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Article by DailyStocks_admin    (02-25-09 04:39 AM)

iMergent Inc. CEO STEVEN G MIHAYLO bought 155000 shares on 2-13-2009 at $3.56

BUSINESS OVERVIEW

We are an eServices company offering eCommerce technology, training and web-based technologies and resources to entrepreneurs and small businesses. Our StoresOnline eCommerce software and associated tools help our customers prepare, build, and manage their internet websites. Our tools also help our customers decrease the risks associated with eCommerce implementation by providing low-cost solutions with minimal lead-time, ongoing industry updates and support. Our strategic vision is to remain an eCommerce provider focused on our target market.

iMergent, Inc. was incorporated as a Nevada corporation on April 13, 1995. In November 1999, we were reincorporated under the laws of Delaware. Effective July 3, 2002, we changed our corporate name to “iMergent, Inc.” to better reflect the scope and direction of our business activities of assisting and providing web-based technology solutions to entrepreneurs and small businesses who are seeking to establish a viable eCommerce presence on the Internet.

iMERGENT WEBSITE

The mailing address of our headquarters is 754 East Technology Avenue, Orem, Utah 84097, and our telephone number at that location is (801) 227-0004. Our Website is www.imergentinc.com. Through a link on the Investor Relations section of our website, we make available the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”): our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed, or furnished, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge.

INDUSTRY BACKGROUND

The Internet has transformed the way business is conducted. To address this more competitive environment, successful companies must market dynamically, compete globally and communicate with a network of consumers and partners. Introducing a business to the Internet can unleash new opportunities for that business which drive revenue growth, services opportunities, product innovation, and operational efficiencies. Companies must be able to offer and deliver their services and products through the Internet to capitalize on this potential.

A company seeking to effect such a transformation or launch a business on the Internet often needs outside technical expertise to assist in identifying viable Internet tools, and to develop and implement strategies within a realistic budget. If the company or entrepreneur believes a rapid transformation or launch will lead to a competitive advantage, this assistance takes on even greater importance.

We believe this environment has created a significant and growing demand for third-party Internet professional services and has resulted in a proliferation of eServices companies offering specialized solutions, such as order processing, transaction reporting, help desk, training, consulting, security, website design and hosting. We believe there is a large, fragmented and under-served population of small businesses and entrepreneurs searching for professional services firms who offer business-to-consumer eCommerce solutions coupled with support and continuing education.

We believe this market requires a platform of products and services offerings which assist in a coordinated transformation or launch of a business in a way which embraces the opportunities presented by the Internet. Accordingly, we believe these organizations are increasingly searching for solutions to business-to-consumer eCommerce, which focuses on their requirements. These requirements include technology, education, creative design, transaction processing, data warehousing/hosting, transaction reporting and help desk support. Furthermore, we believe our target market will increasingly look to Internet solutions providers who leverage industry and customer practices, increase predictability of their Internet initiatives and decrease implementation risks by providing low-cost, scalable solutions with minimal lead-time.

OUR BUSINESS

Offering Services to Entrepreneurs and Small Businesses

We offer a continuum of services and technology to the small business owner and entrepreneur. Our services start with a complimentary 90-minute informational “Preview Training Session” for those interested in extending business to the Internet. These Preview Training Sessions have proven to increase awareness of and excitement for the opportunities presented by the Internet. At these Preview Training Sessions, our instructors (i) preview the advantages of establishing a website on the Internet, (ii) answer in general terms many of the most common questions new or prospective Internet merchants have, (iii) explain in general terms how to develop an effective internet strategy, and (iv) explain how to transform an existing “brick and mortar” company into a successful eCommerce enabled company.

At the Preview Training Session, the attending entrepreneur or small business owner is presented an opportunity to purchase a license to use our proprietary StoresOnline Express software and website development platform and thereby become an Internet merchant. The attending small business owner or entrepreneur is also presented an opportunity to attend a full day Internet Training Workshop. The StoresOnline Express software package includes the following products and services:

•

a license to create one fully enabled eCommerce website platform, with the option to host this website on the Company’s servers;

•

helpdesk technical support via on-line chat;

•

fully integrated StoresOnline shopping cart technology; and

•

Pay-Pal merchant account integration for real-time on-line credit card processing.

Approximately one to two weeks after each Preview Training Session, we return to conduct an intensive eight-hour Internet Training Workshop which delivers Internet eCommerce and website implementation training to the small business owners and entrepreneurs who purchased the StoresOnline Express package at the Preview Training Session. At the Internet Training Workshop, attendees learn more of the details, requirements, demands, tips, and techniques needed to extend their business or product to the Internet. These training workshops provide a plain English explanation of eCommerce requirements and tools, specific details and tips on how to promote and drive traffic to a website, and techniques to increase sales from a website.

In addition to the training provided at the workshop, our customer is presented an opportunity to upgrade the StoresOnline Express license to our proprietary StoresOnline Pro software and website development platform. We offer attendees of our workshops the following integrated package of products and services:

•

an upgraded license to create from one to an unlimited number of fully eCommerce enabled websites, with the option to host those websites on the Company’s servers;

•

helpdesk technical support via on-line chat, emails, and telephone, which also includes access to our detailed resource center of Internet marketing information;

•

tracking software to monitor website traffic (hits, unique visitors, page views, referring URL, search engine and keywords used, time of visit, etc.);

•

dropshipper integration;

•

merchant accounts for real-time on-line credit card processing;

•

testing and marketing software tools; and

•

Avail 24/7 communications package, an all-in-one email, phone, fax, and contact management solution.

The license to our StoresOnline Pro software and website development platform permits the customer to create one to an unlimited number of custom websites. If the customer prefers, our development team can assist with the design and setup of the website for an additional fee. Customers can choose to download the software and create websites which can be hosted by third-party providers, or host their websites with us for an additional monthly fee. The websites hosted by us allow the customers to take advantage of our hosting and support services.

