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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 000-27941

IMERGENT, INC.
(Exact Name of Registrant as Specified in Its Charter)

   
(Issuer's former name, if changed since last report)

Securities to be registered under Section 12(g) of the Act:

Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001

        Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), Yes ý No o, and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o.

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes ý    No o.

        The aggregate market value of the common stock held by nonaffiliates of the registrant as of December 31, 2003 was approximately $87.5 million. The number of shares of the registrant's Common Stock outstanding at August 31, 20004 was 11,645,008

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's Proxy Statement for its 2004 Annual Meeting of Stockholders, which is expected to be filed within 120 days after the end of the registrant's fiscal year, are incorporated by reference in Part III (Items 10, 11, 12, 13 and 14) of this Report.

TABLE OF CONTENTS

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PART I

        Throughout this report, we refer to Imergent, Inc., together with its subsidiaries, as "we," "us," "our company" or "the Company."

        Effective July 2, 2002, we effected a 1:10 reverse split of our shares of common stock. All of our historical share amounts stated herein have been adjusted to reflect this reverse stock split.

        THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS MAY, WILL, SHOULD, EXPECT, PLAN, INTEND, ANTICIPATE, BELIEVE, ESTIMATE, PREDICT, POTENTIAL OR CONTINUE, THE NEGATIVE OF SUCH TERMS OR OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED BELOW. THESE FACTORS MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT.

        ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER WE NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THE FORWARD-LOOKING STATEMENTS. WE ARE UNDER NO DUTY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS ANNUAL REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL RESULTS OR TO CHANGES IN OUR EXPECTATIONS.

Item 1. Business.

General

        We are an e-Services company that offers eCommerce technology, training and a variety of web-based technology and resources to over 150,000 small businesses and entrepreneurs annually. Our affordably priced e-Services offerings leverage industry and client practices, and help increase the predictability of success for Internet merchants. Our services also help decrease the risks associated with e-commerce implementation by providing low-cost solutions with minimal lead-time, ongoing industry updates and support. Our strategic vision is to remain an eCommerce provider tightly focused on our target market.

        Imergent, Inc., was incorporated as a Nevada corporation on April 13, 1995. In November 1999, it was 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 current business activities of assisting and providing web-based technology solutions to small companies and entrepreneurs who are seeking to establish a viable eCommerce presence on the Internet. Also effective July 2, 2002, we effected a 1:10 reverse split of our shares of common stock and reduced the authorized number of shares of common stock from 250,000,000 to 100,000,000.

        In June 2000, we acquired all of the outstanding capital stock of Galaxy Enterprises, Inc., a Nevada corporation, in exchange for approximately 390,000 shares of our common stock. In August 2000, we announced that we would close our Long Beach headquarters and consolidate it with our Orem, Utah operations. After the relocation of our operations to Utah we dramatically slowed the development of our Internet Commerce Center, or ICC, stopped substantially all sales and marketing activity for business-to-business solutions based on the ICC and fully exited that business during fiscal

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year 2003. After the relocation of our operations to Utah, we also restructured our CableCommerce operations and during fiscal 2002 we completed the exit of the Internet cable mall business. In January 2001, we sold our IMI subsidiary to Capistrano Partners LLC. At the time of the original transaction, Capistrano Partners LLC was an unrelated third party, but the sole member of Capistrano is now an equity investor in us.

Industry Background

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

        In July 2004, Nielsen/NetRatings, Inc. estimated yet another increase in USA Internet users to over 202.4 million, and the growth trend continues worldwide as well as reported by InternetWorldStats.com., to over 800.0 million Internet users worldwide as of September 2004.

        The continued growth of business-to-consumer eCommerce and the growing acceptance of eCommerce as a mainstream medium for commercial transactions, presents a significant opportunity for companies, including small businesses and entrepreneurs. To take advantage of this opportunity they must extend their marketing and sales efforts to the Internet, and existing businesses often must transform their business to be able to successfully conduct commerce by means of the Internet. 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 reasonable strategies all within the budget of the company or entrepreneur, especially if the company or entrepreneur believes that rapid transformation or launch will lead to a competitive advantage.

        We believe this environment has created a significant and growing demand for third-party Internet professional services and has resulted in a proliferation of companies (e-Service companies), each offering specialized solutions, such as order processing, transaction reporting, helpdesk, training, consulting, security, Website design and hosting. According to the U.S. Department of Commerce there are 24 million small businesses and entrepreneurs in the U.S. and one million new businesses start up each year. Furthermore, a Verizon study shows less then 30% of small business have a web presence and only 25% of those are eCommerce enabled. We believe that there is a very large, fragmented and under-served market for over 70% entrepreneurial companies searching for professional services firms that offer turnkey business-to-consumer eCommerce solutions coupled with training, consulting and continuing education.

        We believe that few of the existing e-Services providers targeting small businesses and entrepreneurs have the range of product and service offerings that focus on the peculiar needs of this market. We believe this market requires an easy to adopt platform of product and services offerings that assists in a coordinated transformation or launch of a business in a way that embraces the opportunities presented by the Internet. Accordingly, we believe these organizations are increasingly searching for a firm such as ours who offers turn-key business-to-consumer eCommerce solutions focused on their e-Services requirements, which include training, education, technology, creative design, transaction processing, data warehousing/hosting, transaction reporting, help desk support and consulting. Furthermore, we believe our target market will increasingly look to Internet solutions providers who leverage industry and client practices, increase predictability of success of their Internet initiative and decrease implementation risks by providing low-cost, scalable solutions with minimal lead-time.

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Our Business

Offering services to Small Businesses and Entrepreneurs

        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 their business to the Internet. These Training Sessions have proven to increase awareness of and excitement for the opportunities presented by the Internet. We typically conduct 30-45 sessions each week across the United States and internationally. At these Preview Training Sessions, our instructors preview the advantages of establishing a website on the Internet, answer in general terms many of the most common questions new or prospective Internet merchants have, and explain in general terms how to develop an effective marketing and advertising strategy and how to transform an existing "brick and mortar" company into a successful eCommerce enabled company.

        Approximately two weeks after each Preview Training Session, we return to conduct an intensive eight hour Internet training workshop which provides Internet eCommerce and website implementation training to a subset of the small business owners and entrepreneurs who attended the preview session. At the Internet training workshop, attendees learn more of the detail, tips, and techniques needed to transform an existing "brick and mortar" company into an eCommerce success. They learn how to open and promote a successful Internet business, including a plain English explanation of computer/Internet/technical requirements and eCommerce tools, specific details and tips on how to promote and drive traffic to a website and techniques to increase sales to a website.

        At the conclusion of the workshop, the attending small business owner or entrepreneur, is presented an opportunity to purchase a license to use our proprietary StoresOnline software and website development platform and thereby become an Internet merchant and client of the Company.

        The integrated package includes:

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The ability to create up to three different, fully eCommerce enabled websites, with the option to host such on our servers



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Access to our detailed resource center of Internet marketing information



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Helpdesk technical support via on-line chat, email, and telephone



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



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Internet classified advertisements



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Merchant accounts for real-time on-line credit card processing



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Testing and marketing tools (auto responders)

        The license to our StoresOnline software and website development platform permits the client to create up to three custom websites. Alternatively, if the client prefers, as part of their setup and first year hosting fee, the client can use our development team of employees and contractors to assist with the design and setup of the website. The client can choose to create either a static, standalone site hosted by a third party, or a dynamic website hosted by us for an additional fee. The dynamic websites hosted by us allow the client to take advantage of the dynamic website updating capabilities of the StoresOnline platform and other benefits provided by the hosting service.

        Following the initial sale to a client, we seek to provide additional technology and services to our clients. On the services side, 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, pages powered by Macromedia® Flash and Director programming techniques. We also offer commitments to deliver page view traffic to clients' websites and a ten week coaching and mentoring program. The

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coaching and mentoring program is provided by a third-party and involves a series of telephone training sessions with a tutor who provides specific assistance in a variety of areas, including Internet marketing. We continue to explore ideas, products and services to enhance ongoing customer training and assistance.

        We also continue to seek to increase sales to our existing client base by more aggressively imposing and collecting set-up and hosting fees, selling programming services to update existing client websites and an outsourced outbound telemarketing program through which we periodically contact persons who attended our Internet training workshops. In particular we are focusing on selling Internet training workshop attendees who did not purchase at the workshop our basic package and on selling additional product and service offerings (both ours and third parties) to persons who purchased at the workshop. Through this telemarketing program we also seek to increase the website activation rate of customers who purchase at our Internet training workshops but have not yet designed or activated their website and thereby establish a stronger relationship with these persons and offer them additional products and services. We may also, for a fee, allow third parties to market to our clients and Preview Training Session and Internet training workshop attendees, products and services that are complimentary with our product and service offerings. In some situations this could result in the client purchasing additional products and services.

        In addition to seeking to grow by increasing the number of Preview Training Sessions and Workshops in the United States, we continue the international expansion of our business, initially into selected English-speaking countries in the Asia Pacific region, South Africa, Canada and Europe and possibly thereafter to additional countries in Asia. Our experience indicates lower customer acquisition costs in these markets than we currently experience in the United States and our turnkey product and service offering for small businesses and entrepreneurs enjoys a first mover advantage in these markets. We are continuing to test, and grow our international market strategies based on our initial experiences.

Seasonality

        Revenues during the year for our workshop business can be subject to seasonal fluctuations. The first and second calendar quarters are generally stronger than the third and fourth calendar quarters. Customers seem less interested in attending our workshops during the period between June 15^th through Labor day, and again during the holiday season from Thanksgiving Day through the first week of the following January.

Our Technology

        We believe that a key component of our success will be a number of new technologies we have developed. We believe that these technologies distinguish our services and products from those of our competitors and help substantially to reduce our operating costs and expenses. The most important of these are our StoresOnline software and hosting platform and our Dynamic Image Server technology.

        The StoresOnline platform is a web-based turnkey eCommerce development platform, which has been continuously improved over the past decade. The current version of the StoresOnline platform represents the culmination of over ten years of development effort on a platform that has hosted over 40,000 eCommerce-enabled websites and, in the past, has received broad acceptance in the fast growing market of small businesses and in the entrepreneurial community. The current StoresOnline platform version represents a continued stage of evolution towards an easier to use and more scalable application. The most recent additions and enhancements to the software include several new features, including the integration of UPS shipping tools, updated order tracking and abandoned order analysis, in addition to enhancements to existing features.

