We believe our long-term focus on investing in products and developing new and alternative sales channels is enabling us to build a foundation for growth by delivering innovative products, creating opportunities for potential channel partners, and improving customer satisfaction. Our focus continues to be to execute in key areas through ongoing innovation on our integrated content management software solution, responding effectively to customer and partner needs, and focusing internally on product excellence, business efficacy, and accountability across our Company.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in our accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2010 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. Other than the adoption of the new revenue recognition guidance in which arrangements that include tangible products that have software components that are essential to the functionality of the tangible products described in Note 1 and Note 5 in the condensed consolidated financial statements, we believe that there were no other significant changes to those critical accounting policies during the three months ended March 31, 2011. Our senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Form 10-Q with the Audit Committee of our Board of Directors.
RESULTS OF OPERATIONS
Results of Consolidated Operations
The following discussion of financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto and other financial information included elsewhere in this Form 10-Q.
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Consolidated Operations
|
|
(in thousands, except per share amounts)
|
|
|
Revenue
|
|
$
|
14,568
|
|
|
$
|
17,094
|
|
|
Income (loss) before income taxes
|
|
|
(2,973
|
)
|
|
|
248
|
|
|
Income tax benefit (provision)
|
|
|
1,122
|
|
|
|
(125
|
)
|
|
Net income (loss)
|
|
|
(1,851
|
)
|
|
|
123
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.17
|
)
|
|
$
|
0.01
|
|
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenue
Total net revenue decreased 15% in the three months ended March 31, 2011 compared with the corresponding period of 2010, primarily due to a 13% decrease in principal collected on our accounts receivable balance, a 26% decrease in commissions payable to us by third parties as a result of fewer leads generated from our StoresOnline division, and a 25% decrease in the percentage of cash collected at workshops. Crexendo Web Services generated revenue of $479,000 during the three months ended March 31, 2011, compared with $242,000 in the corresponding period in 2010.
Income (Loss) Before Income Taxes
Income (loss) before income tax decreased $3.2 million in the three months ended March 31, 2011 compared with the corresponding period of 2010. Revenue for the three months ended March 31, 2011 decreased $2.5 million, as compared to corresponding period of 2010. Total operating expenses increased 4% to $18,699,000 for the three months ended March 31, 2011, compared to $17,975,000 in the corresponding period of 2010.
Income Tax Provision
Our effective tax rate for the three months ended March 31, 2011 and 2010 was 38% and 50%, respectively, which resulted in a benefit for income taxes of $1,122,000 and a provision for income taxes of $125,000, respectively. The higher tax rate in the prior year quarter was primarily related to the expiration of certain credits.
Significant management judgment is required in determining our provision for income taxes and in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryovers will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are determined not to be realizable. Realization is based on our ability to generate sufficient future taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets as of March 31, 2011, will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.
Segment Operating Results
The information below is organized in accordance with our three reportable segments. Segment operating income (loss) is equal to segment net revenue less segment cost of revenue, sales and marketing, and general and administrative expenses. Segment expenses do not include certain costs, such as corporate general and administrative expenses and share-based compensation expenses, which are not allocated to specific segments.
Operating Results of our StoresOnline Division
(in thousands)
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
StoresOnline
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,089
|
|
|
$
|
16,852
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
5,758
|
|
|
|
4,937
|
|
|
Selling and marketing
|
|
|
8,047
|
|
|
|
8,559
|
|
|
General and administrative
|
|
|
1,069
|
|
|
|
1,463
|
|
|
Operating income (loss)
|
|
$
|
(785
|
)
|
|
$
|
1,893
|
|
|
Other income
|
|
|
1,158
|
|
|
|
1,129
|
|
|
Income (loss) before taxes
|
|
$
|
373
|
|
|
$
|
3,022
|
|
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenue
Revenue
from our StoresOnline division
for the three months ended March 31, 2011 decreased 16% to $14,089,000 from $16,852,000 for the three months ended March 31, 2010.