Following the initial sale of the license, we seek to provide additional technology and services to our customers. We offer custom programming to create distinctive web page graphics and banners and to enhance websites with features such as streaming audio and video content. We have partnered with third-party companies who offer our customers additional marketing tools, training, and/or tax and legal services for their web businesses. We receive a commission from these companies when our customers purchase any of their products or services. For a fee, we allow third parties to market other products and services which we believe are complementary to our own products and services to our customers in our Preview Training Sessions and Internet Training Workshops, and through direct marketing. Furthermore, we continue to explore ideas, products and services to enhance ongoing customer training and assistance.

We are seeking to increase both the number of Preview Training Sessions and Internet Training Workshop in the United States and internationally. Initially, we are making product and services offerings into selected English-speaking countries in the Asia Pacific region, Canada and Europe. We are continuing to test and grow our international market strategies based on our experiences.

Seasonality

Our revenues are subject to seasonal fluctuations. Responses to our marketing for Preview Training Sessions and Internet Training Workshops historically have been lower during the period from June through Labor Day, and during the holiday season from Thanksgiving Day through the first few weeks of January.

Technology

We believe a key component of our success comes from a number of new, recently developed proprietary technologies. We believe these technologies and advances distinguish our services and products from our competitors. Our technologies include our website development software (StoresOnline Express and StoresOnline Pro), advanced editing liberties in terms of content and website creation, dynamic image creation, hosting environment and infrastructure, and total customer relationship management.

Our software platform has been continuously enhanced over the past decade and is an innovative website-building environment. Features and functions of our StoresOnline software include:

•

during website development, our customers can experience the look and feel of their websites as if they were their own customers. They can shop, navigate, order products, track orders, and more. Should they want to change or add more elements, they can edit, rearrange, add, and delete the elements all within a dynamic, point-and-click environment;

•

all designs are customized based on the customers’ choices and arrangements. Customers can modify the look and feel of the design to complement their services or products. In addition, design modification and arrangement are executed within a streamlined, point-and-click environment;

•

blogs, online journals, message boards, and forums are easily integrated into the content of the website. As administrators, the customers have full control in terms of filtering content, allowing images, and other blog, message board, and forum permissions;

•

customizable forms address customer-specific needs. By using customized forms, our customers can set up secure, encrypted forms with improved ease to collect sensitive information from their customers. This is especially useful for service-based businesses, as these forms can be used for job, loan, or insurance applications, questionnaires, bids, quotes, etc; and

•

Avail 24/7 communications package, an all-in-one email, phone, fax, and contact management solution. This product allows businesses to manage all correspondence with customers in one easy-to-use application.

Sales and Marketing

Because most of our products are sold to persons who have attended both our Internet Training Workshop and our Preview Training Session, we make a significant investment to get the potential customers to our Internet Training Workshops. Therefore, the cost of customer acquisition and sell-through percentages are critical components to the success of our business. We are continuously testing and implementing changes to our business model, which are intended to further reduce the level of investment necessary to get customers to attend our events and to increase our value proposition to these customers.

We advertise our Preview Training Sessions mostly through direct mail. The mailing lists we use are obtained from list brokers and the Company’s own database. The direct mail pieces are sent several weeks prior to the date of the Preview Training Session.

Research and Development

During the years ended June 30, 2008, 2007, and 2006, we invested $2,113,000, $1,243,000, and $916,000, respectively, in the research and development of our technologies. Almost all of this investment was for our StoresOnline Pro software platform. In general, our research and development efforts during fiscal 2008 consisted of the following:

•

integration with over ten dropshippers allowing for seamless product listings;

•

enhanced research tools, including Search Engine Optimization tools as well as new charting and graphing features;

•

integration of Avail 24/7 into StoresOnline Pro;

•

addition of social networking features such as product reviews and customer feedback; and

•

single sign-on features that simplify account management.

In general, our research and development efforts during fiscal 2007 consisted of the following:

•

Avail 24/7 communications package, an all-in-one email, phone, fax, and contact management solution;

•

enhanced research tools, including reverse search tools, and the Search Engine Optimization research tool;

•

integration with a variety of new payment processors including ECI-PAY2, YourPay, WorldPay, PayPalPro, PayPalPro UK, eLayaway, Eway, Enets SFA, Dynamic International Gateway, Optimal, BuyLine, and Google Checkout; and

•

enhancement to StoresOnline Pro including price sheets, agent integration (BidFrog/ClickSellGo/MyeB iz), Google site map, RSS support, site-branded confirmation emails, referrals for orders, and search engine optimizations on pages and product pages.

In general, our research and development efforts during fiscal 2006 consisted of the following:

•

StoresOnline Pro, which included the ability to design the look and feel of the site within the point-and-click environment;

•

enhanced interactive documentation (i.e., topical subjects, video instruction, bookmarks for topical study, and searchable content) for instructional need;

•

enhanced merchant services area to include searchable content, bookmarks for topical study, and the addition of several new marketing topics;

•

integration of Froogle.com for customer product feeds;

•

enhanced ability to recover/restore website content; and

•

new customer relationship management tools and interaction with hosted domain name management email alias management, and revised permission marketing management.

COMPETITION

Our markets are becoming increasingly competitive. Our competitors include companies that sell through workshop formats like ours, as well as portals, application service providers, software vendors, systems integrators and information technology consulting services providers.

Most of these competitors do not yet offer the full range of Internet professional services we believe our target market requires. These competitors could elect to focus additional resources in our target markets, which could materially adversely affect our business prospects, financial condition and results of operations. Many of our current and potential competitors have longer operating histories, larger customer bases, and longer relationships with customers and significantly greater financial, technical, marketing and public relations resources than we do.

Additionally, should we determine to pursue acquisition opportunities, we may compete with other companies with similar growth strategies. Some of these competitors may be larger and have greater financial and other resources. Competition for these acquisition targets could also result in increased prices of acquisition targets and a diminished pool of companies available for acquisition.

There are relatively low barriers to entry into our business. Our proprietary technology would not preclude or inhibit competitors from entering our markets. In particular, we anticipate new entrants will try to develop competing products and services or new forums for conducting eCommerce which could be deemed competitors. In addition, if eCommerce or Internet based enterprises with more resources and name recognition were to enter our market, they may redefine our industry and it would be difficult for us to compete with such enterprises.