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        The integration of the UPS shipping tools allow our merchants to access real-time shipping rates directly from UPS to ensure the most accurate and cost effective rates are calculated for each order. The UPS integration also allows the merchant to create shipping documents from the computer with minimal re-entry of information for a shipment. These shipping documents contain all the barcodes and other information required to be processed directly by UPS. These tools significantly reduce the amount of time the merchant needs to spend to prepare their products for shipping.

        Our Dynamic Image Server allows images to be created dynamically rather than by uploading images or using stock photos or clip art. A user can create images dynamically through the manipulation of multiple image variables (such as background color, text, borders, sizing, drop shadows, etc.) in a simple "point and click" environment. This feature allows the automatic generation of image permutations, allowing a customer, for example, to view all of the different possible combinations of shirts, ties, sport coats, and slacks before purchase. The Dynamic Image Server allows for quick and easy creation of graphical and professional looking storefronts.

Sales and Marketing

        Because most of our products are sold at the end of our workshop sessions and to persons who have attended our 90-minute preview sessions previously, we must make a significant investment before any sales are made to get the customers to 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 a customer to attend our events and to increase our value proposition to that customer, thereby increasing overall sales.

        We advertise our preview sessions in direct mail and e-mail solicitations targeted to potential customers meeting established demographic criteria. The mailing lists we use are obtained from list brokers. The direct mail and e-mail pieces are sent several weeks prior to the date of the preview session. Announcements of upcoming preview sessions also appear occasionally in newspaper advertisements and radio spots in scheduled cities. Finally, we promote our preview and workshop sessions through other third-party training companies.

        We also use outsourced telemarketing programs to sell products and services to preview and workshop attendees and to our existing client database.

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Research and Development

        During the year ended June 30, 2004, we invested, on a consolidated basis, approximately $358,000 in the research and development of our technology almost all of which relates to our StoresOnline platform. Our research and development costs in fiscal 2004 focused on refinement and enhancement of Version 4.0 of our StoresOnline product, which was released in fiscal 2001. Our specific accomplishments during fiscal year 2004 were the addition of new features to our StoresOnline platform, including the support of additional credit card processing gateways, integration of the UPS Shipping Tools, and updated order tracking and processing. We have also implemented our largest upgrade in our infrastructure and data center to provide even high levels of service and security for our merchants. In general, our research and development efforts during fiscal years 2004 were:

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focused on the enhancement and refinement of existing services in response to rapidly changing client specifications and industry needs



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introduced support for evolving communications methodologies and protocols, software methodologies and protocols and computer hardware technologies



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improved functionality, flexibility and ease of use



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enhanced the quality of documentation, training materials and technical support tools



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updated our internal database that integrates all the information from each division within the organization



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implemented even greater security measures to comply with all of the security requirements demanded by VISA and MasterCard



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digitally scanned Company documents and records for greater customer support and security



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integrated our internal database system with our accounting system to reduce the manual efforts of double entry of customer information and orders



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provided limited access to our internal database to a number of our suppliers, thus lowering our cost of procurement



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updated all our desktop systems to ensure greater security of information within the organization



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integrated UPS Shipping tools to allow real-time shipping rates to be added to our merchants' order forms



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added the ability to create UPS Shipping documents directly from our merchants' computer over the Internet



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updated our order tracking system to allow our merchants to identify orders that were abandoned or otherwise incomplete



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updated all of the components within our data center for increased redundancy and speed

Competition

        Our markets are becoming increasingly competitive. Our competitors include a few companies that sell through a workshop format like ours which have historically had varying rates of success and longevity, as well as portals, application service providers, software vendors, systems integrators and information technology consulting service providers who offer some or all of the same products as us to the small business and entrepreneur markets.

        Most of these competitors do not yet offer the full range of Internet professional services we believe our target market requires, but many are currently offering some of these services. These competitors at any time could elect to focus additional resources in our target markets, which could

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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, longer relationships with clients 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 than we do. 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 that new entrants will try to develop competing products and services or new forums for conducting eCommerce that could be deemed competitors. We believe, however, that we presently have a competitive advantage due to our proven marketing strategies and the flexibility we have obtained through enhancements to our StoresOnline software. In 1995, certain of our principals were instrumental in creating an Internet marketing workshop industry. We believe that this experience with marketing workshops and our ongoing efforts to improve our offerings and sales and marketing techniques gives us an important competitive advantage.

        Anticipated and expected technology advances associated with the Internet, increasing use of the Internet and new software products are welcome advancements and are expected to attract more interest in the Internet and broaden its potential as a viable marketplace and industry. We anticipate that we can continue to compete successfully by relying on our infrastructure and existing marketing strategies and techniques, systems and procedures, by adding additional products and services in the future, by periodic revision of our methods of doing business 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 upon our proprietary technology and other intellectual property and on our ability to protect our proprietary technology and other intellectual property rights. In addition, we must conduct our operations without infringing on the proprietary rights of third parties. We also rely upon un-patented trade secrets and the know-how and expertise of our employees. To protect our proprietary technology and other intellectual property, we rely primarily on a combination of the protections provided by applicable copyright, trademark and trade secret laws as well as on confidentiality procedures and licensing arrangements.

        Although we believe that we have taken appropriate steps to protect our intellectual property rights, including requiring that employees and third parties who are granted access to our intellectual property enter into confidentiality agreements, these measures may not be sufficient to protect our rights against third parties. Others may independently develop or otherwise acquire un-patented technologies or products similar or superior to ours.

        We license from third parties certain software and Internet tools that 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

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companies. Any such litigation or disputes could result in substantial costs to, and a diversion of effort by, us. 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 31 2004, we had 149 full-time employees, including 5 executive personnel, 57 in sales and marketing, 8 in the development of our e-Commerce solutions, 10 in web site production, 31 in customer support and 38 in general administration and finance. We also draw from a pool of 21 independent contractors who speak at our preview and/or workshop training sessions, as required by our schedule of events.

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 believe that 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. We believe that 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. Although we do not believe we are required to offer such a right in most states, we voluntarly provide such a right in the United States.. The effect of such right could be that, our sales could decrease if a significant number of customers who purchase at our workshop elected to exercise that right.

        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 that additional laws and regulations will be adopted with respect to the Internet in the future, including with respect to issues such as user privacy, pricing and characteristics 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, our cost 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 many 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.

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 this Annual Report on Form 10-K, including the discussions set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as our financial statements and the related notes.

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        Our business, 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 of our common stock could decline, and you could lose all or part of your investment.

        Fluctuations in our operating results may affect our stock price and ability to raise capital.

        Our operating results for any given quarter or fiscal year should not be relied upon as an indication of future performance. Quarter to quarter comparisons of our results of operations may not be meaningful as a result of (i) our limited operating history and (ii) the emerging nature of the markets in which we compete. Our fiscal year ended June 30, 2002 was our first-ever profitable year. Our future results may fluctuate, causing our results of operations to fall below the expectations of investors and potentially causing the trading price of our common stock to fall, impairing our ability to raise capital should we seek to do so. Factors that could cause our quarterly results to fluctuate include the following factors, among others:

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our ability to attract and retain clients



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one time events that negatively impact attendance and sales at our preview sessions and Internet training workshops



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intense competition



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Internet and online services usage levels and the rate of market acceptance of these services for transacting commerce



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our ability to timely and effectively upgrade and develop our systems and infrastructure



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changes to our business model resulting from regulatory requirements



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our ability to control our costs



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our ability to attract, train and retain skilled management, strategic, technical and creative professionals



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technical, legal and regulatory difficulties with respect to our workshop distribution channel and Internet use generally



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the availability of working capital and the amount and timing of costs relating to our expansion, and general economic conditions and economic conditions specific to Internet technology usage and eCommerce.

Our ability to use our net operating loss carryforwards may be reduced. This could adversely affect our net income and cash flow.

        Our net operating loss carryforward ("NOL"), which is approximately $23 million as of June 30, 2004 is subject to certain limitations. Section 382 of the Internal Revenue Code ("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. Since our formation, we have issued a significant number of shares, and purchasers of those shares have sold some of them, with the result that two changes of control, as defined by Section 382, have occurred. 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 of approximately $127,000. 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"). Based on an independent valuation of our company as of April 3, 2002, we have

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approximately $15 million of recognized built-in gains. Additionally, based on a valuation of our company as of June 25, 2000, which evaluation was completed during the quarter ended March 31, 2004, we also determined the earlier ownership change resulted in built-in gains that allow us to utilize our entire NOL.

        Future changes in ownership of more than 50% may limit the use of these carryforwards. Our earnings and cash resources will be materially and adversely affected by this limitation if future earnings exceed the benefit of the limited net operating loss carryforwards. A stock ownership change could occur as a result of circumstances that are not within our control.

From time to time we are and have been the subject to Governmental inquiries and investigations as well as lawsuits that could require us to change our sales and marketing practices or pay damages or fines which could negatively impact our financial results.

        Throughout our history we have received inquiries from and have been made aware of investigations by the Federal Trade Commission and government officials and agencies in many of the states in which we operate. We have also received inquiries from counsel representing and have been sued by customers who are dissatisfied with our product. We believe that, to date, we have generally been successful in addressing the concerns raised by these matters through one or more of the following: the provision of a more complete explanation of our business, minor modifications of our sales and marketing practices, and direct dialogue with customers to resolve the customer's concerns on a mutually satisfactory basis. Nevertheless, there can be no assurance that the ultimate resolution of the currently pending or possible future lawsuits, inquiries or investigations will not have a material adverse effect on our business or operations.

We depend on our senior management, and their loss or unavailability could put us at a serious disadvantage.

        We depend on the continued services of our key personnel, including but not limited to our president, chief executive officer, chief financial officer, chief technical officer and vice-president of operations, as well as the speakers at our previews and workshops and other key personnel. Each of these individuals has acquired specialized knowledge and skills with respect to our operations. The loss of one or more of these executives could negatively impact our performance. In addition, we expect that we will need to hire additional personnel in all areas if we are able to continue to successfully execute our strategic plan, particularly if we are successful in expanding our operations internationally. Competition for the limited number of qualified personnel in our industry is intense. At times, we have experienced difficulties in hiring personnel with the necessary training or experience.

We may enter into business combinations or pursue acquisitions of complementary service or product lines, technologies or business that may involve financial, integration and transaction completion risks that could adversely affect our operations.

        From time to time, we have evaluated and in the future may evaluate potential acquisitions of businesses, services, products or technologies. These acquisitions may result in a potentially dilutive issuance of equity securities, the incurrence of debt and contingent liabilities, and amortization of expenses related to intangible assets. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, services and products of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which we have no or limited direct prior experience and the potential loss of key employees of the acquired company. We have no present commitment or agreement with respect to any material acquisition of other businesses, services, products or technologies.