Revenue from our StoresOnline division is generated primarily through cash collected on the sale of StoresOnline products and services sold at events held throughout the year, as well as principal amounts collected on the sale of StoresOnline products and services sold through EPTAs. Fees for our StoresOnline products and services sold under EPTAs are recognized as revenue as cash payments are received from the customer and not at the time of sale. Revenue related to cash collected under EPTA agreements decreased to $4,204,000 for the three months ended March 31, 2011, compared to $4,809,000 for the three months ended March 31, 2010. The decrease in cash collected under EPTA agreements was primarily due to a decrease in our current accounts receivable balance, which for StoresOnline, generates revenue as cash is collected in future periods. Our typical EPTA contract is for a period of two to three years. As such, increases in sales at our workshop events made through EPTA’s are initially recognized in our balance sheet, net of bad debt, through our deferred revenue balance, rather than through the income statement. As we currently finance a substantial percentage of our customers through EPTA agreements, one of the key indicators in our potential sales growth is increases in our deferred revenue balance, as it represents estimated future revenue upon collection of receivables. The following table summarizes the activity within deferred revenue for the three months ended March 31, 2011 and 2010 (in thousands):
|
StoresOnline deferred revenue as of January 1, 2010
|
|
$
|
22,245
|
|
|
Cash collected on Principal of EPTA Contracts
|
|
|
(4,809
|
)
|
|
Deferred revenue added during period (net of writeoffs)
|
|
|
3,822
|
|
|
StoresOnline deferred revenue as of March 31, 2010
|
|
$
|
21,258
|
|
|
|
|
|
|
|
|
StoresOnline deferred revenue as of January 1, 2011
|
|
$
|
23,229
|
|
|
Cash collected on Principal of EPTA Contracts
|
|
|
(4,204
|
)
|
|
Deferred revenue added during period (net of writeoffs)
|
|
|
6,592
|
|
|
StoresOnline deferred revenue as of March 31, 2011
|
|
$
|
25,617
|
|
Cash sales of SOS licenses and other products at our events as well as hosting revenue decreased to $7,977,000 in the three months ended March 31, 2011, compared to $9,462,000 in the three months ended March 31, 2010. The decrease was primarily attributable to:
(1) The percentage of customers paying cash at our workshops decreased to 29% for the three months ended March 31, 2011 from 39% for the three months ended March 31, 2010. As we recognize revenue only when cash is received, and not at the time of sale, the lower percentage of cash at the workshop decreased revenue for the three months ended March 31, 2010 by approximately $1,550,000, compared to the corresponding period of 2010.
(2) Further decreasing revenue was the fact that we had a $144,000 decrease in hosting revenue for the three months ended March 31, 2011, compared to the corresponding period of 2010.
(3) Offsetting the decrease in revenue due to the lower cash percentage at the workshops was the fact that we had 12,228 total buying units in attendance for all of our workshops in the three months ended March 31, 2011 compared to 11,861 in the three months ended March 31, 2010. This resulted in 98 more buyers and an increase in revenue of $144,000 during the three months ended March 31, 2011, compared to the three months ended March 31, 2010.
(4) Further offsetting the decrease in revenue due to the lower cash percentage at the workshops was the fact that approximately 29% of buying units made a purchase at the workshops during the three months ended March 31, 2011, compared to 27% for the three months ended March 31, 2010, which resulted in 218 additional workshop buyers and $318,000 in additional workshop revenue.
(5) Further offsetting the decrease in revenue due to the lower cash percentage at the workshops was the fact that our revenue from preview events increased to $1,724,000 during the three months ended March 31, 2011, compared to $1,141,000 for the three months ended March 31, 2010 primarily as a result of an increased attendance fee.
(6) On
On January 1, 2011 we adopted new accounting guidance on revenue recognition (see Note 5 to our condensed consolidated financial statements). The impact of adopting this new accounting standard was to defer revenue to future periods and the impact on our consolidated financial statements was a decrease in revenue for the three months ended March 31, 2011 of $572,000. The increase in the deferral of revenue is due primarily to the relative selling price allocation of the implied premium on our StoresOnline bundled arrangements.
(7) In January 2010 we changed the contract that is associated with the sale of our Avail 24/7 subscription. As a result of this change, we recognized approximately $1,000,000 in previously deferred revenue in March 2010.
Commissions from third parties decreased 26% to $1,908,000 for the three months ended March 31, 2011, from $2,581,000 for the three months ended March 31, 2010 due primarily to a decrease in our third-party partners’ sales rate.
Cost of Revenue
Cost of revenue consists primarily of the cost to conduct Internet Training Workshops, credit card fees, and the cost of products sold. Cost of revenue for the three months ended March 31, 2011 increased 17% to $5,758,000, from $4,937,000 for the three months ended March 31, 2010. The increase in cost of revenue was primarily due to additional customer incentives given to attendees at our workshops that began in September 2010 and is designed to increase the attendance at our workshops
.