Expected technology advances associated with the Internet, increasing use of the Internet, and new software products are welcome advancements that should broaden the Internet’s viability as a marketplace. We anticipate that we can compete successfully by relying on our infrastructure, marketing strategies and techniques, systems and procedures, and by adding additional products and services in the future. We believe we can continue our success by periodic revision to our product offers, marketing approach, and by continuing our expansion into international markets where we believe there is an overall lower level of competition.

INTELLECTUAL PROPERTY

Our success depends in part on using and protecting our proprietary technology and other intellectual property. In addition, we must conduct our operations without infringing on the proprietary rights of third parties. We also rely upon trade secrets and the know-how and expertise of our key employees and independent contractors. To protect our proprietary technology and other intellectual property, we rely on a combination of the protections provided by applicable copyright, trademark and trade secret laws, as well as confidentiality procedures and licensing arrangements. Although we believe we have taken appropriate steps to protect our intellectual property rights, including requiring employees and third parties who are granted access to our intellectual property to enter into confidentiality agreements, these measures may not be sufficient to protect our rights against third parties. Others may independently develop or otherwise acquire unpatented technologies or products similar to or superior to ours.

We license from third parties certain software and Internet tools which we include in our services and products. If any of these licenses were to be terminated, we could be required to seek licenses for similar software and Internet tools from other third parties or develop these tools internally. We may not be able to obtain such licenses or develop such tools in a timely fashion, on acceptable terms, or at all.

Companies participating in the software and Internet technology industries are frequently involved in disputes relating to intellectual property. We may in the future be required to defend our intellectual property rights against infringement, duplication, discovery and misappropriation by third parties or to defend against third-party claims of infringement. Likewise, disputes may arise in the future with respect to ownership of technology developed by employees who were previously employed by other companies. Any such litigation or disputes could be costly and divert our attention from our business. An adverse determination could subject us to significant liabilities to third parties, require us to seek licenses from, or pay royalties to, third parties, or require us to develop appropriate alternative technology. Some or all of these licenses may not be available to us on acceptable terms, or at all. In addition, we may be unable to develop alternate technology at an acceptable price, or at all. Any of these events could have a material adverse effect on our business prospects, financial condition and results of operations.

EMPLOYEES

As of August 11, 2008, we had 340 employees; 281 full time and 59 part time, including 4 executives, 119 in sales, 20 in marketing and event planning, 22 in the development of our eCommerce solutions and IT, 21 in website production, 49 in event reservations, 50 in customer support and 55 in finance, legal and general administration. We also draw from a pool of 94 independent contractors; 36 of whom are guest presenters, sales consultants, and trainers. We have never experienced any labor disruption and are not party to any collective bargaining agreements. We believe that our employee relations are good.

GOVERNMENTAL REGULATION

We are subject to regulations applicable to businesses generally. In addition, because of our workshop sales format, we are subject to laws and regulations concerning sales and marketing practices, and particularly those with regard to business opportunities, franchises and selling practices. We assert we do not offer our customers a “business opportunity” or a “franchise”, as those terms are defined in applicable statutes of the states in which we operate. In general, with the exception of California, in order to be subject to business opportunity regulations in a state, it is normally required we make a representation guaranteeing a return in excess of the purchase price and/or provide a marketing plan, both of which we assert we do not do. However, various states have contended we do sell a business opportunity. There is no guarantee we may not be required to register as a seller of a business opportunity in some states in which we do business. The requirement to register may have an adverse impact on our business. We believe we operate in compliance with laws concerning sales practices, which laws in some jurisdictions require us to offer the customer a three-day right of rescission (i.e., to cancel the sale) for workshop purchases. If we are required to register as a seller of business opportunities there may be rescission requirement in excess of three days. Although we do not believe we are required to offer rescission rights in most states, we voluntarily provide such rights. These rights could reduce our sales if customers who purchase products and services at our workshops elected to exercise those rights.

We are also subject to an increasing number of laws and regulations directly applicable to access to, and commerce on, the Internet. In addition, due to the increasing popularity and use of the Internet, it is probable additional laws and regulations will be adopted in the future, addressing issues such as user privacy and pricing and quality of products and services. The adoption of any such additional laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for our products or services. Such laws may also increase our costs of doing business or otherwise have an adverse effect on our business prospects, financial condition or results of operations. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, libel, and personal privacy is uncertain. In particular, our initial contact with some of our customers is through e-mail. The use of e-mail for this purpose has become the subject of a number of recently adopted and proposed laws and regulations. Future federal or state legislation or regulation could have a material adverse effect on our business prospects, financial condition and results of operations.

INTERNATIONAL OPERATIONS

For a discussion of revenues relating to our international activities, see Note 2 (r), entitled Segment Information, in our consolidated financial statements.

ITEM 1A.

RISK FACTORS.

You should carefully consider the following risks before making an investment in our Company. In addition, you should keep in mind that the risks described below are not the only risks that we face. The risks described below are the risks that we currently believe are material to our business. However, additional risks not presently known to us, or risks that we currently believe are not material, may also impair our business operations. You should also refer to the other information set forth in our Annual Report on Form 10-K, including the discussions set forth in “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as our consolidated financial statements and the related notes. Our business prospects, financial condition, or results of operations could be adversely affected by any of the following risks. If we are adversely affected by such risks, then the trading price of our common stock could decline, and you could lose all or part of your investment.

Proposed Federal Trade Commission rules could adversely impact the manner in which we solicit potential customers.

On April 5, 2006, the Federal Trade Commission (FTC), announced proposed rules, if adopted, could be construed or applied in a way which would negatively impact the manner in which we solicit potential customers and offer our customers our products. The FTC is currently requesting comments to the proposed rules. We cannot predict whether the proposed rules will be adopted. The proposed rules, if adopted, may be interpreted or applied in a manner which may limit the manner in which we market our products, which may reduce our revenue and profitability.