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We may need to monetize a substantial portion of the customer receivables generated by our workshop business. If we are unable to do so it may require us to raise additional working capital.

        We offer our customers a choice of payment options at our Internet training workshops, including an installment payment plan. These installment contracts are either sold to one of several third party finance companies, with partial or full recourse, or are retained by the Company and the collection activity is serviced by a third party. Thereafter we sometimes seek to sell the serviced contracts to the servicer and other third parties. We have in the past experienced difficulties selling these installment contracts at levels that provide adequate cash flow for our business. Although we have not recently experienced difficulties selling our installment contracts at the levels our cash requirements dictate, a recurrence of those conditions would likely require us to raise additional working capital to allow us to carry these assets on our balance sheet. Beginning in May 2004, the Company no longer sells installment contracts with any recourse provision. All of our present installment contract sales arrangements are subject to termination at any time by notice to us.

We are dependent on credit card issuers who provide us with merchant accounts that are used to receive payments from our customers.

        For the fiscal year ended June 30, 2004 approximately $30 million, or 37%, of our total revenue was received from customers through credit card payments. Each financial institution that issues merchant accounts establishes limits on the amount of payments which may be received through the account and requires that we keep reserves on deposit with it to protect the financial institution against losses it may incur with respect to the account. Although this had not recently been the case, we have in the past experienced difficulty in maintaining these merchant accounts in good standing due to changes in the reserve requirements imposed by the issuing banks with whom we have worked, changes in the transaction amount permitted and rate of charge-backs, among other reasons. If we were to experience a significant reduction in or loss of these accounts our business would be severely and negatively impacted.

We are dependent on arrangements that allow us to sell to our customers the ability to accept credit card payments for products and services sold on their websites.

        During the fiscal year ended June 30, 2004 we derived approximately $9.3 million, or 12% of our total revenues from the sale to our customers of a product which allows the customer to accept credit card payments for goods and services sold by them through their website. In the past, we have experienced difficulty in maintaining the arrangements that allow us to offer this product to our customers and have experienced difficulty in establishing such a product for resale at our workshops held outside the United States. In addition, from time to time, credit card issuing organizations make changes that affect this product which could negatively impact, or preclude, our offering this product for sale in the United States in its present form. We presently obtain this product for resale from an unrelated third party. Prior to October 1, 2002, this product was obtained from Electronic Commerce International, Inc. ("ECI") which was owned by John J. Poelman, our former chief executive officer who, effective that date, sold certain of ECI's assets and liabilities, including the use of its corporate name and its contractual relationship with us, to the third party. Our contract with the third party may be terminated by it at any time after August 1, 2005 on 120 days written notice to us. Were we to lose our access to this product or if its cost increased our business could be negatively impacted, and if we are not to be able to obtain a comparable product for resale outside the United States our ability to successfully execute our international expansion would be compromised.

We might require additional capital to support business growth, and such capital might not be available.

        We intend to continue to make investments to support business growth and may require additional funds to respond to business opportunities and challenges, which include the opportunity to increase

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our revenue by increasing the number of customer installment contracts that we retain and carry rather than sell, the need to develop new products or enhance existing products, the need to enhance our operating infrastructure and the opportunity to acquire complementary businesses and technologies. Accordingly, we may elect or need to engage in equity or debt financing to secure additional funds. Equity and debt financing, however, might not be available when needed or, if available, might not be available on terms satisfactory to us. If we are unable to obtain financing or financing on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.

We are subject to compliance with securities law, which expose us to potential liabilities, including potential rescission rights.

        We have periodically offered and sold our common stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that any of our prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves.

        If any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes under the National Securities Markets Improvement Act of 1996. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which we have relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.

        In particular, our private placement conducted January-April 2001 to a group of our then long-time stockholders who were accredited investors occurred in part while a dormant, i.e., not effective, registration statement was on file with the SEC with respect to a public offering of our common stock by a third party deemed by current SEC interpretations to be an offering by us. Although we believe that these unregistered securities were issued pursuant to an available exemption under applicable securities laws, we are aware of current interpretations of securities regulators that are inconsistent with our view. If our interpretation is proven incorrect then, among other consequences, the purchasers of such securities would be entitled to exercise rescission rights with respect to their investment in us. If such rights were exercised by these investors, we would be liable to them in an amount equal to the total proceeds of such offering, $2,076,500, plus interest at rates determined by state statutes from the date of such offering to the date of payment. We believe that, if such an offer of rescission was made to these investors at this time, it would not be accepted. If we were required to make such an offer and it was accepted, then the required payments would exceed our cash resources and would require us to seek additional financing, most likely in the form of additional issuances of common stock, to make such payments and would materially and adversely effect our financial condition.

Our business could be materially and adversely affected as a result of general economic and market conditions.

        We are subject to the effects of general global economic and market conditions. The U.S. economy is weaker now than it has been in recent years and may continue to be weak for the foreseeable future. These economic conditions may cause businesses to curtail or eliminate spending on eCommerce

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services or to reduce demand for our products and services. A change in economic conditions may adversely effect our business.

Our operations could be hurt by terrorist attacks, fear of disease and other activity and events that make air travel difficult or reduce the willingness of customers to attend our group meetings.

        We rely on frequent presentations of our preview training sessions and Internet training workshops by a limited number of persons in various cities and these persons generally travel by air. In addition, these preview training sessions and Internet training workshops involve large groups of persons in upscale and sometimes marquis hotel facilities. Our business would be materially and adversely affected by air travel becoming less available due to significant cut backs in the frequency of service or significant increases in processing times at airports due to security or other factors or by air travel becoming unavailable due to governmental or other action as was the case during a brief period during September 2001. In addition, our business would be materially and adversely affected if our potential customers were to become fearful of attending large public meetings in large hotels.

The market for our products and services is evolving and its growth is uncertain.

        The markets for our products and services are continuing to evolve and are increasingly competitive. Demand and market acceptance for recently introduced and proposed new products and services and sales of them internationally are subject to a high level of uncertainty and risk. Our business may suffer if the market develops in an unexpected manner, develops more slowly than in the past or becomes saturated with competitors, if any new products and services do not sustain market acceptance or if our efforts to expand internationally do not sustain market acceptance.

We may not have the resources to compete with other companies within our industry.

        Although most of our direct competitors have not to date offered a range of Internet products and services comparable to those offered by us, many have announced their intention to do so. These competitors at any time could elect to focus additional resources in our target markets, which could materially and adversely affect us. Many of our current and potential competitors have stronger brand recognition, longer operating histories, larger customer bases, longer relationships with clients and significantly greater financial, technical, marketing and public relations resources than we do. We believe our competitors may be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of acquisition or other opportunities more readily or develop and expand their product and service offerings more quickly.

Expansion into international markets and development of country-specific eCommerce products and services may be difficult or unprofitable.

        We are continuing to expand our operations into selected international markets. Although we continue to expand into these markets cautiously there are difficulties inherent in doing business in international markets such as:

•

cultural, language and other differences between the markets with which we are familiar and these international markets that could result in lower than anticipated attendance at our preview sessions and Internet training workshops and/or lower than anticipated sales



•

banking and payment mechanisms that differ from those in the United States and make it more difficult for us to both accept payments by credit card and offer to customers a product that allows customers to accept credit card payments on their websites



•

unproven markets for our services and products



•

unexpected changes in regulatory requirements

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•

potentially adverse tax environment



•

export restrictions and tariffs and other trade barriers



•

burdens of complying with applicable foreign laws and exposures to different legal standards, particularly with respect to sales and marketing practices, intellectual property, privacy and distribution of potentially offensive or unlawful content over the Internet, and



•

fluctuations in currency exchange rates.

Management beneficially owns approximately 13% of our common stock and their interests could conflict with other stockholders.

        Our current directors and executive officers beneficially own approximately 13% of our outstanding common stock. As a result, the directors and executive officers collectively may be able to substantially influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control.

Our future success depends on continued growth in acceptance of the Internet as a business medium.

        In order for us to attain success, the Internet must continue to achieve widespread acceptance as a business medium. In addition, the businesses and merchants to whom we market our products and services must be convinced of the need for an online eCommerce presence and must be willing to rely upon third parties to develop and manage their eCommerce offerings and marketing efforts. It remains uncertain whether sustained significant demand for our products and services as sold through our workshop format will exist and whether our distribution channel to our target markets will establish itself as the preferred channel. If we are not successful in responding to the evolution of the Internet and in tailoring our product and service offerings to respond to this evolution, our business will be materially and adversely affected.

Evolving regulation of the Internet, including the use of e-mail as a marketing tool, may harm our business.

        As eCommerce continues to evolve it is subject to increasing regulation by federal, state, or foreign agencies. Areas subject to regulation include but may not be limited to the use of e-mail, user privacy, pricing, content, quality of products and services, taxation, advertising, intellectual property rights, and information security. In particular, our initial contact with many 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. In addition, laws and regulations applying to the solicitation, collection, or processing of personal or consumer information could negatively affect our activities. The perception of security and privacy concerns, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify Web site users that the data captured after visiting Web sites may be used by marketing entities to unilaterally direct product promotion and advertising to that user. Moreover, the applicability to the Internet of existing laws governing issues such as intellectual property ownership and infringement, copyright, trademark, trade secret, obscenity and libel is uncertain and developing. Furthermore, any regulation imposing fees or assessing taxes for Internet use could result in a decline in the use of the Internet and the viability of eCommerce. Any new legislation or regulation, or the application or interpretation of existing laws or regulations, may decrease the growth in the use of the Internet, may impose additional burdens on eCommerce or may require us to alter how we conduct our business. This could decrease the demand for our products and services, increase our cost of doing business, increase the costs of products sold through the Internet or otherwise have a negative effect on our business, results of operations and financial condition.

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Internet security issues pose risks to the development of eCommerce and our business.

        Security and privacy concerns may inhibit the growth of the Internet and other online services generally, especially as a means of conducting commercial transactions. Processing eCommerce transactions involves the transmission and analysis of confidential and proprietary information of the consumer, the merchant, or both, as well as our own confidential and proprietary information. Anyone able to circumvent security measures could misappropriate proprietary information or cause interruptions in our operations, as well as the operations of the merchant. We may be required to expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches. To the extent that we experience breaches in the security of proprietary information which we store and transmit, our reputation could be damaged and we could be exposed to a risk of loss or litigation and possible liability.

We depend upon our proprietary intellectual property rights, none of which can be completely safeguarded against infringement.

