April 10, 2006
Mr. Brad Skinner
Accounting Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
Room 4561
Washington, D.C. 20549
RE: |
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iMergent, Inc. |
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Form 10-K for Fiscal Year Ended June 30, 2005 |
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Filed March 9, 2006 |
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File No. 001-32277 |
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Your letter dated April 6, 2006 |
Dear Mr. Skinner:
We submit this letter in response to a comment from the staff of the Securities and Exchange Commission (the “Staff”) received by letter dated April 6, 2006 relating to the Company’s Form 10-K for the fiscal year ended June 30, 2005 (the “Form 10-K”).
In this letter, we have recited the comment from the Staff in bold type and have followed the comment with the Company’s response. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Form 10-K.
1. We have read your response to prior comment number 1. Regardless of the lack of VSOE for purposes of recognizing revenue prior to your business model change, we believe that you had an obligation to comply with Rule 5-03 of Regulation S-X requiring you to separately report service revenues, if material. Please provide us an analysis of services revenues for periods prior to the business model change that includes an estimate for the revenues associated with services for which VSOE did not exist.
Rule 5-03 of Regulation S-X states, “if income is derived from more than one of the subcaptions described under Rule 5-03.1, each class which is not more than 10 percent of the sum of the items may be combined with another class.”
As disclosed in footnote 2(q) of the Company’s consolidated financial statements, “Product and Other Revenue” consists of revenue generated from the sale of software products and certain services, such as website set-up services, customer support, website hosting services, and development hosting services. Revenues from services for which the VSOE of fair value was known (website set-up services, customer support, and website hosting services) and estimated revenues from services for which VSOE of fair value was not known, but subsequently established upon the change in business model (development hosting services) collectively amounted to between 4.6 percent and 5.8 percent of total revenue for each of the years in the three-year period ended June 30, 2005 as illustrated below:
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Years Ended June 30, |
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2005 |
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2004 |
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2003 |
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Revenue: |
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Product and other revenue: |
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Product |
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$ |
22,867 |
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58.5 |
% |
$ |
10,903 |
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54.0 |
% |
$ |
7,173 |
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58.5 |
% |
Other |
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2,028 |
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5.2 |
% |
1,172 |
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5.8 |
% |
567 |
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4.6 |
% |
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24,895 |
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63.7 |
% |
12,075 |
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59.8 |
% |
7,740 |
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63.1 |
% |
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Commissions and other revenue |
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14,180 |
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36.3 |
% |
8,134 |
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40.2 |
% |
4,519 |
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36.9 |
% |
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Total revenue |
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$ |
39,075 |
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100.0 |
% |
$ |
20,209 |
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100.0 |
% |
$ |
12,259 |
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100.0 |
% |
We do not anticipate that revenues from such services will become significant in the foreseeable future. Because estimated service revenues included within “Product and Other Revenue” represent less than 10 percent of total revenues for each of these years, revenues derived from these services may be combined with product revenues as permitted under Rule 5-03 of Regulation S-X.
We believe our presentation complies with Rule 5-03 of Regulation S-X.
You may contact me at (801) 431-4522 if you have any questions regarding the response to your comment.
Very truly yours,
/s/ Robert Lewis
Robert Lewis
Chief Financial Officer
iMergent, Inc.