We have been subject to a number of claims by governmental agencies that we are required to register as a seller of business opportunities, including actions seeking restraining orders or injunctions, and adverse decisions in these matters could adversely affect our business.

We have been subject to a number of claims by governmental agencies which we are required to register as a seller of business opportunities. Several states have filed actions seeking injunctions requiring which we register as a business opportunity seller under their particular statutes. We have also been subject to actions seeking temporary restraining orders demanding registration. See Part I, Item 3, Legal Proceedings, for a discussion of the pending actions. In addition, no assurances can be given there will not be other jurisdictions which bring actions on similar grounds. We assert we do not sell a business opportunity and have not therefore registered as a seller under the various statutes. We have been limited in our ability to transact business in at least two states as a consequence of a restraining order. Any additional restraining orders entered against the Company could also have a material negative impact on sales and operations of the Company. If it is determined in any state we are required to register as a seller of business opportunities in order to engage in business in that state, the requirement to do so could materially impair us and/or force us to change our business model and consequently may adversely affect our revenue, increase our compliance costs and reduce our profitability.

Changes in international and domestic laws and regulations and the interpretation and enforcement of such laws and regulations could adversely impact our financial results or ability to conduct business.

We are subject to a variety of international, federal and state laws and regulations as well as oversight from a variety of international and domestic governmental agencies. The laws governing our business may change in ways that harm our business. Federal, state or foreign governmental agencies administering and enforcing such laws may also choose to interpret and apply them in ways that harm our business. These interpretations are also subject to change. Regulatory action could materially impair or force us to change our business model and may adversely affect our revenue, increase our compliance costs and reduce our profitability. In addition, governmental agencies such as the SEC, IRS or state taxing authorities may conclude that we have violated federal laws, state laws or their rules and regulations, and we could be subject to fines, penalties or other actions that could materially harm our business.

From time to time we are and have been the subject of governmental inquiries and investigations into our business practices that could require us to change our sales and marketing practices or pay damages or fines, which could negatively impact our financial results or ability to conduct business.

From time to time, we receive inquiries from federal, state, city and local government officials in the various jurisdictions in which we operate. These inquiries and investigations generally concern compliance with various city, county, state and/or federal regulations involving sales, representations made, customer service, refund policies, and marketing practices. We respond to these inquiries and have generally been successful in addressing the concerns of these persons and entities, without a formal complaint or charge being made, although there is often no formal closing of the inquiry or investigation. See Part I, Item 3, Legal Proceedings, for a discussion of some of these pending matters. There can be no assurance that the ultimate resolution of these or other inquiries and investigations will not have a material adverse effect on our business or operations, or that a formal complaint will not be initiated. We also receive complaints and inquiries in the ordinary course of our business from both customers and governmental and non-governmental bodies on behalf of customers, and in some cases these customer complaints have risen to the level of litigation. While we attempt to resolve these matters on a mutually satisfactory basis, there can be no assurance that the ultimate resolution of these matters will not have a material adverse affect on our business or results of operations.

We also are subject to various claims and legal proceedings covering matters which arise in the ordinary course of business. We believe the resolution of these other cases will not have a material adverse effect on our business, financial position, or results of operations.

From time to time we are and have been the subject of customer complaints and lawsuits relating to our business practices which could require us to change our sales and marketing practices or pay damages or fines, which could negatively impact our financial results.

We sometimes receive complaints and inquiries in the ordinary course of business from both customers and governmental and non-governmental bodies on behalf of customers and, in some cases, these customer complaints have resulted in litigation. Some of these matters are pending. The ultimate resolution of these matters may have a material adverse effect on our financial condition or results of operations.

We may be required to reduce our prices in order to compete which could negatively impact our profits.

As competition to our software continues to expand, we may be required to respond to additional competition which could require us to lower prices and engage in price competition. If intense price competition occurs, we may be forced to lower prices, which could result in lower revenue and gross margins .

We collect personal and credit card information from our customers and employees which could be subject to misuse.

We maintain credit card and other personal information in our systems. We need to preserve and protect our data and our customers’ data against loss, misuse, corruption, misappropriation caused by systems failures, unauthorized access or misuse. We could be subject to liability claims by individuals and customers whose data resides in our databases for the misuse of that information.

We are being investigated by the Securities and Exchange Commission, which could subject us to fines, penalties or other actions, which could adversely affect our financial results.

On October 24, 2005, the Company announced it had been notified by the SEC that it had issued a formal order of investigation related to the Company. Prior to the order, the Company had announced a change of the independent registered public accounting firm for the Company. The Company also issued a Form 8-K of Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. Although we have cooperated with the SEC in this matter, and intend to continue to cooperate with the SEC, the SEC may find that we have violated the securities laws. We cannot predict the ultimate outcome of the investigation, nor can we predict whether other federal, state or foreign governmental authorities will initiate separate investigations. The outcome of the investigation and any related legal and administrative proceedings could include the institution of administrative, civil, injunctive or criminal proceedings involving us and/or our current or former employees, officers and/or directors, the imposition of fines and other penalties, remedies and/or sanctions, modifications to business practices and compliance programs and/or referral to other governmental agencies for other actions. It is not possible to accurately predict, at this time, when matters relating to the investigation will be completed, the final outcome of the investigation, or what, if any, actions may be taken by the SEC or by other governmental agencies in federal, state or foreign jurisdictions. Such actions may negatively impact our consolidated financial statements, results of operations, business prospects or liquidity.

We are subject to claims that our software is “defective” and difficult to use and that a substantial number of our customers do not activate their web pages.

We have been subject to claims by purchasers that our software is “defective” and difficult to use. Our software is hosted remotely on our servers in Orem, Utah, and as such cannot be selectively defective, but the continual claims of defective software could have a negative effect on our ability to sell licenses. We have also been subject to various claims our software is hard to use. We contend our software is interactive, and can be used properly by our customers. However, the claims of it being difficult to use are investigated by various regulatory agencies, and the persistence of such claims by regulatory agencies, in the news media, and on the Internet, may have a substantial negative impact on our ability to transact business. The claims that a substantial number of our customers do not activate their web sites may impact the manner in which we conduct our seminars and may have a negative impact on our operations.