        We rely upon copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, business partners and others to protect our proprietary rights, but we cannot guarantee that the steps we have taken to protect our proprietary rights will be adequate. We do not currently have any patents or registered trademarks, and effective trademark, copyright and trade secret protection may not be available in every country in which our products are distributed or made available through the Internet. In addition, there can be no assurance that a patent will issue or a trademark will be referred based on our pending applications.

We may incur substantial expenses in defending against third-party patent and trademark infringement claims regardless of their merit.

        From time to time, parties may assert patent infringement claims against us in the form of letters, lawsuits and other forms of communications. Third parties may also assert claims against us alleging infringement of copyrights, trademark rights, trade secret rights or other proprietary rights or alleging unfair competition. If there is a determination that we have infringed third-party proprietary rights, we could incur substantial monetary liability and be prevented from using the rights in the future.

        We are aware of lawsuits filed against certain of our competitors regarding the presentment of advertisements in response to search requests on "keywords" that may be trademarks of third parties. It is not clear what, if any, impact an adverse ruling in these recently filed lawsuits would have on us. Many parties are actively developing search, indexing, eCommerce and other Web-related technologies. We believe that these parties will continue to take steps to protect these technologies, including seeking patent protection. As a result, we believe that disputes regarding the ownership of these technologies are likely to arise in the future.

There are low barriers to entry into the eCommerce services market and, as a result, we face significant competition in a rapidly evolving industry.

        We have no patented, and only a limited amount of other proprietary, technology that would preclude or inhibit competitors from entering our business. In addition, the costs to develop and provide eCommerce services are relatively low. Therefore, we expect that we will continually face additional competition from new entrants into the market in the future. There is also the risk that our employees may leave and start competing businesses. The emergence of these enterprises could have a material adverse effect on us. Existing or future competitors may better address new developments or react more favorably to changes within our industry and may develop or offer e-commerce services providing significant technological, creative, performance, price or other advantages over the services that we offer.

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Our operations, based in Utah, could be hurt by a natural disaster or other catastrophic event.

        Substantially all of our network infrastructure is located in Utah, an area susceptible to earthquakes. We do not have multiple site capacity if any catastrophic event occurs and, although we do have a redundant network system, this system does not guarantee continued reliability if a catastrophic event occurs. Despite implementation of network security measures, our servers may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. In addition, if there is a breach or alleged breach of security or privacy involving our services, or if any third party undertakes illegal or harmful actions using our communications or eCommerce services, our business and reputation could suffer substantial adverse publicity and impairment. We do not carry sufficient business interruption or other insurance at this time to compensate for losses that may occur as a result of any of these events.

Investors will incur immediate and substantial dilution.

        Significant additional dilution will result if outstanding options and warrants are exercised. As of June 30, 2004, we had outstanding stock options to purchase approximately 1.2 million shares of common stock and warrants to purchase approximately 325,000 shares of common stock. To the extent that such options and warrants are exercised, there will be further dilution. In addition, in the event future financings should be in the form of, convertible into, or exchangeable for our equity securities, investors may experience additional dilution.

Some provisions of our certificate of incorporation and bylaws may deter takeover attempts that may limit the opportunity of our stockholders to sell their shares at a favorable price.

        Some of the provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the opportunity to sell their shares at a premium to the then market price. Our bylaws contain provisions regulating the introduction of business at annual stockholders' meetings by anyone other than the board of directors. These provisions may have the effect of making it more difficult, delaying, discouraging, preventing or rendering more costly an acquisition or a change in control of our company.

        In addition, our corporate charter provides for a staggered board of directors divided into two classes. Provided that we have at least four directors, it will take at least two annual meetings to effectuate a change in control of the board of directors because a majority of the directors cannot be elected at a single meeting. This extends the time required to effect a change in control of the board of directors and may discourage hostile takeover bids. We currently have five directors.

        Further, our certificate of incorporation authorizes the board of directors to issue up to 5,000,000 shares of preferred stock, which may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by stockholders. Such terms may include voting rights, including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. No shares of preferred stock are currently outstanding and we have no present plans for the issuance of any preferred stock. However, the issuance of any preferred stock could materially adversely affect the rights of holders of our common stock, and therefore could reduce its value. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current stockholders' control.

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Our stock price and its volatility and our listing may make it more difficult to resell shares when desired or at attractive prices.

        Our stock being listed on the American Stock Exchange may limit the scope of potential investors. We withdrew an application for listing on the NASDAQ Small Cap Market as we believed a listing on the American Stock Exchange was in the best interest of our shareholders and would be more expeditious; the withdrawal may be perceived as negative which could affect the value of our common stock. In addition, the market for our common stock may not always be an active market.

        Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products and services by us or our competitors, changes in financial estimates and recommendations by financial analysts covering other companies, the operating and stock price performance of other companies that investors may deem comparable, and news reports relating to trends in our markets. In addition, the stock market in general, and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance.

Future sales of common stock by our existing stockholders and by holders of warrants and stock options granted by us could adversely affect our stock price.

        The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that these sales could occur, including as a result of our contractual obligation to register for public resale certain of our outstanding shares. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. As of August 31, 2004, we had outstanding 11,645,008 shares of common stock. Shares issued upon the exercise of stock options granted under our stock option plans will be eligible for resale in the public market from time to time subject to vesting and, in the case of some options, the expiration of lock-up agreements.

Item 2. Properties.

        Our principal office is located at 754 East Technology Avenue, Orem, Utah 84097. The property consists of approximately 12,500 square feet leased from an unaffiliated third party. The lease terminates on May 31, 2005. The annual rent during our fiscal year ending June 30, 2005 will be approximately $271,250. We maintain tenant fire and casualty insurance on our properties located in these buildings in an amount that we deem adequate. We also rent on a daily basis hotel conference rooms and facilities from time to time in various cities throughout the United States, Canada and other countries throughout the world at which we host our preview sessions and Internet training workshops. We are under no long-term obligations to such hotels.

Item 3. Legal Proceedings.

        From time to time, we receive inquiries from, including subpoenas requesting documents and/or have been made aware of investigations by government officials in many of the states in which we operate. These inquiries and investigations generally concern compliance with various cities, county, state and/or federal regulations involving sales and marketing practices. We have and do 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.    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

19

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. To date we have been able to resolve these matters on a mutually satisfactory basis and we believe that we will be successful in resolving the currently pending matters but there can be no assurance that the ultimate resolution of these matters will not have a material adverse affect on our business or operations.

        We are not currently involved in any material litigation; however, we are subject to various claims and legal proceedings covering matters that arise in the ordinary course of business. We believe that the resolution of these cases will not have a material adverse effect on our business, financial position, or future results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

        Not applicable.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Market Information

        Our common stock began trading on the American Stock Exchange on August 16, 2004 under the symbol "IIG." From July 3, 2002 to August 13, 2004, our common stock has traded on the Nasdaq OTC Bulletin Board under the symbol "IMGG." From January 10, 2001 to July 2, 2002, our common stock traded on the OTC Bulletin Board under the symbol "NGWY." Between November 18, 1999 and January 9, 2001, our common stock traded on The Nasdaq National Market under the symbol "NGWY." The following table sets forth the range of high and low bid prices as reported on The Nasdaq National Market or the Nasdaq OTC Bulletin Board, as applicable, for the periods indicated, all of which reflect the 1:10 reverse stock split effected on July 2, 2002.

        These bid prices indicate the prices that a market maker is willing to pay. These quotations do not include retail markups, markdowns or other fees and commissions and may not represent actual transactions.

Security Holders

        There were 499 holders of record of our shares of common stock as of August 31, 2004.

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Dividends

        We have never paid any cash dividends on our common stock and we anticipate that we will retain future earnings, if any, to finance the growth and development of our business. Therefore, we do not anticipate paying any cash dividends on our shares for the foreseeable future.

Equity Compensation Plan Information

        The following table presents information about the Company's common stock that may be issued upon the exercise of options, warrants and rights under existing equity compensation plans at June 30, 2004.

Recent Sales of Unregistered Securities

        None.

Item 6. Selected Financial Data

        The following selected financial data should be read in conjunction with the Financial Statements and the Notes thereto included in this Form 10-K. The statement of earnings data for each of the years in the three-year period ended June 30, 2004, and the consolidated balance sheet data at June 30, 2004 and 2003 are derived from our consolidated financial statements and are included elsewhere in this document. SFAS No. 145 relating to the accounting treatment for extinguishment of debt became effective for the Company during FY 2003. As a result a change in the reporting of our operations for FY 2001 became necessary. During the fiscal year ended June 30, 2001 the Company had originally reported an extraordinary item related to gain on extinguishment of debt in its Statement of Operations of $1,688,956. Based on SFAS No. 145 the Company has reclassified $1,688,956 to income before

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discontinued operations in its statement of operations included in this annual report. Historical results are not necessarily indicative of the results to be expected in the future.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        This 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. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this report.

General

        Our fiscal year ended June 30, 2004 ("FY 2004") was only the third year since the inception of the Company that we were profitable and the second year that we enjoyed positive cash flow from operating activities. As explained in previous annual reports we closed our Internet Commerce Center and the Cable Commerce division in order to concentrate on our StoresOnline business that services the small business and individual entrepreneur markets. We raised approximately $7.2 million in equity capital through the sale of our convertible notes and common stock in three private placements during the fiscal years ended June 30, 2001 and 2002. Using this cash to retire debt and promote our StoresOnline business has enabled us to increase revenues significantly, remain profitable and have positive cash flow from operations. The following discussion further expands on the effects of these changes.

Reverse Stock Split

        On June 28, 2002, our stockholders approved amendments to our Certificate of Incorporation to change our corporate name to "Imergent, Inc." and to effect a one-for-ten reverse split of the issued and outstanding shares of our common stock and reduce the authorized number of shares of common stock from 250,000,000 to 100,000,000. These changes were effected July 2, 2002. As a result of the reverse stock split, every ten shares of our existing common stock was converted into one share of our new common stock under our new name, Imergent, Inc. Fractional shares resulting from the reverse stock split were settled by cash payment. Throughout this discussion references to numbers of shares and prices of shares have been adjusted to reflect the reverse stock split.

