Room 4561
May 19, 2005
Robert M. Lewis
Chief Financial Officer
Imergent, Inc.
754 East Technology Avenue
Orem, UT 84097
RE: Imergent, Inc.
Form 10-K for fiscal year ended June 30, 2004
File No. 000-20190
Dear Mr. Lewis:
We have reviewed the above referenced filings and have the
following comments. Please note that we have limited the scope of
our review to the matters addressed in our comments. Where
indicated, we think you should revise your document in response to
these comments. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the Fiscal Year Ended June 30, 2004
Consolidated Financial Statements
Statement of Operations, page 43
1. Supplementally, tell us how you have considered the disclosure
requirements of Rule 5-03(b) of Regulation S-X in disclosing
product
and service revenues and related costs separately.
Note 2. Summary of Significant Accounting Policies
(d) Accounts Receivables and Allowances, page 46
2. We are aware of certain statements made by your CEO in the
First
Albany Sales Force Call held on February 25, 2005 regarding the
policies and procedures used to determine your allowances for
doubtful accounts. These statements appear to indicate that
reserves
are consistently recorded at rates in excess of your actual bad
debt
experience on both your "A" and "B" installment contracts. This
practice was characterized by your CEO as "conservative" and he
indicated that you "over reserve" and will be able to "add income
as
we collect more than we`ve reserved for." Specific percentages
were
provided for the B contracts for which 50% is initially reserved
and
56% ultimately collected.
Supplementally, explain to us the meaning of these statements and
provide us with any analyses that were prepared to support the
statements. Provide us with your quarterly bad debt analyses used
to
support reserve levels both internally and to your auditors during
each of your last three fiscal years and subsequent interim
periods
through the date of your response. This information should be
provided separately for each of the different categories of
contracts. Provide us with information that details the percentage
of
total revenues reserved for each category of contracts by quarter
and
your actual collection rates. In addition, present reserves for
each
category as a percentage of the related gross receivables.
Finally,
indicate what amounts have been recognized as income due to "over
reserving" and whether your auditors considered such amounts, if
any,
to be audit differences.
3. Regarding the factors considered in determining the amount of
the
allowance for trade receivables, address the following:
* At what specific stage in the payment process are past due
receivables considered delinquent? Address both A and B contracts.
* Are additional allowances that are recorded subsequent to
contract
inception specific to individual contracts or of a general nature?
* How was the 15% reserve allowance determined as it relates to A
contracts?
* How was the 50% reserve allowance determined as it relates to B
contracts?
* How do you evaluate the customer`s ongoing ability to re-pay
their
obligation?
* What specific general economic and industry factors are
considered?
4. Provide us with an expanded rollforward of activity within the
bad
debt allowance that separately identifies amounts attributable to
A
and B installment contracts. The rollforward should include the
beginning balance, reserves added as a result of initially
entering
into both A and B installment contracts, reserves added as a
result
of delinquencies, reductions due to charge-offs or recoveries and
any
other additions or reductions. This expanded information should be
supplementally provided quarterly for each fiscal year and interim
period under review.
(o) Revenue Recognition, page 50
5. Supplementally, explain how you apply EITF 00-3 to your
software
arrangements. In this regard, we note that management addressed
the
nature of your offerings in your analyst call held on March 18,
2005.
During this call, management appeared to make it clear that your
software offering is a service and that you sell license rights to
use the software, residing on your servers, over the internet.
Reconcile this view with your revenue recognition disclosures.
6. Supplementally, explain why you do not consider technical
support
and periodic upgrades provided at no cost to your customers to be
PCS
as defined by paragraph 56 of SOP 97-2. In this regard, the
discussion during your 2005 conference calls appeared to indicate
that customer service is a significant focus of both management
and
your customers. You indicate that you provide a significant amount
of
training and customer service. Management highlighted your three
customer service departments, telephone support, 24/7 chat and
email
support and "constant" upgrades that are provided "all the time."
Specific examples of significant functionality provided to
customers
at no cost in the form of upgrades were discussed and referred to
as
"customer relationship," "UPS" and "statistics."
7. Supplementally, explain why you do not consider your software
and
the related hosting service as part of a single multiple-element
arrangement. As part of your response, clarify for us the nature
of
the services provided in exchange for the $150 set-up and hosting
fee. In addition, Address each of the factors in AICPA Technical
Practice Aid 5100.39 in detail and note that the existence of any
of
those factors would indicate that your offerings should be
accounted
for as a single arrangement. Based on your current disclosure, it
appears to us that several of these factors may exist.
8. Supplementally, explain to us the nature of your programming
services and indicate whether these services are offered as part
of
your standard customer service, your hosting arrangements or
billed
separately. In addition, explain how revenue is recognized for
these
services and refer to the accounting literature that supports your
accounting. Note that it is our understanding that these services
are
different than your mentoring and executive coaching services
provided by third parties.
9. Supplementally, explain how you have been able to conclude that
collection of each of your B installment contracts was probable,
or
likely to occur, in order to recognize revenue upon delivery.
Provide
a detailed explanation of the procedures followed and evidence
gathered to support your collection conclusions. In addition,
provide
us with the typical percentage of potential customers rejected at
your seminars based on collectibility concerns. Indicate whether
any
of these customers were rejected even though they were able to
make
the required down payment. Describe to us representative examples
of
customers accepted at the low end of your acceptable credit
parameters that did not fulfill their credit obligations and
explain
how you concluded that collection of these installment contracts
was
probable, or likely to occur, upon delivery of the software.
10. Supplementally tell us where you have reflected the losses on
the
sales of the installment contract receivables in your financial
statements. Advise us as to the dollar amount of sales and losses
recorded in each of the periods presented. Further, tell us the
amount of receivables which have been sold and are subject to
recourse as of March 31, 2005.
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Mark Kronforst at (202) 551-3451, Marc Thomas
at
(202) 551-3452 or me at (202) 551-3730 if you have questions
regarding these comments.
Very truly yours,
Craig Wilson
Senior Assistant Chief
Accountant
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Imergent, Inc.
May 19, 2005
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