CEO BACKGROUND

Nominees of the Board

Our Board of Directors has nominated the following individuals to serve on our Board of Directors until our annual meeting of stockholders for the fiscal year ending June 30, 2010 or until their respective successors are elected. Each of the nominees has agreed to be named in this Proxy Statement and to serve if elected.


Director Name





Age





Class/Term

Donald Danks





51





I /2010

Todd Goergen





36





I/ 2010

David Williams





53





I/ 2010



MANAGEMENT DISCUSSION FROM LATEST 10K

“Management's Discussion and Analysis of Financial Condition and Results of Operations” and other portions of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by this forward-looking information. Factors that may cause such differences include, but are not limited to, those discussed under the heading, “Risk Factors,” and elsewhere in this report. “Management's Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this report.

OVERVIEW

Our Business, Industry and Target Market

iMergent, Inc. is incorporated under the laws of Delaware and is an eServices company that provides eCommerce technology, training and a variety of web-based technologies and resources to entrepreneurs and small businesses. Our eServices offerings leverage industry and client practices and are designed to help increase the predictability of success for Internet merchants. Our services are also designed to help decrease the risks associated with eCommerce implementation by providing low-cost, scalable solutions with ongoing industry updates and support. Our strategic vision is to remain an eCommerce provider focused on our target market. We sell and market our products and services in the United States and international (English-speaking) markets, including Canada, the UK, Australia, New Zealand, and Singapore.

Until our decision to reduce staff in December 2007, we had experienced significant growth in the operations of our business during the past several years. Although we incurred significant losses from operations until the quarter ended December 31, 2005 for financial reporting purposes, we have generated positive cash flows from operating activities for the past six years. The following discussion further expands on these trends.

Fluctuations in Quarterly Results and Seasonality

In view of our revenue recognition policies as required by U.S. generally accepted accounting principles (US GAAP) and the rapidly evolving nature of our business and the markets we serve, we believe period-to-period comparisons of our operating results, including operating expenses as a percentage of revenues and cash flows, are not necessarily meaningful and should not be relied upon as an indication of future performance. We operate with a June 30 fiscal year end and we experience seasonality in our business. Historically, revenues from our core business during the first fiscal quarter were lower than revenues during our second, third and fourth fiscal quarters. We believe this to be attributable to summer vacations that occur during our first fiscal quarter. We strive to mitigate seasonal fluctuations in our business by conducting workshops in non-seasonal markets throughout the world during periods of seasonality in our primary markets.

Developments Impacting Results of Operations and Cash Flows

In August 2005, we sold, without recourse, our trade receivables held for sale of $14,006,000 for the net carrying amount. We also entered into an agreement with a third-party financing company for the ongoing sale of our domestic trade receivables, if we desire. We have not sold any trade receivables since December 2005.

In September 2006, the Board of Directors authorized the repurchase of up to $20,000,000 of the Company’s common stock. In September 2007, the Company’s Board of Directors authorized the repurchase of an additional $50,000,000 of the Company’s common stock, bringing the total amount authorized for repurchase to $70,000,000 through September 2012. During the years ended June 30, 2008 and 2007, the Company repurchased 948,297 and 654,398 shares of common stock for $12,581,000 and $13,745,000, respectively. As of June 30, 2008, the Company is authorized to repurchase up to $43,675,000 of the Company’s common stock under this program.

In March 2007, the Board of Directors authorized the initiation of a quarterly cash dividend of $0.10 per common share. In September 2007, the Board of Directors increased the quarterly cash dividend to $0.11 per common share. For the years ended June 30, 2008 and 2007, $5,113,000 and $2,442,000 of dividends were declared and paid to common stockholders.

Change in Business Model

In December 2005, we changed our business model to require new customers to pay separately for customer support and access services on either a monthly or annual basis. Customers who purchased StoresOnline software prior to December 20, 2005 were limited to one year of “free” access service. The effects of these changes in our business model, including the recognition of $117,500,000 of previously deferred product and other revenue, are further described in our revenue recognition policies under “Critical Accounting Policies and Estimates” below.

Temporary Injunction in California

In August 2007, the Superior Court of California, County of Ventura, issued a temporary restraining order against us which prohibits us from conducting business in the State of California until, among other things; we register under the California Seller Assisted Marketing Plans Act. A more detailed explanation of this proceeding is contained in “Legal Proceedings” within this document. For the year ended June 30, 2007, sales in California represented approximately 12% of our total revenue. For the year ended June 30, 2008, we had an insignificant amount of sales in California.

Launch of StoresOnline Express Product

In March 2008, we completed the launch of our StoresOnline Express product. The launch of StoresOnline Express required additional training of our sales staff and modifications to our promotional and seminar materials and seminar presentations.

Reduction in Staff

In December 2007, we reduced our employee base by 20% in an effort to streamline the launch of StoresOnline Express, visit targeted markets less frequently to cultivate greater demand, and reduce overall Company expenses.

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 us to make 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. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of 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 the Board of Directors and its Audit Committee.

A summary of our significant accounting policies is provided in Note 2 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

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 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 Training Workshops, they receive a license, a password, and instructions which 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 completely on their own without access to the Company website and the option to host their websites with another hosting service.

From October 1, 2000 through December 20, 2005, the Company allowed its customers unlimited access to the SOS 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 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 (i) sufficient VSOE of fair value exists for each product and service in the arrangement or (ii) all elements of the arrangement have been delivered. However, SOP 97-2 does provide for an exception if the only undelivered elements are services which 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, prior to the Company’s change in business model in December 2005 discussed below, all fees collected for the software products, setup services, customer support, hosting services, and follow up workshops were deferred and recognized ratably over the five-year access service period, net of expected customer refunds. Fees related to extended payment term arrangement (EPTA) contracts are deferred and recognized as revenue during 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 with their Internet businesses. These products are sold and delivered entirely 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 Emerging Issues Task Force (EITF) No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent.”