Review by the Securities and Exchange Commission

        On March 6, 2002, the Securities and Exchange Commission ("SEC") notified us that they had reviewed our annual report filed on Form 10-K for the fiscal year ended June 30, 2001 and our quarterly report on Form 10-Q for the quarter ended September 30, 2001. They sent a letter of comments pointing out areas of concern and requested we answer their questions and provide additional information. We exchanged correspondence with members of the SEC staff and provided them with additional information. On September 24, 2002 in a telephone conference call with the SEC staff, we resolved certain of the more material issues. On October 31, 2002 we responded to other comments from the staff in their letter dated August 5, 2002. On November 6, 2002 in a telephone conversation with the SEC staff we resolved the remaining issues without amending our previously filed financial statements. However, certain reclassifications of financial information and additional financial statement disclosures have been reflected in the accompanying financial statements.

Fluctuations in Quarterly Results and Seasonality

        In view of the rapidly evolving nature of our business and the market we serve, we believe that period-to- period comparisons of our operating results, including our gross profit and operating expenses as a percentage of revenues and cash flow, are not necessarily meaningful and should not be

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relied upon as an indication of future performance. Our fiscal year ends each June 30 and we experience seasonality in our business. Revenues from our core business during the first and second fiscal quarters tend to be lower than revenues in our third and fourth quarters. We believe this to be attributable to summer vacations and the Thanksgiving and December holiday seasons that occur during our first and second quarters.

        The financial statements for the years ended June 30, 2003 and 2002 have been reclassified to conform to fiscal year 2004 presentation.

Critical Accounting Policies and Estimates

        Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("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. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors and its Audit Committee. There are currently five members of the Board of Directors, three of whom make up the Audit Committee. The Board of Directors has determined that each member of the Audit Committee qualifies as an independent director and that the chairman of the Audit Committee qualifies as an "audit committee financial expert" as defined under the rules adopted by the SEC.

        A summary of our significant accounting policies is set out in Note 2 to our Financial Statements. We believe the critical accounting policies 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

        On October 1, 2000, the Company started selling a license to use a new product called the StoresOnline Software ("SOS"). The SOS is a web based software product that enables the customer to develop their Internet website without additional assistance from the Company. When a customer purchases a SOS license at one of the Company's Internet workshops, he or she receives a CD-ROM containing programs to be used with their computer and a password and instructions that allow access to the Company's website where all the necessary tools are located to complete the construction of the customer's website. When completed, the website can be hosted with the Company or any other provider of such services. If they choose to host with the Company there is an additional setup and hosting fee (currently $150) for publishing and 12 months of hosting. This fee is deferred at the time it is paid and recognized during the subsequent 12 months. A separate file is available and can be used if the customer decides to create their website on their own completely without access to the Company website and host their site with another hosting service.

        The revenue from the sale of the SOS license is recognized when the product is delivered to the customer and the three-day rescission period expires. The Company accepts cash and credit cards as methods of payment and the Company offers 24-month installment contracts to customers who prefer an Extended Payment Term Arrangement (EPTA). The Company offers these contracts to all workshop

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attendees not wishing to use a check or credit card provided they complete a credit application, give permission for the Company to independently check their credit and are willing to make an appropriate down payment. EPTAs are either sold to third party financial institutions, generally with recourse, for cash on a discounted basis, or carried on the Company's books as a receivable. Beginning in May 2004 the Company no longer sells EPTA's with any recourse provisions.

        The EPTAs generally have a twenty-four month term. For more than five years the Company has offered its customers the payment option of a long-term installment contract and has a history of successfully collecting under the original payment terms without making concessions. During fiscal years ended June 30, 1999 through 2004, the Company has collected or is collecting approximately 70% of all EPTAs issued to customers. Not all customers live up to their obligations under the contracts. The Company makes every effort to collect on the EPTAs, including the engagement of professional collection services. Despite reasonable efforts, approximately 47% of all EPTAs not sold to third party financial institutions become uncollectible during the life of the contract. All uncollectible EPTAs are written off against an allowance for doubtful accounts. The allowance is established at the time of sale based on our five-year history of extending EPTAs and revised periodically based on current experience and information. The revenue generated by sales to EPTA customers is recognized when the product is delivered to the customer, the contract is signed and any rescission period lapses. At that same time an allowance for doubtful accounts is established. This procedure has been in effect for all of fiscal years 2004 and 2003.

        The American Institute of Certified Public Accountants Statement of Position 97-2 ("SOP 97-2") states that revenue from the sale of software should be recognized when the following four specific criteria are met: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred, 3) the fee is fixed and determinable and 4) collectibility is probable. All of these criteria are met when a customer purchases the SOS product and the three-day rescission period expires. The customer signs one of the Company's order forms, and a receipt acknowledging receipt and acceptance of the product. As is noted on the order and acceptance forms the customer has three days to rescind the order. Once the rescission period expires, all sales are final and all fees are fixed and determinable.

        The Company also offers its customers, through telemarketing sales following the workshop, certain products intended to assist the customer in being successful with their business. These products include a live chat capability for the customer's own website and web traffic building services. Revenues from these products are recognized when delivery of the product has occurred. The Company receives a commission and recognizes this revenue net of the selling and marketing costs.

Allowance for Doubtful Accounts

        We record an allowance for doubtful accounts and disclose the associated expense as a separate line item in operating expenses. The allowance, which is netted against our current and long term accounts receivable balances on our consolidated balance sheets, totaled approximately $9.0 million and $6.6 million as of June 30, 2004 and June 30, 2003, respectively. The amounts represent estimated losses resulting from the inability of our customers to make required payments. The estimates are based on historical bad debt write-offs, specific identification of probable bad debts based on collection efforts, aging of accounts receivable and other known factors. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Valuation of Long-Lived Assets Including Goodwill and Purchased Assets

        We review property, equipment, goodwill and purchased intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. This review is conducted as of December 31^st of each year or more frequently if necessary. Our asset

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impairment review assesses the fair value of the assets based on the future cash flows the assets are expected to generate. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from the disposition of the asset (if any) are less than the carrying value of the asset. This approach uses our estimates of future market growth, forecasted revenue and costs, expected period the assets will be utilized and appropriate discount rates. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value.

Income Taxes

        In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities. Our deferred tax assets consist primarily of the future benefit of net operating losses carried forward. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered historical operations and current earnings trends, future market growth, forecasted earnings, estimated future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance, if any, would be reversed.

        At June 30, 2003 we had recognized a tax valuation allowance of $19.3 million against our deferred tax assets. As of March 31, 2004, we determined that it was more likely than not that $16.7 million, or all but approximately $2.6 million of the deferred tax assets would be realized. This determination was based on current projections of future taxable income when taking into consideration limitations on the utilization of net operating loss carry forwards ("NOL") imposed by Section 382 of the Internal Revenue Code ("Section 382"). 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. Since our formation, we have issued a significant number of shares, and purchasers of those shares have sold some of them, with the result that two changes of control, as defined by Section 382, have occurred. 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 of approximately $127,000. 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"). Based on an independent valuation of our company as of April 3, 2002, we have approximately $15 million of recognized built-in gains. Additionally, based on a valuation of our company as of June 25, 2000, which evaluation was completed during the quarter ended March 31, 2004, we also determined the earlier ownership change resulted in built-in gains that allow us to utilize our entire NOL.

Related Party Transactions

        On July 1, 2003 John J. (Jay) Poelman, retired and in connection therewith resigned as the Company's Chief Executive Officer and as a Director of the Company. Transactions with Electronic Commerce International, Inc. ("ECI"), Electronic Marketing Services, LLC. ("EMS") and Simply

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Splendid, LLC ("Simply Splendid") which prior to July 1, 2003 were considered related party transactions, but are not considered related party transactions for the fiscal year ended June 30, 2004 since Mr. Poelman was not an affiliate of the Company after July 1, 2003.

        John J. Poelman was the sole owner of ECI during the fiscal year ended June 30, 2002 and during the three months ended September 30, 2002. During this period, the Company purchased a merchant account solutions product from ECI that provided on-line, real-time processing of credit card transactions and resold this product to its customers. The Company also formerly utilized the services of ECI to provide a leasing opportunity to customers who purchased its products at its Internet training workshops. Effective October 1, 2002, Mr. Poelman sold certain assets and liabilities of ECI, including ECI's corporate name and its relationship with the Company, to an unrelated third party. Total revenue generated by the Company from the sale of ECI's merchant account solutions product, while ECI's business was owned by Mr. Poelman, was $1,453,612 and $5,106,494 for the years ended June 30, 2003 and 2002, respectively. The cost to the Company for these products and services totaled $223,716 and $994,043 for the years ended June 30, 2003 and 2002, respectively. During the years ended June 30, 2003 and 2002 the Company processed leasing transactions for its customers through ECI in the amounts of $0 and $1,090,520, respectively. As of June 30, 2004 and 2003 the Company had no receivable balance due from ECI for leases in process. In addition, the Company had no payable balance due to ECI as of June 30, 2003 for the purchase of the merchant account software while owned by Mr. Poelman.

        The Company offers its customers at its Internet training workshops, and through telemarketing sales following the workshop certain products intended to assist its customers to become successful with their business. These products include a live chat capability for the customer's own website and web traffic building services. The Company purchases some of these services from EMS. In addition, EMS provides us telemarketing services, selling some of the Company's products and services to contacts provided to EMS by us. Ryan Poelman, owner of EMS, is the son of John J. Poelman our former Chief Executive Officer and a former director who retired effective July 1, 2003 and, in connection therewith, resigned as an officer and director of the Company. The Company's revenues generated from the above products and services were $6,330,343 and $4,806,497 for the fiscal years ended June 30, 2003 and 2002, respectively. The Company paid EMS $994,827 and $479,984 to purchase these services during the fiscal years ended June 30, 2003 and 2002, respectively. In addition, the Company had $92,094 as of June 30, 2003 recorded in accounts payable relating to the amounts owed to EMS for products and services.

        The Company sends complimentary gift packages to its customers who register for the Company's Workshop training sessions. An additional gift is sent to Workshop attendees who purchase our products at the conclusion of the Workshop. The Company utilizes Simply Splendid, LLC ("Simply Splendid") to provide some of these gift packages to the Company's customers. Aftyn Morrison, owner of Simply Splendid, is the daughter of John J. Poelman our former Chief Executive Officer and a former director. We paid Simply Splendid $421,265 and $0 to fulfill these services during the fiscal years ended June 30, 2003 and 2002, respectively. In addition, the Company had $22,831 as of June 30, 2003 recorded in accounts payable relating to the amounts owed to Simply Splendid for gift packages.

        We engaged vFinance Investments, Inc. ("vFinance") as a financial advisor and placement agent for our private placement of unregistered securities that closed during May 2002. Shelly Singhal, a former member of our Board of Directors, was a principal of vFinance at the time of the private placement. During the year ended June 30, 2002 we paid vFinance $61,500 in fees and commissions for their services. The offering was successful with adjusted gross proceeds to us of $2,185,995.