Selling and Marketing
Selling and marketing expenses consist of payroll and related expenses for sales and marketing activities, advertising, and promotional expenses. Selling and marketing expenses for the three months ended March 31, 2011 decreased 6% to $8,047,000, from $8,559,000 for the three months ended March 31, 2010. The decrease was primarily related to the decrease in advertising expense, as fewer mail pieces were mailed out in the current quarter compared to the corresponding period in the prior year quarter. Selling and marketing expense as a percentage of revenue increased to 57% in the current year from 50% in prior year primarily due to the fact that our revenue was $2,763,000 lower than in the prior year quarter as explained above.
Trends in selling and marketing expenses will not always be consistent with the trends in revenue due to the fact that selling and marketing expenses are typically recognized when incurred, at the time of sale, but the related revenue is often deferred in accordance with the application of generally accepted accounting principles.
General and Administrative
General and administrative expenses consist of payroll and related expenses for executive, accounting and administrative personnel, legal, accounting and other professionals, finance company service fees, and other general corporate expenses. General and administrative expenses for the three months ended March 31, 2011 decreased to $1,069,000 from $1,463,000 for the three months ended March 31, 2010. The decrease was primarily due to the fact that our building rental expense decreased during the three months ended March 31, 2011 compared to the prior year period. The decrease was due to the reversal of an accrual for lease impairment on one of our properties as a result of reaching a favorable resolution which will allow us to vacate the property and reduce our liability.
Other Income
Other income primarily relates to EPTA contracts, which generally carry an 18% simple interest rate. For the three months ended March 31, 2011 and 2010, other income was $1,158,000 and $1,129,000, respectively.
Operating Results of Crexendo Web Services (in thousands)
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Crexendo Web Services
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
479
|
|
|
$
|
242
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
408
|
|
|
|
112
|
|
|
Selling and marketing
|
|
|
681
|
|
|
|
291
|
|
|
General and administrative
|
|
|
60
|
|
|
|
223
|
|
|
Loss from operations
|
|
$
|
(670
|
)
|
|
$
|
(384
|
)
|
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenue
Crexendo Web Services revenue for the three months ended March 31, 2011 was $479,000, compared to $242,000 for the three months ended March 31, 2010. Revenue from Crexendo Web Services is generated primarily through on-page and off-page SEO services, search engine management services, conversion rate optimization services, and website design and development services. A substantial portion of Crexendo Web Services’ revenue is generated through six to twelve-month service contracts. As such, we believe growth in Crexendo Web Services will initially be seen through increases in our backlog.
Below
is a table which displays the Crexendo Web Services revenue backlog as of December 31, 2009 and 2010, and March 31, 2011 and 2010, which is expected to be recognized as revenue within the next twelve months (in thousands):
|
Crexendo Web Services backlog as of December 31, 2009
|
|
$
|
42
|
|
|
Crexendo Web Services backlog as of March 31, 2010
|
|
$
|
323
|
|
|
|
|
|
|
|
|
Crexendo Web Services backlog as of December 31, 2010
|
|
$
|
964
|
|
|
Crexendo Web Services backlog as of March 31, 2011
|
|
$
|
972
|
|
Cost of Revenue
Cost of revenue consists primarily of salaries related to fulfillment of our web services. Cost of revenue for the three months ended March 31, 2011 was $408,000 compared to $112,000 for the three months ended March 31, 2010. The increase in cost of revenue for the current period is related to an increase in headcount as we continue to increase our fulfillment capacity as revenue increases.
Selling and Marketing
Selling and marketing expenses consist primarily of salaries and benefits, as well as advertising expenses. Selling and marketing expense was $681,000 and $291,000 for the three months ended March 31, 2011 and 2010, respectively. The large increase was primarily attributable to an increase in salespeople and increased marketing expenses. Since March 31, 2010 we have hired six additional direct sales reps in major US cities. In total, we now have 12 direct sales reps in major US cities.
General and Administrative
General and administrative expenses consist of payroll and related expenses for administrative personnel. General and administrative expenses were $60,000 and $223,000 for the three months ended March 31, 2011 and 2010, respectively. General and administrative expenses for the three months ended March 31, 2010 were higher than the three months ended March 31, 2011, primarily due to one-time startup costs that were incurred during the 2010 period.