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: (i) limit the “free” access service to a period of one year for all customers who purchased the SOS prior to December 20, 2005, and (ii) begin charging customers for access services as part of customer support. The Company’s general counsel reviewed the agreements between the Company and the Company’s customers and is of the opinion that the Company had the legal right to limit the “free” access service to one year for all existing customers at that time 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.

As a result of this change in business model in December 2005, the Company: (i) established VSOE of fair value for the combined access and customer support services, and (ii) 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 approximately $117,500,000 of previously deferred product and other revenue during the three months ended December 31, 2005 as a result of this change in business model.

Cash sales of SOS licenses and other products are now recognized as revenue, net of expected customer refunds, upon expiration of the customers’ rescission period, which occurs three days after the licenses and products are delivered.

Fees for SOS licenses sold under EPTAs are recognized as revenue as cash payments are received from the customer and not at the time of sale. Although the Company is able to reasonably estimate the collectability 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.

Fees collected for services, including customer support, website access, and website hosting, are recognized as revenue, net of expected customer refunds, 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.

In April 2007, the Company began marketing and selling Avail 24/7, an all-in-one communications service which assists small businesses and entrepreneurs in the management of 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 estimated to be four and one half years. The monthly service fee is recognized ratably over the service period.

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

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 with their Internet businesses. These products are sold and delivered entirely 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.

Allowance for Doubtful Accounts

The Company offers to its customers the option to finance, through EPTAs, purchases made at the Internet Training Workshops. The Company records 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 retained by the Company are netted against the current and long-term trade receivable balances in the 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.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Information on certain legal proceedings that we believe are material to our business is set forth in “Part I – Item 3. Legal Proceedings” to the Company’s Annual Report on Form 10-K for the year ended June 30, 2008 and the Company’s Quarterly Report on form 10-Q for the period ended September 30, 2008. Other than the information regarding the legal proceedings set forth under “Legal Proceedings" in Note 8 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, there were no material changes from the legal proceedings previously disclosed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008 and the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2008. The information regarding legal proceedings as set forth under "Legal Proceedings" in Note 8 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, is incorporated herein by reference.

Item 1A.

Risk Factors

There are many risk factors that affect our business and the results of our operations, many of which are beyond our control. Information on certain risks that we believe are material to our business is set forth in “Part I – Item 1A. Risk Factors” to the Company’s Annual Report on Form 10-K for the year ended June 30, 2008. Other than the updates and changes reflected by the revised and new risk factors set forth below, there were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008.

Examinations by relevant tax authorities may result in material changes in related tax reserves for tax positions taken in previously filed tax returns and may impact on-going future business practices, financial position, results of operations, cash flows, and the valuation of certain deferred income tax assets, such as net operating loss carryforwards.

The Internal Revenue Service (“IRS”) is currently auditing our income tax return for fiscal years 2007, 2006, and 2005. In October 2008, we received a Notice of Proposed Adjustment from the IRS contesting the deductibility, under the provisions of Internal Revenue Code Section 274 (“Section 274”), of 50% of the cost of meals provided to attendees at our preview and workshop training sessions. We contend that these meals are excluded from the deduction limitations of Section 274.

The IRS has also challenged our ability to utilize our Net Operating Losses (“NOL’s”) as a result of limitations imposed by Internal Revenue Code Section 382 (“Section 382”). The Notice of Proposed Adjustment from the IRS contends that the utilization of some of our NOL’s should be limited to approximately $460,000 per year. We contend that the limitation imposed by Section 382 is significantly higher than $460,000. Section 382 imposes limitations on a corporation's ability to utilize its NOLs if it experiences an “ownership change.” In general terms, an ownership change results from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. From the time of our formation through fiscal 2002, we issued a significant number of shares, resulting in two changes of control, as defined by Section 382. As a result of the most recent ownership change, utilization of our NOLs is subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate resulting in an annual limitation amount. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased by the “recognized built-in gains” that occur during the five-year period after the ownership change (the “recognition period”).

Additionally, in November 2008, we received an examination report from the IRS which also contested our ability to utilize our NOL’s during fiscal years ended June 30, 2004 and 2003 under Section 481(a) based upon a purported IRS change to our “method of accounting” with respect to our recognized built-in-gains described above. We believe that the IRS’ assertion that its proposed adjustments to our realized built-in gains is a change in accounting method under the provisions of Section 481(a) is without merit.

If we are unsuccessful in disputing these adjustments proposed by the IRS, our total liability would be approximately $31,407,000, inclusive of interest and penalties. We would experience a material adverse effect on our business, financial position, results of operations, and cash flows if we are unsuccessful in disputing these adjustments proposed by the IRS. Additionally, if we are unable to deduct 100% of the cost of the meals provided to attendees of our preview and workshop training sessions in future income tax filings, our future income tax provisions could exceed income before income tax provision resulting in future net losses and net losses per common share despite recording income from operations. Consequently, our business, financial position, results of operations and cash flows would be materially adversely affected in future periods and we would be forced to reconsider our business model.

Adverse publicity and/ or negative consumer ratings could reduce customer interest in our workshops and harm our financial results.

We have received adverse publicity concerning our business. We have also received negative ratings from consumer advocacy groups including, but not limited to, the Better Business Bureau, and may, in the future, receive additional adverse publicity or negative ratings concerning our business. Adverse publicity and negative ratings concerning our business, including our Internet Training Workshops, products, services, management or legal proceedings could reduce the response rates to our advertisements, reduce attendance and purchase rates at our workshops and third-party sales to our customers, and thereby adversely affect our revenues. We do not always know when adverse publicity may occur and cannot accurately predict its impact on our business and results of operations.

We have incurred operating losses.

We have sustained operating losses over the first and second fiscal quarters of 2009. Our ability to reestablish profitability and positive cash flow will depend on factors including but not limited to our ability to (i) reduce costs, (ii) improve our marketing, (iii) response to the current economic slowdown, (iv) reach more highly qualified prospects , (v) achieve operational improvements and (vi) improve results of sales.