        We engaged SBI-E2 Capital USA Ltd. ("SBI") as a financial consultant to provide us with various financial services. Shelly Singhal a former member of our Board of Directors is a managing director of

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SBI. During the year ended June 30, 2002 SBI provided us with a Fairness Opinion relating to our proposed merger with Category 5 Technologies, for which we paid $67,437.

        We also paid SBI $58,679 for expenses and commissions relating to our private placement of unregistered securities that closed during November 2001. The offering was successful with adjusted gross proceeds to us of $2,898,455.

        Pursuant to an agreement dated February 15, 2002, SBI also rendered certain financial advisory services to us in connection with our private placement that closed in May 2002, including delivery of a fairness opinion with respect to such private placement. Pursuant to this agreement, we paid SBI a total of $40,000 and issued to SBI and various of its designees an aggregate of 112,500 shares of our common stock.

        In each of the above-described transactions and business relationships, we believe that the terms under which business is transacted with all related parties are at least as favorable to us as would be available from an independent third party providing the same goods or services.

Results of Operations

Fiscal year ended June 30, 2004 compared to fiscal year ended June 30, 2003

Revenue

        Our fiscal year ends on June 30 of each year. Revenues for the fiscal year ended June 30, 2004 ("FY 2004") increased to $81,027,517 from $46,470,678 for the fiscal year ended June 30, 2003 ("FY 2003"), an increase of 74%. Revenues generated at our Internet training workshops in both fiscal years were from the sale of the SOS product as described in Critical Accounting Policies and Estimates above. Revenues also include fees charged to attend the workshop, web traffic building products, mentoring, consulting services, access to credit card transaction processing interfaces and sales of banner advertising. We expect future operating revenues to be generated principally following a business model similar to the one used in fiscal year 2004. The Internet environment continues to evolve, and we intend to offer future customers new products as they are developed. We anticipate that our offering of products and services will evolve as some products are dropped and are replaced by new and sometimes innovative products intended to assist our customers achieve success with their Internet-related businesses. We also intend to expand our product offerings to locations outside the United States of America.

        The increase in revenues from FY 2004 compared to FY 2003 can be attributed to various factors. There was an increase in the number of Internet training workshops conducted during the current fiscal years. The number increased to 544 including 58 that were held outside the United States of America, for the current fiscal year from 336 in FY 2003, 11 of which were held outside the United States. In addition, the average number of persons attending each workshop increased and the average number of "buying units" in attendance at our workshops during the period increased to 89, compared to 84 in the prior fiscal year. Persons who pay an enrollment fee to attend our workshops are allowed to bring a guest at no additional charge, and that individual and his/her guest constitute one buying unit. If the person attends alone that single person also counts as one buying unit. Approximately 35% of the buying units made a purchase at the workshop in FY 2004 compared to 32% FY 2003. The average revenue per workshop purchase decreased in the current fiscal year ended June 30, 2004 to approximately $4,300 compared to approximately $4,500 in the fiscal year ended June 30, 2003. We contact all persons who attend our workshops beginning approximately two weeks after the event was held in an attempt to sell them a mentoring program and products that will drive traffic to their web site. These contacts are made through telemarketing companies that we engage as subcontractors. The Company receives a commission and recognizes this revenue net of the selling and marketing costs.

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Telemarketing sales, included in total revenue described above, increased during FY 2004 to approximately $6.5 million from $3.7 million in FY 2003, an increase of 73%.

Gross Profit

        Gross profit is calculated as revenue less the cost of revenue, which consists of the cost to conduct Internet training workshops, to provide customer technical support, credit card fees and the cost of tangible products sold. Gross profit for FY 2004 increased to $62,281,247 from $35,568,308 during FY 2003. The increase in gross profit primarily reflects the increased revenue during the period. Gross profit as a percent of revenue for FY 2004 was 76.9% compared to 76.5% for FY 2003.

        Cost of revenues includes related party transactions of $1,118,002 in FY 2003. These are more fully described in the notes to the consolidated financial statements as Note 13. We have determined, based on competitive bidding and experience with independent vendors offering similar products and services, that the terms under which business is transacted with these related parties is at least as favorable to us as would be available from an independent third party.

Selling and Marketing

        Selling and marketing expenses consist of payroll and related expenses for sales and marketing, the cost of advertising, promotional and public relations expenditures, related expenses for personnel engaged in sales and marketing activities, and commissions paid to telemarketing companies. Selling and marketing expenses for FY 2004 increased to $20,964,701 from $11,632,209 in FY 2003. The increase in selling and marketing expenses is primarily attributable to the increase in the number of workshops held during FY 2004. Expenses were higher because of the greater number of attendees at our preview sessions and the associated expenses including advertising and promotional expenses necessary to attract the attendees. Total selling and marketing expenses as a percentage of revenues were 25.9% for FY 2004 and 25.0% FY 2003.

        Selling and marketing expenses include related party transactions of $349,680 in the fiscal year ended June 30, 2003. These are more fully described in note 13 to the consolidated financial statements. We have determined, based on competitive bidding and experience with independent vendors offering similar products and services, that the terms under which business is transacted with this related party are at least as favorable to us as would be available from an independent third party.

General and Administrative

        General and administrative expenses consist of payroll and related expenses for executive, accounting and administrative personnel, professional fees, finance company discounts and service fees and other general corporate expenses. General and administrative expenses in FY 2004 increased to $8,855,459 from $5,081,353 in FY 2003. The general increase in sales volume contributed to an increase in salaries and wages to $2.9 million in FY 2004 from $2.1 million in FY 2003. The increase in salaries and wages occurred primarily in customer service as a result of the execution of several customer service initiatives.

        Finance company discounts and service fees increased to $2.3 million in FY 2004 compared to $1.6 million in FY 2003 as a result of the general increase in sales volume. We accept twenty-four month installment contracts from our customers as one of several methods of payment. Some of these contracts are subsequently sold to finance companies at a discount. The discounts range between 15% and 25% depending upon the credit worthiness of our customer. Contracts that are not sold are carried by the Company and the servicing and collection activity is outsourced to independent collection companies. Fees for servicing are approximately 8% of the funds collected and fees for collection are approximately 33% of the funds collected. These discounts and service fees are included in general and administrative expenses.

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        Legal expenses increased to $1.5 million during FY 2004 as a result of the resolution of various legal proceedings during the year as more fully described in Legal Proceedings in Part I, Item 3 of this Form 10-K. The change in legal expenses during the year is also the result of a settlement agreement with Category 5 Technologies, Inc. ("Cat 5") during FY 2003. In April 2002 Cat 5 demanded that we reimburse them for $260,000 of their expenses associated with merger negotiations between our companies. As a result we accrued that amount as a contingent liability during FY 2002. A settlement agreement was signed and the lawsuit dismissed eliminating the contingent liability and therefore the accrual was reversed during FY 2003, reducing legal expenses for the year. We anticipate that legal expenses will decrease in future periods as various legal proceedings have been resolved during fiscal year 2004.

        Accounting and other professional fees increased $653,000 during FY 2004 as a result of consulting and legal services incurred as a result of our international expansion and consulting fees incurred for compliance with the rules and regulations of Sarbanes-Oxley.consulting. The Audit fees also increased as a result of a general increase in sales volume.

Bad Debt Expense

        Bad debt expense consists mostly of actual and anticipated losses resulting from the extension of credit terms to our customers when they purchase products from us. We encourage customers to pay for their purchases by check or credit card since these are the least expensive methods of payment for our customers, but we also offer installment contracts with payment terms up to 24 months. We offer these contracts to all workshop attendees not wishing to use a check or credit card provided they complete a credit application, give us permission to independently check their credit and are willing to make an appropriate down payment of from 5% to 10% of the purchase price. These installment contracts are sometimes sold to finance companies, with partial or full recourse, if our customer has a credit history that meets the finance company's criteria. Beginning in May 2004, we no longer sell installment contracts with any recourse provisions. If not sold, we carry the contract and out-source the collection activity. Our collection experience with these 24-month contracts is satisfactory given the low marginal cost associated with these sales and that the down payment received by us at the time the contract is entered into exceeds the cost of the delivered products. Since all other expenses relating to the sale, such as salaries, advertising, meeting room expense, travel, etc., have already been incurred, we believe there is a good business reason for extending credit on these terms.

        Bad debt expense was $24,144,800 in FY 2004 compared to $14,255,877 in the prior fiscal year. The increase is due to an increase in the number of installment contracts entered into, an increase in the number of contracts carried by us and our recent collection experience. We have begun to have access to much more detailed information from the finance companies that service the installment contracts, and we have also had more historical data with which to estimate the appropriate bad debt reserve. We believe that bad debt expense in future years will decline as a percentage of revenues since we have resolved all known contract losses during FY 2004. We believe the allowance for doubtful accounts of approximately $9.0 million at June 30, 2004 is adequate to cover all future losses associated with the contracts in our accounts receivable as of June 30, 2004.

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        During FY 2004 workshop sales financed by installment contracts were approximately $44.1 million compared to $22.6 million in the prior fiscal year. As a percentage of workshop sales, installment contracts were 61% in FY 2004 compared to 55% in FY 2003. The table below shows the activity in our total allowance for doubtful accounts during the fiscal year ended June 30, 2004.

Interest Income

        Interest income is derived from the installment contracts. Our contracts have an 18% simple interest rate and interest income for FY 2004 was $1,725,776 compared to $813,136 in FY 2003. In the future as our cash position strengthens we may be able to carry more installment contracts rather than selling them at a discount to finance companies. If we were able to carry more of these contracts it would increase interest income and reduce these discounts which are recorded as administrative expenses.

Income Taxes

        At June 30, 2003 we had recognized a tax valuation allowance of $19.3 million against our deferred tax assets. As of March 31, 2004, we determined that it was more likely than not that $16.7 million, or all but $2.6 million of the deferred tax assets would be realized. This determination was based on current projections of future taxable income when taking into consideration limitations on the utilization of net operating loss carry forwards ("NOL") imposed by Section 382 of the Internal Revenue Code ("Section 382"). 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. Since our formation, we have issued a significant number of shares, and purchasers of those shares have sold some of them, with the result that two changes of control, as defined by Section 382, have occurred. 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 of approximately $127,000. 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"). Based on an independent valuation of our company as of April 3, 2002, we have approximately $15 million of recognized built-in gains. Additionally, based on a valuation of our company as of June 25, 2000, which evaluation was completed during the quarter ended March 31, 2004, we also determined the earlier ownership change resulted in built-in gains that allow us to utilize our entire NOL.