Operating Results of our Crexendo Network Services Division (in thousands)
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Crexendo Network Services
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
107
|
|
|
$
|
-
|
|
|
Selling and marketing
|
|
|
22
|
|
|
|
-
|
|
|
General and administrative
|
|
|
64
|
|
|
|
111
|
|
|
Research and development
|
|
|
293
|
|
|
|
98
|
|
|
Loss from operations
|
|
$
|
486
|
|
|
$
|
209
|
|
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenue
We
began our phase one launch of Crexendo Network Services by selling products at our StoresOnline events during the three months ended March 31, 2011. As part of our phase one offering, we provided a free trial period to our customers, with the first billings expected during the quarter ending June 30, 2011. As such, we did not recognize any revenue in our Crexendo Network Services segment during the three months ended March 31, 2011.
Cost of Revenue
Cost
of revenue consists primarily of product cost and customer support department salaries of our telecom services. Cost of revenue for the three months ended March 31, 2011 was $107,000. We began our phase one launch during the three months ended March 31, 2011. As part of our offering, a free trial period was given to customers with first billings expected during the quarter ended June 30, 2011. Although we did not recognized any revenue in our Crexendo Network Services segment during the three months ended March 31, 2011, we incurred product and customer support costs during the period.
Selling and Marketing
Selling and marketing expenses consist primarily of telecom product marketing materials that were distributed at our events. Selling and marketing expense was $22,000 for the three months ended March 31, 2011.
General and Administrative
General and administrative expenses consist primarily of payroll and related expenses for rent, professional fees, and administrative personnel. General and administrative expenses were $64,000 and $111,000 for the three months ended March 31, 2011 and 2010, respectively. General and administrative expenses for the three months ended March 31, 2010 were higher than the three months ended March 31, 2011, as one-time startup and legal costs were incurred during the 2010 period.
Research and Development
Research and development expenses primarily consist of payroll and related expenses, related to the development of new telecom products. Research and development expenses were $293,000 and $98,000 for the three months ended March 31, 2011 and 2010, respectively. The large increase was primarily attributable to an increase in our engineering head count as we continue to expand our product development and offerings to meet market demand.
Results of our Corporate and Other Unallocated Operations (in thousands)
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Unallocated corporate items
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
32
|
|
|
$
|
48
|
|
|
Selling and marketing
|
|
|
13
|
|
|
|
24
|
|
|
General and administrative
|
|
|
1,566
|
|
|
|
1,669
|
|
|
Research and development
|
|
|
579
|
|
|
|
440
|
|
|
Total unallocated corporate items
|
|
$
|
2,190
|
|
|
$
|
2,181
|
|
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Unallocated corporate expenses, which are not allocated to specific segments, totaled $2,190,000 and $2,181,000 for the three months ended March 31, 2011 and 2010, respectively. Unallocated costs increased for the three months ended March 31, 2011 due to a decrease in rental expense compared to the prior year.
Cost of Revenue
Cost of revenue consists of share-based compensation which was $33,000 and $48,000 for the three months ended March 31, 2011 and 2010, respectively.
Selling and Marketing
Selling and marketing expenses consists of share-based compensation which was $13,000 and $24,000 for the three months ended March 31, 2011 and 2010, respectively.
General and Administrative
Corporate general and administrative expenses consist of payroll, share-based compensation, rent, professional fees, and administrative personnel which are not allocated to specific segments. Corporate general and administrative expenses were $1,566,000 and $1,669,000 for the three months ended March 31, 2011 and 2010, respectively. The decrease was due primarily to a lower rental expense in the three months ended March 31, 2011 and 2010. This decrease was caused by a favorable lease impairment adjustment described above under the StoresOnline segment.
Research and Development
Research and development expenses consist primarily of payroll and share-based compensation expenses, related to our engineering team whose cost cannot be specifically allocated to any particular segment. Unallocated research and development expenses were $579,000 and $440,000 for the three months ended March 31, 2011 and 2010, respectively. The prior year quarter was lower due to the capitalization of certain engineering payroll costs related to internally developed software.