(a)

All shares were purchased in open-market transactions. The Company’s share purchase program was originally announced on September 5, 2006. On September 4, 2007, the Company’s Board of Directors authorized the repurchase of an additional $50,000,000 of the Company’s common stock, bringing the total amount authorized for repurchase to $70,000,000 through September 2012.

CONF CALL

Steven Mihaylo

Good afternoon everyone. Before we get started here, I'd like to introduce the people that are on the call with me. We have Mr. Clint Sanderson, our Vice President of Sales. We have Mr. Jeff Korn, our Chief Council. We have Mr. John Ericson, our new Chief Financial Officer and we have Mr. Rob Lewis, our retiring Chief Financial Officer.

I'm going to give a brief overview of the financial results, then we're going to have Rob and John give us some more granularity on it, but before we do that, I'm going to have Jeff Korn read the safe harbor information.

Jeff Korn

Statements and comments made on this call whether or not historical in nature constitute forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Reform Act of 1995. These statements and comments are based on the current expectations and belief 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 and from management's current expectations.

For a more detailed discussion of factors that affect iMergent's operating results, please refer to its SEC reports including it's most recent 10-K and Forms 10-Q. The company undertakes no obligation to update this forward information. With this, I'll turn the call back over to Steve.

Steven Mihaylo

Let me just go through the high level numbers here for the fiscal quarter ended December 31, 2009. We had $26.9 million in sales compared with $38.9 million and this was after provision of $650,000 for refunds that we expect due to various legal matters. Had those not been factored in the numbers would have been $27.5 million compared to $39.9 million.

Revenues were negatively impacted by the number of cash sales we had in our workshops compared to the previous year. We had 42% in the '09 quarter versus 57% in the '08 quarter. For the second quarter we had a loss from operations of $6.9 million compared to a loss from operations of $143,000 in the same quarter last year.

The loss before income tax provisions for the second quarter of '09 was $5.7 million compared to income before income tax provisions of $2.5 million for the second quarter last year. Excluding significant charges of $2.6 million mentioned above, loss before income tax provisions would have been $3.1 million for the second quarter of fiscal 2009.

Finally, after all of the provisions mentioned above, our net loss for the second quarter of 2009 was $10.1 million or $0.89 per common share compared to $1.6 million or $0.14 per common share in the same quarter last year.

For the six months ended December 31, 2008 compared to 2007 we had revenues for the six months December 31, 2008 of $54.1 million compared to $71.4 million for the second quarter in the same period last year. The total operating expenses during that period were $64.3 million compared to $74.9 million for the same period last year so you can see we're already chipping away at that metric quite nicely.

For the six months December 31, 2008 net loss was $17.6 million or $1.55 per diluted share which includes a $10.3 million tax provision. Net income for the six months ended December 31, 2007 was $846,000 or $0.07 per diluted share. Cash used in operations during this period was $6.1 million compared to generating $2.4 million.

I'm not going to sugar coat the pill here. Obviously we're very disappointed in the results. We had what I would describe as a perfect storm between the IRS and various legal matters plus the economic conditions which generated these results.

We've already as you know from press releases, we've taken significant steps to mitigate these results going forward which include a reduction in approximately 20% of head count and we're also reviewing additional opportunities in the marketplace for additional revenue streams as well as our go to market strategy which we'll discuss later on.

Before I turn this over to our financial people to discuss the granularity, what I'd like to do is turn it over to Jeff Korn for a moment because we did have a press release just recently about the situation in California. I'm going to have Jeff discuss that, then we'll go to the granularity of the numbers, and then we'll open it up to a Q&A.

Jeff Korn

I do want to take this opportunity to update everyone on the status of the negotiations with California. As you're aware, there's a temporary injunction which prohibits us from selling any product with an initial consideration in excess of $500 without first registering as under the State SAMP Act.

We had appealed that determination of the trial court seeking ruling of the SAMP Act as unconstitutionally vague as it requires registration based on a representation that someone "can make more than their initial investment". As you also know, the Court of Appeals denied our appeal and ruled that in fact the statute was constitutional. The Court also refused to find the injunction with State pending the final hearing and the trial court.

With all due respect to the Court of Appeals, we disagree that the statute is not vague. The term can removes the statute from the specific into the infinite and vague and as almost any representation about our software would include the vague possibility no matter how remote that you could possibly be successful, and therefore fell within the realm of can.

It is clear that we would not have a trial for an extended period of time, and as such we would be precluded from selling any product in the State of California also for an extended period of time.

We also as you know, advanced the argument that express software is outside the scope of the statute. The initial required consideration there is considerably less than $500. We however, offer to our customers the ability to upgrade to Pro which is at a cost in excess of $500. Both I and our council believe that this model is outside the scope of the statute.

The State however, contends that the upgrade sale is part of the initial sale and therefore would be covered by both the statute and the injunction. The State has made it clear that if we were to hold any upgrade seminar sales, they would seek a further injunction and seek to hold us in contempt.

While we believe we ultimately would prevail on that argument that express and the upgrade is outside the scope of the injunction, it is probable that the court would include that in the injunction and leave us with the real possibility of being excluded from California for a substantial number of years in the future. The case with California also includes claims for damages for violating consumer protection law and for alleged violation of the SAMP Act.

Considering all the foregoing we have been negotiating with California on a global settlement. The parameters of the settlement would be one; we would agree to register as a SAMP. This would not change our model as we would be able to invite people to an Express preview which would be outside the scope of the injunction in the SAMP and if they purchase at the preview, we would then provide them with the necessary disclosures which would allow them to upgrade and purchase at the workshop. We already provide most of the disclosures required by the SAMP Act.

We would agree to pay costs and refunds totaling $850,000. We would still have notification and other ancillary requirements, but this would provide finality to the litigation and allow us to begin very shortly transacting business in California.

If for some reason the final terms cannot be agreed to, we still reserve the right to immediately hold Express seminars and the right to consider holding upgrade Pro seminars. I don't want to give any more information at this point so as not to compromise our finishing negotiations.