        The $16.7 million benefit recorded upon the removal of the valuation allowance during FY 2004 was offset by the utilization of $4.6 million of the NOL during the period and by approximately $200,000 in effective tax rate changes and income tax true-ups as a result of the expansion of international operations, resulting in an overall tax benefit of $12.3 million for the year. We have recorded deferred tax assets of approximately $13.1 million as of June 30, 2004. As the Company continues to realize earnings and generate deferred tax provision, the tax asset will decrease in amount.

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Fiscal year ended June 30, 2003 compared to fiscal year ended June 30, 2002

Revenue

        Our fiscal year ends on June 30 of each year. Revenues for the fiscal year ended June 30, 2003 ("FY 2003") increased to $46,470,678 from $33,188,263 for the fiscal year ended June 30, 2002 ("FY 2002"), an increase of 40%. Revenues generated at our Internet training workshops in both fiscal years were from the sale of the SOS product as described in Critical Accounting Policies and Estimates above. Revenues also include fees charged to attend the workshop, web traffic building products, mentoring, consulting services, access to credit card transaction processing interfaces and sales of banner advertising. We expect future operating revenues to be generated principally following a business model similar to the one used in fiscal year 2003. The Internet environment continues to evolve, and we intend to offer future customers new products as they are developed. We anticipate that our offering of products and services will evolve as some products are dropped and are replaced by new and sometimes innovative products intended to assist our customers achieve success with their Internet-related businesses.

        The increase in revenues from FY 2003 compared to FY 2002 can be attributed to various factors. There was an increase in the number of Internet training workshops conducted during the current fiscal years. The number increased to 336 including 11 that were held outside the United States of America, for FY 2003 from 253 in FY 2002, nine of which were held outside the United States. In addition, the average number of persons attending each workshop increased and the average number of "buying units" in attendance at our workshops during the period increased to 84, compared to 80 in the prior fiscal year. Persons who pay an enrollment fee to attend our workshops are allowed to bring a guest at no additional charge, and that individual and his/her guest constitute one buying unit. If the person attends alone that single person also counts as one buying unit. Approximately 32% of the buying units made a purchase at the workshop in FY 2003 compared to 29% FY 2002. The average revenue per workshop purchase also increased in the current fiscal year ended June 30, 2003 to approximately $4,500 compared to approximately $4,100 in the fiscal year ended June 30, 2002. We will seek to continue to hold workshops with a larger number of attendees in future periods and we will seek to increase the number of these larger workshops as well.

        Revenue during FY 2003 compared to FY 2002 was higher in spite of the loss of a benefit relating to the recognition of revenue deferred from historical workshop sales at rates greater than the level at which revenue is required to be deferred from the current period. During FY 2003, we recognized only $248,150 in net revenue from sales made in prior periods compared to $5,328,034 recognized from sales made in prior periods during FY 2002. This benefit experienced during FY 2002 resulted from a change in the business model and product offering at the workshops. This benefit has now been fully realized and we do not expect it to reoccur. We anticipate that in the future the amount of revenue recognized from earlier periods will be approximately equal to that deferred into future periods.

        Effective October 1, 2000, we began making our product offerings through our StoresOnline subsidiary rather than our Galaxy Mall subsidiary. This culminated an eighteen month long plan to fully incorporate the SOS throughout the engineering and programming departments, servers and infrastructure and to move away from a mall-based hosting environment. Our services have been used for several years by non-mall based merchants, and we believe that the marketing principles taught by us are equally effective for stand-alone websites and websites hosted on an Internet "mall." Although Galaxy Mall remains an active website, all new customers are sold the SOS through our StoresOnline previews and workshops.

        We contact all persons who attend our workshops beginning approximately two weeks after the event was held in an attempt to sell them a mentoring program and products that will drive traffic to their web site. These contacts are made through telemarketing companies that we engage as subcontractors. Revenues from these products are recognized when delivery of the product has

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occurred. The Company receives a commission and recognizes this revenue net of the selling and marketing costs. Telemarketing sales, included in total revenue described above, decreased during FY 2003 to approximately $3.7 million from $5.0 million in FY 2003, an decrease of 26%.

Gross Profit

        Gross profit is calculated as revenue less the cost of revenue, which consists of the cost to conduct Internet training workshops, to provide customer technical support, credit card fees and the cost of tangible products sold. Gross profit for FY 2003 increased to $35,568,308 from $26,662,463 during FY 2002. The increase in gross profit primarily reflects the increased revenue during the period.

        Gross profit as a percent of revenue for FY 2003 was 77% compared to 80% for FY 2002. The reduction in the gross margin percentage was primarily attributable to the recognition of $5,328,034 in deferred revenue during the fiscal year ended June 30, 2002, as compared to only $398,912 in deferred revenue that was recognized during FY 2003. These deferred revenue amounts had no costs associated with them because those costs were recognized at the time the sales were made and the products delivered in the relevant prior periods.

        Cost of revenues includes related party transactions of $1,118,002 in FY 2003 and $994,043 in the prior fiscal year. These are more fully described in the notes to the consolidated financial statements as Note 13. We have determined, based on competitive bidding and experience with independent vendors offering similar products and services, that the terms under which business is transacted with these related parties is at least as favorable to us as would be available from an independent third party.

Selling and Marketing

        Selling and marketing expenses consist of payroll and related expenses for sales and marketing, the cost of advertising, promotional and public relations expenditures, related expenses for personnel engaged in sales and marketing activities, and commissions paid to telemarketing companies. Selling and marketing expenses for FY 2003 increased to $11,632,209 from $9,474,733 in FY 2002. The increase in selling and marketing expenses is primarily attributable to the increase in the number of workshops held during FY 2003. Expenses were higher because of the greater number of attendees at our preview sessions and the associated expenses including advertising and promotional expenses necessary to attract the attendees. Advertising expenses for the fiscal year ended June 30, 2003 were approximately $7.6 million compared to $5.3 million in the prior fiscal year. Total selling and marketing expenses as a percentage of revenues were 25% for FY 2003 and, including the non-recurring benefit of deferred revenue mentioned above in total revenue, selling and marketing expenses were 30% of total revenue for FY 2002.

        Selling and marketing expenses include related party transactions of $349,680 and $355,106 in the fiscal years ended June 30, 2003 and 2002, respectively. These are more fully described in Note 13 to the consolidated financial statements. We have determined, based on competitive bidding and experience with independent vendors offering similar products and services, that the terms under which business is transacted with this related party are at least as favorable to us as would be available from an independent third party.

General and Administrative

        General and administrative expenses consist of payroll and related expenses for executive, accounting and administrative personnel, professional fees, finance company discounts and other general corporate expenses. We accept twenty-four month installment contracts from our customers as one of several methods of payment. Some of these contracts are subsequently sold to finance companies at a discount. The discounts range between 15% and 25% depending upon the credit

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worthiness of our customer. These discounts, which amounted to approximately $1.6 million in FY 2003 and $1.5 in FY 2002, are included in general and administrative expenses.

        General and administrative expenses in FY 2003 decreased to $5,081,353 from $6,388,309 in FY 2002. This decrease is partially attributable to the fact that during FY 2002 we incurred $555,201 in debt issuance costs associated with a convertible debenture owned by King William, LLC. Since King William converted the debenture into common stock, the debt issuance costs were written off rather than being amortized over the life of the debenture. Other items contributing to the reduction were a decrease in the FY 2003 payroll and related expenses that resulted from reducing the size of our workforce which was partially offset by increases in compensation to our executive officers, elimination of certain consulting fees associated with financial public relations firms, and a reduction in legal and other professional expenses. In addition, during FY 2003 we resolved a lawsuit brought by Category 5 Technologies, Inc. ("Cat 5").

        In April 2002 Cat 5 demanded that we reimburse them for $260,000 of their expenses associated with merger negotiations between our companies. As a result we accrued that amount as a contingent liability during FY 2002. A settlement agreement was signed and the lawsuit dismissed in fiscal year 2003 eliminating the contingent liability and therefore the accrual was reversed during FY 2003, reducing general and administrative expenses for the year. Further reductions in general and administrative expenses from current revenue levels are unlikely and we anticipate that general and administrative expenses will increase in future years as our business grows, as we work to improve the quality and effectiveness of our customer support and we resolve the litigation and administrative proceedings brought against us.

Bad Debt Expense

        Bad debt expense consists mostly of actual and anticipated losses resulting from the extension of credit terms to our customers when they purchase products from us. We encourage customers to pay for their purchases by check or credit card since these are the least expensive methods of payment for our customers, but we also offer installment contracts with payment terms up to 24 months. We offer these contracts to all workshop attendees not wishing to use a check or credit card provided they complete a credit application, give us permission to independently check their credit and are willing to make an appropriate down payment of from 5% to 10% of the purchase price. These installment contracts are sometimes sold to finance companies, with partial or full recourse, if our customer has a credit history that meets the finance company's criteria. If not sold, we carry the contract and out-source the collection activity. Our collection experience with these 24-month contracts is satisfactory given the low marginal cost associated with theses sales and that the down payment received by us at the time the contract is entered into exceeds the cost of the delivered products. Since all other expenses relating to the sale, such as salaries, advertising, meeting room expense, travel, etc., have already been incurred, we believe there is a good business reason for extending credit on these terms.

        Bad debt expense was $14,225,877 in FY 2003 compared to $6,675,238 in the prior fiscal year. The increase is due to an increase in the number of installment contracts entered into, an increase in the number of contracts carried by us and our recent collection experience. During FY 2003 we wrote off approximately $2.4 million of installment contracts that originated in FY 2002 and 2001. We provided for bad debts as of June 30, 2002 based on the best information available at the time, including historical write-off patterns. We have begun to have access to much more detailed information from the finance companies that service the installment contracts, and we have also had more historical data with which to estimate the appropriate bad debt reserve.

        During FY 2003 workshop sales financed by installment contracts were approximately $22.6 million compared to $12.3 million in the prior fiscal year. As a percentage of workshop sales, installment contracts were 55% in FY 2003 compared to 47% in FY 2002. During FY 2003 contracts carried by us,

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before any adjustment for an allowance for doubtful accounts, increased by approximately $5.7 million to approximately $12.9 million. The balance carried at June 30, 2002 net of the allowance for doubtful accounts was approximately $7.2 million. The allowance for doubtful accounts as of June 30, 2003 related to installment contracts was 45% of gross accounts receivable compared to 46% at June 30, 2002, reflecting a modest improvement in the credit quality of our customers electing this method of payment. These factors and other non-installment contract receivables required us to increase our total allowance for doubtful accounts by approximately $3.4 million.

