OREM, Utah– LAWFUEL – Law News, Law Jobs –iMergent, Inc. (AMEX:IIG), a leading provider of eCommerce and software for small businesses and entrepreneurs, was notified on December 19th of a press release issued by the Illinois Attorney General (AG) on December 18th, announcing the AG has filed suit against StoresOnline, Inc. and Galaxy Mall, Inc. iMergent has not been served with nor has it been provided with a copy of the complaint, but the company categorically denies the alleged and unsubstantiated claims about iMergent’s business practices outlined in the release.
Jeffery Korn, general counsel of iMergent, stated, “We are quite confused by these allegations. During the past three years, over 10,000 people from Illinois have attended our workshops resulting in nearly 2,400 StoresOnline™ customers. During the same period, we have received only 11 complaints from the AG’s office – equivalent to one half of one percent – which were all fully resolved expeditiously. We are extremely surprised to learn about the action, because the AG’s office has made no attempt whatsoever to contact iMergent to discuss our business model. We are also perplexed the release cites Galaxy Mall, as that entity has not transacted business for over five years.”
Don Danks, chairman and chief executive officer, stated, “Our business continues to be very strong, and we do not expect this event to have any impact on our results. As such, we reiterate the financial guidance provided December 19th in a press release, based upon strong demand, traction from our sales teams, our reentrance into the international market and the exceptional opportunities afforded the company with our marketing partnerships. We expect fiscal 2007 Net Dollar Volume of Contracts Written (NDVCW) to grow 35 percent over fiscal 2006.” The company defines NDVCW as the gross dollar amount of contracts executed during the period less estimates for bad debts, discounts incurred on sales of trade receivables, and estimates for customer returns. Although NDVCW is a non-U.S. generally accepted accounting principles (GAAP) metric, the company believes is a relevant metric to understand the company’s operations.
Danks continued, “Consistently proving our sound business practices, in prior lawsuits, we have never been found to act improperly, defraud or use deceptive practices. As I have said in the past, it is our intention and resolve to aggressively litigate any similar actions. We have hired in-house litigation counsel to manage these matters as well as the costs of litigation. We are extremely confident we will prevail again.”
In the last year, iMergent’s business practices have been thoroughly scrutinized by the State of Texas, the State of California and the Australian Competition and Consumer Commission (ACCC). In every case, there have been no findings whatsoever against the company. Throughout this scrutiny, iMergent has been able to demonstrate, and it is important to understand the following.
Upon invitation to its preview sessions, iMergent informs attendees they will be afforded the opportunity to buy StoresOnline licenses.
iMergent provides two weeks between its preview session and its full-day training workshops to allow potential customers to conduct diligence on the company and its products.
iMergent fully discloses product features and capabilities as well as customer requirements in its workshops.
Upon purchase, iMergent offers and honors an unconditional three-day right to rescind.
iMergent provides customers with training and 24/7 customer support.
Finally, iMergent informs customers at the workshops and on customer service interactions that iMergent programmers are available to build an entire customer web site for a $150.00 fee.
Danks concluded, “We have developed a track record of delivering excellent training, best of breed software and world class customer support to our clients. We are confident these facts will be proven, and I believe with great certainty that we will prevail against this action.”
Safe Harbor Statement
Statements made in this press release that are not historical in nature constitute forward-looking 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 risks 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; whether the action will have a material impact on the business of the Company; the Company’s ability to continue to provide domestic and international workshops; whether the Company will be determined to have engaged in any of the actions alleged by the State of Illinois; whether the Company will vigorously defend any action raised by the State of Illinois, whether the Company will be able to resolve and continue to resolve complaints, whether the Company will manage this and other litigation and their incident costs; whether there is any basis for the State of Illinois to have included Galaxy Mall; whether the Company can consistently prove its sound business practices; whether the Company will prevail in this action, or other actions; whether in fact strong demand and traction from the Company’s sales teams, reentrance into the international market and the opportunities afforded the company with its marketing partnerships will generate revenue and an increase in NDVCW, whether the financial guidance issued by the Company will be realized; whether in fact the Company fully discloses product features and capabilities as well as customer requirements; whether in fact the Company customers with training and 24/7 customer service; whether in fact the Company has offered and will continue to offer and honor an unconditional three-day right to rescind; whether the Company has and will continue to provide two weeks between its preview session and its full-day training workshops to allow potential customers to conduct diligence on the company and its products; whether in fact the Company is law-abiding, does not defraud nor use deceptive practices whether regulatory authorities will bring future actions against iMergent. For a more detailed discussion of factors that affect iMergent’s operations, please refer to the Company’s Form 10-K for the year ended June 30, 2006 and its Form 10-Q for the quarterly period ended September 30, 2006. The Company undertakes no obligation to update this forward-looking information.
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.
Net Dollar Volume of Contracts Written
Until the change in our business model in late December 2005, the Company recognized product and other revenue ratably over a period of five years and not at the time contracts were written in accordance with US GAAP. Effective December 2005, the Company began recognizing product and other revenue after the expiration of the three-day cancellation period for contracts written for which cash payments were received. For products purchased by customers under extended payment term arrangements, the Company continues to defer and recognize revenue as cash payments are received from customers, typically over two years.
Because of the changes in the Company’s revenue recognition policies resulting from the change in business model noted above and due to the Company’s growth, management believes that the net dollar volume of contracts written is a consistent and relevant metric to understand the operations of the Company. Net dollar volume of contracts written represents the gross dollar amount of contracts executed during the period less estimates for bad debts, discounts incurred on sales of trade receivables (financial discounts), and estimates for customer returns. Management uses this non-GAAP metric to evaluate the profitability of the Company’s operations because net dollar volume of contracts written is the primary factor that influences cost of revenue and selling and marketing expenses, which are typically recognized at the time the contract is written but no later than the expiration of the customer’s three-day cancellation period. Consequently, management measures the Company’s operating performance and sets its future operating budgets based upon the net dollar volume of contracts written during the period.
Net dollar volume of contracts written is not equivalent to revenue recognized in accordance with US GAAP. This non-GAAP metric represents cash contracts written plus estimates of future cash collections on financed contracts, net of estimated customer returns. In contrast, revenue recognized in accordance with US GAAP represents cash contracts written net of estimated customer returns plus actual cash collections on financed contracts. Actual collections on financed contracts and customer returns may differ materially from original estimates. However, the Company has several years of experience with the financing arrangements and products and services offered to its customers. Consequently, management believes it has a reasonable basis for its estimates.
Rob Lewis, 801-431-4695 (CFO)
Lippert/Heilshorn & Assoc.
Kirsten Chapman, 415-433-3777 (Investor Relations)
David Politis, 801-523-3730 (Media)