Steven Mihaylo

At this point I'd like to turn this over to Rob Lewis, our retiring CFO and Mr. John Ericson, our incoming CFO.

Robert Lewis

Revenues for the second quarter for fiscal 2009 were $26.9 million compared to $38.9 million for the second quarter of fiscal 2008. Revenues were negatively impacted by additional reserves of $650,000 in customer refunds associated with various legal matters.

Revenue for the second quarter fiscal 2009 excluding the charge for customer refunds was $27.5 million. Revenue was also negatively impacted as Steve mentioned by approximately $4.2 million due to a decrease in cash purchases to 42% in second quarter fiscal 2009 compared to 57% during the second quarter of last year.

Because the company records revenue as cash it has received and not at the time of the sale, the decrease in percent of cash purchases negatively impacted revenue, operating income and cash flows from operating activities during the second quarter of fiscal 2009.

During the second quarter of fiscal 2009 the average number of people attending our workshops was 87, up from 82 in the prior year. The average purchase price increased to $5,050 during the current quarter from $4,850 in the prior year quarter.

Total operating expenses were lower at $33.8 million for the second quarter of fiscal 2009 compared to $39.1 million for the second quarter last year, primarily as a result of the lower number of workshops conducted.

Total operating expenses were negatively impacted by significant charges of $1.9 million for reserves for outstanding legal matters, probable losses of excess office space and write offs of certain advertising and other assets. Total operating expenses for the second quarter of fiscal 2009 excluding these significant charges were $31.9 million.

Selling and marketing expenses as a percentage of revenue were negatively impacted by lower response rates at our preview seminars and low response rate to our advertising incentives internationally as a result of the softening economy. Selling and marketing expenses were also negatively impacted by increased costs for advertising incentives.

General administrative costs increased primarily due to the significant charges previously described and an increase in accounting fees of $115,000 associated with the IRS audit. For the second quarter fiscal 2009, the company had a loss from operations of $6.9 million compared to a loss from operations of $143,000 in the same quarter last year.

Other income was $1.2 million for the quarter which included $1.8 million in interest income compared to $2.6 million of other income for the second quarter of last year which included $2.4 million of interest income.

Loss before income tax provision for the second quarter of fiscal 2009 was $5.7 million compared to income before income tax provision of $2.5 million for the second quarter of last year. Loss before income tax provision excluding charges was $3.1 million for the second quarter of fiscal 2009.

In October 2008, we received notice from the Internal Revenue Service contesting the company's deduction of 100% of the cost of meals that we provide to attendees at our previous seminars and workshops. The IRS contended only 50% of these costs of these meals provided to attendees is deductible. We contended that the meals are excluded from the deduction limitations of the IRS code section 274.

The IRS has also challenged our ability to utilize more than $460,000 of our net operating losses per year. We contend the limitations are significantly higher than $460,000 per year under IRS code section 382.

In November 2008, the company received an examination report from the IRS which also contested the company's ability to utilize it's NOL's during its fiscal years ended June 30, 2004 and 2003 under IRS code section 41. The company believes the IRS assertion that the NOL should be limited during those years is without merit and beyond the statute of limitations.

While the company believes it will be able to defend its positions, based on settlement discussions with the IRS and the analysis performed in accordance with FAS interpretation number 48, the company has established a reserve of $9.3 million for the potential tax, penalties and interest costs and evaluation allowance of $3.6 million against certain deferred income tax assets as of December 31, 2008.

As a result of the income tax reserve resulting from the IRS audit previously described, the provision for income taxes for the second quarter of fiscal 2009 was $4.5 million compared to an income tax provision of $844,000 in the same quarter last year.

Net loss for the second quarter of fiscal 2009 was $10.1 million or $0.89 per common share compared to net income of $1.6 million or $0.14 per common share in the same quarter last year. Net loss for the second quarter fiscal 2009 excluding non recurring significant charges and assuming an income tax benefit of 40%, was $1.9 million.

For the first six months of fiscal 2009 revenues for the six months ended December 31, 2008, were $54.1 million compared to $71.4 million for the same period last year. Total operating expenses were $64.3 million compared to $74.9 million in the same period last year.

For the six months ended December 31, 2008 net loss was $17.6 million or $1.55 per common share which included a $10.3 million income tax provision related to the reserves and valuation allowance described earlier. Net income for the six months ended December 31, 2007 was $846,000 or $0.07 per diluted common share.

Now for a review of our cash flows and balance sheet. Our cash flow during the quarter was negatively impacted by a reduction in revenue of 31% and a decrease in cash purchases of 57% during second quarter fiscal 2008 to 42% during the second quarter of 2009. Consequently, cash used by operating activities during the second quarter was $5.6 million compared to cash provided by operating activities of $2.0 million during the same quarter last year.

As of December 31, 2008 cash and cash equivalents were $18.8 million. Working capital was $14.1 million and working capital excluding deferred revenue was $42.2 million. Total current and long term net trade receivables were $37.7 million at December 31, 2008.

On a personal note, this will be my last conference call as the CFO of iMergent. It has been my pleasure to have worked for iMergent for the past five years. I have very much enjoyed working with a dynamic and talented management team here.

I have accepted an opportunity I simply could not refuse. While I will miss the people here, I know I leave the company in very capable hands. I also believe that change within an organization is good. I firmly believe in Steve Mihaylo's vision for iMergent Inc. and that the changes he and his team are making will benefit the company, its customers and its shareholders.

I also believe that these changes will produce long term sustainable growth and profitability over time. I'm excited that John Ericson will be assuming the position as iMergent's CFO effective February 7. John is a very talented, knowledgeable and integral part of the management team of iMergent. I'm confident that he will continue to be a valuable asset to iMergent in his capacity of CFO.

With that, I'll turn the call back to Steve Mihaylo.

Steve Mihaylo

At this time, we'll open this up for Q&A and many of the questions can be directed at me and if I feel that there's somebody else that can give a more detailed answer, I'll turn it over to them.


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