Interest Income

        Interest income is derived from the installment contracts. Our contracts have an 18% simple interest rate and interest income for FY 2003 was $813,136 compared to $390,371 in FY 2002.

Interest Expense

        Interest expenses for the fiscal year ended June 30, 2003 decreased to $40,611 from $1,950,687 in FY 2002. Included in interest expense in FY 2002 are $212,463 relating to the conversion of an 8% convertible debenture issued to King William, LLC into common stock and $1,666,957 relating to the conversion into common stock of convertible long term notes held by investors who participated in a private placement of the notes in January and April 2001. Upon conversion of these items the debt discount previously recorded was written off in FY 2002 instead of being amortized over the life of the notes.

Income Taxes

        Fiscal year 2002 was our first profitable year since our inception. However, differences in generally accepted accounting principals ("US GAAP") and accounting for tax purposes caused us to have a tax loss for the fiscal year ended June 30, 2002. For the fiscal year ended June 30, 2003 we have estimated our taxable income to be approximately $8.2 million.

Liquidity and Capital Resources

        At June 30, 2004 we had working capital of $13,825,075 compared to $5,526,926 at June 30, 2003. Our shareholders equity was $30,737,883 at June 30, 2004 compared to $8,103,047 at June 30, 2003. We generated revenues of $81.0 million during FY 2004 compared to $46.5 million during FY 2003. For the year ended June 30, 2004 we generated earnings before taxes of $9.6 million compared to $5.0 million for the prior year.

        Although we had historically incurred losses during our first several years of operations, we became profitable in fiscal year 2002 and continued our profitability through fiscal year 2004. Our historical losses, however, have resulted in a cumulative net loss of $42,593,240 through June 30, 2004. We have historically relied upon private placements of our stock and the issuance of debt to generate funds to meet our operating needs. We may in the future seek to raise additional debt or equity capital to further increase our growth potential and take advantage of strategic opportunities. However, there can be no assurance that additional financing will be available on acceptable terms, if at all.

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Capital Requirements—Contractual Obligations

(1)

Payments are included in the period by which they are contractually required to be made. Actual payments may be made prior to the contractually required date.

(2)

Represents our commitments associated with operating leases and includes contracts that expire in various years through 2007. Payments due reflect fixed rent expense.

(3)

Amounts are equal to the annual maturities of our long-term debt outstanding. See Note 6 to our Consolidated Financial Statements.

(4)

Represents our obligation associated with various capital leases. See Note 10 to our Consolidated Financial Statements.

(5)

Amount represents our obligation on the line of credit with Zion's First National Bank. See Note 7 to our Consolidated Financial Statements.

Cash

        At June 30, 2004, we had $4,956,512 cash on hand compared to $2,319,618 at June 30, 2003. During FY 2004, we recorded positive cash flows from operating activities of $1,304,519 compared to positive cash flows of $2,080,778 in the prior fiscal year. Net cash provided by operations resulted mainly from net earnings of $21,893,149 and a provision for bad debts of $23,489,924 but partially offset by an increase in trade receivables of $35,016,413 and the establishment of deferred tax assets of $13,121,255. The increase in trade receivables occurred because our increase in revenues generated additional installment contracts. See the discussion of Bad Debt Expense in the Results of Operations above for a detailed discussion.

Trade Receivables

        Trade receivables, carried as a current asset, net of allowance for doubtful accounts, were $12,427,366 at June 30, 2004 compared to $5,161,010 at June 30, 2003. Trade receivables, carried as a long-term asset, net of allowance for doubtful accounts, were $6,515,102 at June 30, 2004 compared to $2,254,969 at June 30, 2003. We offer our customers a 24-month installment contract as one of several payment options. The payments that become due more than 12 months after the end of the fiscal period are carried as long-term trade receivables. During FY 2004 workshop sales financed by installment contracts were approximately $44.1 million compared to approximately $22.8 million in prior year.

        Historically we have sold, on a discounted basis, generally with recourse, a portion of these installment contracts to third party financial institutions for cash. These installment contracts were sold to various separate financial institutions with different recourse rights. When contracts are sold the discount varies between 15% and 25% depending on the credit quality of the customer involved. Beginning in May 2004, we no longer sell installment contracts with recourse rights. During FY 2004

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our cash position was strong enough to retain some of the contracts we otherwise would have sold. Contracts with customers whose credit rating would have allowed us to sell them and having an original principal balance of approximately $2,723,378 were retained by the Company. The savings in discount by not selling the contracts was approximately $545,000. We expect to retain additional contracts in the future.

Accounts Payable

        Accounts payable at June 30, 2004, totaled $2,849,632, compared to $1,528,037 at June 30, 2003. Our accounts payable as of June 30, 2004 were generally within our vendor's terms of payment.

Stockholders' Equity

        Stockholders' equity at March 31, 2004 was $30,737,883 compared to $8,103,047 at June 30, 2003. The increase was mainly due to profitable operations for fiscal year 2004. Net earnings during the year were $21,893,149.

Financing Arrangements

        We accept payment for the sales made at our Internet training workshops by cash, credit card, or installment contract. As part of our cash flow management and in order to generate liquidity, we have historically sold on a discounted basis, generally with recourse, a portion of the installment contracts generated by us to third party financial institutions for cash. See "Liquidity and Capital Resources—Trade Receivables," for further information.

Additional Sources of Liquidity

        In April 2004, we opened a $3 million revolving loan agreement with Zions First National Bank. The agreement allows us to borrow up to 80% of qualifying receivables up to $3 million at prime plus 3% for a term of three years. We entered into the revolving loan agreement to provide additional liquidity so that we would not be required to sell all of our installment contracts to third party financial institutions at the discounts described above.

        In August 2004, we opened a $5 million line of credit agreement with Bank One and closed the $3 million revolving loan agreement with Zions First National Bank. The agreement with Bank One allows us to borrow funds for a term of two years at LIBOR plus 2%. The Bank One agreement provides additional liquidity at more favorable terms than the Zions First National Bank agreement and will be used for the same purposes described above.

American Stock Exchange Listing

        On August 16, 2004 the American Stock Exchange listed our common stock under the ticker symbol IIG.

Impact of Recent Accounting Pronouncements

        In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition", which supercedes Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." The primary purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, which was superceded as a result of the issuance of Emerging Issues Task Force 00-21 ("EITF 00-21"), "Accounting for Revenue Recognition in Financial Statements—Frequently Asked Questions and Answers" document. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB

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101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not have a material impact on our consolidated financial position, results of operations or cash flows.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

        We are exposed to market risk from changes in interest and foreign exchange rates. We have minimal fair value exposure related to interest rate changes associated with our long-term, fixed-rate debt. We do not believe we have material market risk exposure and have not entered into any market risk sensitive instruments to mitigate these risks or for trading or speculative purposes.

        We currently have outstanding $3.4 million of extended payment term arrangements denominated in foreign currencies with maturity dates between 2004 and 2006. These extended payment term arrangements are translated into U.S. dollars at the exchange rates as of each balance sheet date and the resulting gains or losses are recorded in other income (expense). During the year ended June 30, 2004 we recognized approximately $40,000 in related foreign exchange losses. The fluctuations of exchange rates may adversely affect our results of operations, financial position and cash flows.

Item 8. Financial Statements and Supplementary Data

        See Item 15(a) for an index to the consolidated financial statements and supplementary financial information that are attached hereto.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

        None

Item 9A. Controls and Procedures

        Our Chief Executive Officer and Chief Financial Officer, after conducting an evaluation, together with other members of the Company's management, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report, have concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in its reports filed or submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to that evaluation, and there were no significant deficiencies or material weaknesses in such controls requiring corrective actions.

Item 9B. Other Information

        None.

PART III

Item 10. Directors and Executive Officers of the Registrant

        The information required by this Item 10 is hereby incorporated by reference to the information in our definitive proxy statement to be filed within 120 days after the close of our fiscal year.

Item 11. Executive Compensation

        The information required by this Item 11 is hereby incorporated by reference to the information in our definitive proxy statement to be filed within 120 days after the close of our fiscal year. Such

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incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information required by this Item 12 is hereby incorporated by reference to the information in our definitive proxy statement to be filed within 120 days after the close of our fiscal year.

Item 13. Certain Relationships and Related Transactions

        The information required by this Item 13 is hereby incorporated by reference to the information in our definitive proxy statement to be filed within 120 days after the close of our fiscal year.

Item 14. Principle Accounting Fees and Services

        The information required by this item is incorporated by reference to the sections of the Company's Proxy Statement filed in connections with its 2004 Annual Meeting of the Stockholders entitled "Audit Fees."

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

1. Financial Statements

        The following financial statements of Imergent, Inc., and related notes thereto and auditors' report thereon are filed as part of this Form 10-K:

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2.

Financial Statement Schedules

        The following financial statement schedule of Imergent, Inc. is filed as part of this Form 10-K. All other schedules have been omitted because they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto.

3.

Exhibits

        The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed as part of, or hereby incorporated by reference into, this Form 10-K.

(b)

Reports on Form 8-K During the Last Quarter of Fiscal 2004

        On May 5, 2004, we filed a Current Report on Form 8-K with respect to our earnings release concerning the fiscal quarter ended March 31, 2004.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Imergent, Inc.

        We have audited the accompanying consolidated balance sheets of Imergent, Inc. and Subsidiaries (the Company) as of June 30, 2004 and 2003, and the related consolidated statements of earnings, stockholders' equity (accumulated deficit), and cash flows for each of the three years in the period ended June 30, 2004. In connection with our audits of the consolidated financial statements, we have audited the financial statement schedule for the years ended June 30, 2004, 2003 and 2002. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Imergent, Inc. and Subsidiaries as of June 30, 2004 and 2003, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended June 30, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        The accompanying consolidated financial statements for the years ended June 30, 2003 and 2002 have been restated as discussed in Note 2.

/s/  GRANT THORNTON LLP      

Salt Lake City, Utah
August 27, 2004

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IMERGENT, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

June 30, 2004 and 2003

The accompanying notes are an integral part of these financial statements.

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IMERGENT, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

Years Ended June 30, 2004, 2003, and 2002

The accompanying notes are an integral part of these financial statements.

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IMERGENT, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Accumulated Deficit)

Years Ended June 30, 2004, 2003, and 2002

The accompanying notes are an integral part of these financial statements.

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IMERGENT, INC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended June 30, 2004, 2003, and 2002