recognized $117.5 million of previously deferred product
and other revenue during the three months ended December 31, 2005 as a result of this
change in business model.
Fees for SOS software licenses sold under EPTAs are recognized as revenue as cash
payments are received from the customers and not at the time of sale. Although the Company
is able to reasonably estimate the collectibility of its receivables based upon its long history of
offering EPTAs, SOP 97-2 requires revenue to be deferred until customer payments are
received if collection of the original principal balance is not probable. Additionally, if the
Company subsequently sells the receivables on a non-recourse basis, SOP 97-2 requires that
the related revenue be deferred until the customer makes cash payments to the third-party
purchaser of the receivables.
Revenue is not recognized until after the customers` three-day rescission rights have expired.
Sales of SOS software licenses are recognized as revenue at the time the software is
delivered (assuming VSOE of fair value of all elements in multiple-element arrangements have
been established). Revenue recognized is based upon the total fees collected less the VSOE
of fair value of any undelivered products or services that do not involve significant production,
modification, or customization of the SOS software.
Fees collected for services, including customer support, website access, and website hosting,
are recognized as revenue over the period during which the services are expected to be
performed, based upon the VSOE of 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.
Commission and Other Revenue
The Company also has contracts with third-party entities with respect to telemarketing product
sales to the Company’s customers following the sale of the initial software licenses. These
products and services are intended to assist the customers in being successful with their
businesses. These products are sold and delivered completely by third parties. The Company
receives commissions from these third parties, and recognizes the commissions as revenue as
the commissions are received in cash, net of expected customer refunds, in accordance with
EITF No. 99-19.
About iMergent
iMergent provides eCommerce solutions to entrepreneurs and small businesses enabling them to
market and sell their business products or ideas via the Internet. Headquartered in Orem, Utah the
Company sells its proprietary StoresOnline software and training services, helping users build a
successful Internet strategy to market products, accept online orders, analyze marketing
performance, and manage pricing and customers. In addition to software, iMergent offers site
development, web hosting, marketing and mentoring products. iMergent typically reaches its target
audience through a concentrated direct marketing effort to fill Preview Sessions, in which a
StoresOnline expert reviews the product opportunities and costs. These sessions lead to a follow-up
Workshop Conference, where product and technology experts train potential users on the software
and encourage them to make purchases.
iMergent, Inc. and StoresOnline are trademarks of iMergent, Inc.
Safe Harbor Statement
Statements made in this press release that are not historical in nature constitute forwardlooking
statements within the meaning of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based on the current expectations and
beliefs of the management of iMergent and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those described in the
forward-looking statements. Such risks and uncertainties include, without limitation, the
Company’s continued ability to maintain operations; the ability to continue to provide domestic
and international workshops; the success of enhancing technology, ensuring outstanding
customer service, increasing website activation, increasing recurring revenue, broadening the
Company’s training offerings; increasing sales teams and workshops leveraging the
Company’s corporate and support infrastructure, and developing additional marketing
partnerships; that StoresOnline™ Pro provides the Company’s customers with a major
upgrade to the core product and enhances the ability to manage and grow their businesses;
the ability to maintain and expand the Company’s marketing relationships; the continuation of
revenue growth; the Company expects to continue to remain profitable; that the Company has
properly interpreted US GAAP in general and specifically relating to the Company properly
changing its business model resulting in the recognition of revenue that was previously
recorded as deferred revenue; the continued success of sales teams; that revenue growth will
continue in fiscal years 2006 and 2007; the proper training of additional sales teams; the ability
of the Company to diversify the customer base and drive new opportunities from multiple
revenue streams; the ability of the Company to roll out new proprietary product offerings; the
ability of the Company to add industry-leading partners or partnerships at all; the success of
and the continuation of reducing the Company’s working capital requirements and increasing
use of third-party financing in conjunction with domestic workshops; the ability to maintain and
increase margins; the ability to attract new customers; the Company’s added features gaining
and continuing to gain momentum in the marketplace; the ability to increase ancillary product
sales; the ability to create stronger ties with the company’s customers; the ability to drive
longer-term web hosting relationships and recurring revenue; the ability to continue to increase
earnings; the ability to increase the number of workshops as well as to continue to
maintain/increase training events; that the Company did in fact as a consequence of the
business model changes establish VSOE; that the Company did in fact deliver all remaining
elements of the multiple-element arrangements; the Company`s ability to attract and retain key
management and other personnel; the results of the class action lawsuits filed as well as the
potentiality of new proceedings being filed; employees complying with Company policies and
laws; the results of the pending appeal of the American Stock Exchange (AMEX) determination
to de-list the Company’s securities on AMEX; that the Company is in compliance with AMEX
listing requirements; the results of the Securities and Exchange Commission Division of
Corporation Finance’s review of the delinquently filed 2005 Form 10-K and Forms 10-Q for the
quarters ended September 30, 2005 and December 31, 2005; the possibility that the Securities
and Exchange Commission Division of Enforcement may initiate an enforcement action against
the Company or any of its officers or directors; the Company’s material weaknesses in internal
controls could prevent the Company from timely meeting its future reporting requirements; and
the volatility in its stock price pending resolution or resulting from the matters discussed above.
For a more detailed discussion of factors that affect iMergent`s operating results, please refer
to Management’s Discussion and Analysis of Financial Condition and Results of Operations in
its Form 10-K for the year ended June 30, 2005 and its Forms 10-Q for the quarterly periods
ended September 30, 2005 and December 31, 2005. The Company undertakes no obligation
to update this forward-looking information.
Company Contact:
Rob Lewis, CFO
iMergent, Inc.
801.431.4695
investor_relations@imergentinc.com
Investor Relations Contacts:
David Barnard & Kirsten Chapman
Lippert/Heilshorn & Assoc.
415.433.3777
David@lhai-sf.com
Media Contact:
David Politis
Politis Communications
801.523.3730
dpolitis@politis.com
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