Liquidity and Capital Resources
Working Capital
As
of March 31, 2011, we had working capital of $8,532,000, compared to $11,388,000 as of December 31, 2010. As of March 31, 2011, we had working capital, excluding deferred revenue, of $23,333,000 compared to $25,145,000 as of December 31, 2010. Deferred revenue balances represent historical contract sales for which we cannot immediately recognize revenue. The costs and expenses we incur as these deferred revenue amounts are recognized as revenue are expected to be insignificant. Consequently, we do not consider deferred revenue to be a factor that impacts our liquidity or future cash requirements. The decrease in working capital and working capital excluding deferred revenue is primarily attributable to our purchase of a building for our corporate headquarters, repurchase of shares of common stock, dividends paid, and cash used for operations. We believe we have sufficient liquidity and capital resources to meet our needs for at least the next twelve months.
Cash and Cash Equivalents
As of March 31, 2011, we had $10,512,000 of cash and cash equivalents held primarily in operating accounts, compared to $14,207,000 as of December 31, 2010. During the three months ended March 31, 2011, we used $3,307,000 in cash from operating activities. During the three months ended March 31, 2011, we used $110,000 in cash from investing activities. During the three months ended March 31, 2011 we used cash of $278,000 in financing activities, primarily for the payment of dividends to stockholders and the repurchase of shares of common stock.
Trade Receivables
Current and long-term trade receivables, net of allowance for doubtful accounts, totaled $23,289,000 as of March 31, 2011 compared to $21,564,000 as of December 31, 2010. Long-term trade receivables, net of allowance for doubtful accounts, were $10,742,000 as of March 31, 2011 compared to $9,442,000 as of December 31, 2010. We offer our customers a contract with payment terms between 24 and 36 months, as one of several payment options. The payments that become due more than 12 months after the end of the fiscal period are classified as long-term trade receivables.
Accounts Payable
Accounts payable as of March 31, 2011 totaled $2,521,000, compared to $3,328,000 as of December 31, 2010. Our accounts payable as of March 31, 2011 were generally within our vendors’ terms of payment.
Capital
As
of March 31, 2011, total stockholders’ equity was $18,166,000, down from $20,120,000 at December 31, 2010. In addition to a net loss of $1,851,000, other significant changes in stockholders’ equity during the first three months of fiscal year 2011 included an increase of additional paid-in capital of $174,000 for options granted, $213,000 in common stock dividends, and $89,000 in shares of our common stock that were re-purchased. Substantially all of the remaining change related to stock options exercised by employees.
During
the three months ended March 31, 2011, we declared and paid cash dividends of $0.02 per common share, which was paid on April 7, 2011 to stockholders of record as of March 29, 2011. As we experienced a net loss for the three months ended March 31, 2011, the dividend payout ratio, representing dividends per share divided by basic and diluted income per share, is not a meaningful measure.
Common Stock Repurchases
In September 2006, our board of directors authorized the repurchase of up to $20,000,000 of our common stock. In September 2007, our board of directors authorized the repurchase of an additional $50,000,000 of our common stock. During the three months ended March 31, 2011, we paid $89,000 to purchase 19,793 shares of our common stock. The common stock we repurchased has been retired.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases. We believe that these operating leases are immaterial to our current or future financial position, results of operations, revenues or expenses, liquidity, capital expenditures or capital resources.
Impact of Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
–
On January 1, 2011, we prospectively adopted new guidance on revenue recognition in which arrangements that include tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and such software-enabled products will now be subject to other relevant revenue recognition guidance. This new accounting guidance applies to arrangements entered into or materially modified beginning on January 1, 2011. Additionally, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The adoption of this new guidance, on a prospective basis, had a material impact on our financial statements (see Note 5 in the condensed consolidated financial statements).
On January 1, 2011, we adopted new guidance which amends existing guidance for goodwill and other intangible assets. This authoritative guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if there are qualitative factors indicating that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the existing guidance which requires goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The adoption of this authoritative guidance did not have a material impact on our financial position or results of operations.
Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition
With the exception of historical facts, the statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect our current expectations and beliefs regarding our future results of operations, performance and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These forward-looking statements include, but are not limited to, statements concerning:
|
|
●
|
our belief that our target market will increasingly look to Internet solutions providers who leverage industry and customer practices, increase predictability of success of their Internet initiatives and decrease implementation risks by providing low-cost, scalable solutions with minimal lead time;
|
|
|
●
|
our belief that we can compete successfully by relying on our infrastructure and marketing strategies as well as techniques, systems and procedures, and by adding additional products and services in the future;
|
|
|
●
|
our belief that we can continue our success by periodic review and revision of our methods of doing business and by continuing our expansion into domestic and international markets;
|
|
|
●
|
our belief that a key component of our success comes from a number of new, recently developed proprietary technologies and that these technologies and advances distinguish our services and products from our competitors and further help to substantially reduce our operating costs and expenses;
|
|
|
●
|
our contention 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;
|
|
|
●
|
our belief that we operate in compliance with laws concerning sales practices and more particularly that we are not obligated to offer more than a three-day right of rescission;
|
|
|
●
|
our belief that there is a large, fragmented and under-served population of small businesses and entrepreneurs searching for professional services firms that offer business-to-consumer e-commerce solutions coupled with support and continuing education;
|
|
|
●
|
our belief that continuously testing and implementing changes to our business model may further reduce the level of investment necessary to get customers to attend our events and to increase our value proposition to these customers;
|
|
|
●
|
our expectation that our offering of products and services will evolve as some products are replaced by new and enhanced products intended to help our customers achieve success with their Internet-related businesses; and
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|
|
●
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our expectation that the costs and expenses we incur will be insignificant as deferred revenue amounts are recognized as product and other revenues when cash is collected.
|
We
caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results and outcomes to differ materially from those discussed or anticipated, including changes in economic conditions and internet technologies, fluctuations in weather patterns, interest rate fluctuations, and the factors set forth in the section entitled, “Risk Factors,” under Part I, Item 1A of our 2010 From 10-K. We also advise readers not to place any undue reliance on the forward-looking statements contained in this Form 10-Q, which reflect our beliefs and expectations only as of the date of this Form 10-Q. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than as required by law.
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Not required
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ITEM 4T.
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CONTROLS AND PROCEDURES
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Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, have concluded that, based on the evaluation of these controls and procedures, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting occurred during the three months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
Information
on certain legal proceedings that we believe may be material to our business is set forth in “Part I – Item 3. Legal Proceedings” to the 2010 Form 10-K. Other than the information regarding the legal proceedings set forth under “Legal Proceedings" in Note 8 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, there were no material changes from the legal proceedings previously disclosed in on the 2010 Form 10-K. The information regarding legal proceedings as set forth under "Legal Proceedings" in Note 8 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, is incorporated herein by reference.
There
are many risk factors that may affect our business and the results of our operations, many of which are beyond our control. Information on certain risks that we believe are material to our business is set forth in “Part I – Item 1A. Risk Factors” of the 2010 Form 10-K. There were no material changes from the risk factors previously disclosed in on the 2010 Form 10-K.
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
We have a share purchase program that authorizes us to purchase outstanding shares of our common stock. The aggregate dollar amount originally authorized in September 2006 for purchase was $20,000,000 through September 2009. In September 2007, our Board of Directors authorized the purchase of an additional $50,000,000 of our common stock through September 2012. The following are details of purchases under this program for the three-month period covered by this Form 10-Q:
|
Period
|
|
Total Number of Shares Purchased (a)
|
|
|
Average Price Paid Per Share
|
|
|
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs
|
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
|
|
|
January 1, 2011 - January 31, 2011
|
|
|
19,693
|
|
|
|
4.50
|
|
|
|
19,693
|
|
|
$
|
42,401,382
|
|
|
February 1, 2011 - February 28, 2011
|
|
|
100
|
|
|
|
4.56
|
|
|
|
100
|
|
|
$
|
42,400,926
|
|
|
March 1, 2011 - March 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
42,400,926
|
|
|
Total
|
|
|
19,793
|
|
|
$
|
4.51
|
|
|
|
19,793
|
|
|
$
|
42,400,926
|
|
|
(a)
|
Our share purchase program was originally announced on September 5, 2006. On September 4, 2007, our Board of Directors authorized the repurchase of an additional $50,000,000 of our common stock, bringing the total amount authorized for repurchase to $70,000,000 through September 2012. During the three months ended March 31, 2011, 19,793 shares were purchased in open-market transactions at an average share price of $4.51.
|
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None.
|
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
|
ITEM 5.
|
REMOVED AND RESERVED
|
Exhibits
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as amended
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as amended
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
May 9, 2011
|
iMergent, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ S
teven
G. M
ihaylo
|
|
|
|
|
Steven G. Mihaylo
Chief Executive Officer
|
|
|
May 9, 2011
|
By:
|
/s/ J
onathan
R. E
rickson
|
|
|
|
|
Jonathan R. Erickson
Chief Financial Officer
|
|
29