Steven Mihaylo – Chief Executive Officer Jeff Korn – Chief Council Robert Lewis – Chief Financial Officer Clint Sanderson

Neal Goldman – Goldman Capital Jeff Bass – Private Investor

I would like to welcome everyone to the second fiscal quarter financial results conference call. (Operator Instructions) Mr. Mihaylo, you may begin the conference.

Good afternoon everyone. Before we get started here, I'd like to introduce the people that are on the call with me. We have Mr. Clint Sanderson, our Vice President of Sales. We have Mr. Jeff Korn, our Chief Council. We have Mr. John Ericson, our new Chief Financial Officer and we have Mr. Rob Lewis, our retiring Chief Financial Officer. I'm going to give a brief overview of the financial results, then we're going to have Rob and John give us some more granularity on it, but before we do that, I'm going to have Jeff Korn read the safe harbor information.

Statements and comments made on this call whether or not historical in nature constitute forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Reform Act of 1995. These statements and comments are based on the current expectations and belief of the management of iMergent and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements and from management's current expectations. For a more detailed discussion of factors that affect iMergent's operating results, please refer to its SEC reports including it's most recent 10-K and Forms 10-Q. The company undertakes no obligation to update this forward information. With this, I'll turn the call back over to Steve.

Let me just go through the high level numbers here for the fiscal quarter ended December 31, 2009. We had $26.9 million in sales compared with $38.9 million and this was after provision of $650,000 for refunds that we expect due to various legal matters. Had those not been factored in the numbers would have been $27.5 million compared to $39.9 million. Revenues were negatively impacted by the number of cash sales we had in our workshops compared to the previous year. We had 42% in the '09 quarter versus 57% in the '08 quarter. For the second quarter we had a loss from operations of $6.9 million compared to a loss from operations of $143,000 in the same quarter last year. The loss before income tax provisions for the second quarter of '09 was $5.7 million compared to income before income tax provisions of $2.5 million for the second quarter last year. Excluding significant charges of $2.6 million mentioned above, loss before income tax provisions would have been $3.1 million for the second quarter of fiscal 2009. Finally, after all of the provisions mentioned above, our net loss for the second quarter of 2009 was $10.1 million or $0.89 per common share compared to $1.6 million or $0.14 per common share in the same quarter last year. For the six months ended December 31, 2008 compared to 2007 we had revenues for the six months December 31, 2008 of $54.1 million compared to $71.4 million for the second quarter in the same period last year. The total operating expenses during that period were $64.3 million compared to $74.9 million for the same period last year so you can see we're already chipping away at that metric quite nicely. For the six months December 31, 2008 net loss was $17.6 million or $1.55 per diluted share which includes a $10.3 million tax provision. Net income for the six months ended December 31, 2007 was $846,000 or $0.07 per diluted share. Cash used in operations during this period was $6.1 million compared to generating $2.4 million. I'm not going to sugar coat the pill here. Obviously we're very disappointed in the results. We had what I would describe as a perfect storm between the IRS and various legal matters plus the economic conditions which generated these results. We've already as you know from press releases, we've taken significant steps to mitigate these results going forward which include a reduction in approximately 20% of head count and we're also reviewing additional opportunities in the marketplace for additional revenue streams as well as our go to market strategy which we'll discuss later on. Before I turn this over to our financial people to discuss the granularity, what I'd like to do is turn it over to Jeff Korn for a moment because we did have a press release just recently about the situation in California. I'm going to have Jeff discuss that, then we'll go to the granularity of the numbers, and then we'll open it up to a Q&A.

I do want to take this opportunity to update everyone on the status of the negotiations with California. As you're aware, there's a temporary injunction which prohibits us from selling any product with an initial consideration in excess of $500 without first registering as under the State SAMP Act. We had appealed that determination of the trial court seeking ruling of the SAMP Act as unconstitutionally vague as it requires registration based on a representation that someone "can make more than their initial investment". As you also know, the Court of Appeals denied our appeal and ruled that in fact the statute was constitutional. The Court also refused to find the injunction with State pending the final hearing and the trial court. With all due respect to the Court of Appeals, we disagree that the statute is not vague. The term can removes the statute from the specific into the infinite and vague and as almost any representation about our software would include the vague possibility no matter how remote that you could possibly be successful, and therefore fell within the realm of can. It is clear that we would not have a trial for an extended period of time, and as such we would be precluded from selling any product in the State of California also for an extended period of time. We also as you know, advanced the argument that express software is outside the scope of the statute. The initial required consideration there is considerably less than $500. We however, offer to our customers the ability to upgrade to Pro which is at a cost in excess of $500. Both I and our council believe that this model is outside the scope of the statute. The State however, contends that the upgrade sale is part of the initial sale and therefore would be covered by both the statute and the injunction. The State has made it clear that if we were to hold any upgrade seminar sales, they would seek a further injunction and seek to hold us in contempt. While we believe we ultimately would prevail on that argument that express and the upgrade is outside the scope of the injunction, it is probable that the court would include that in the injunction and leave us with the real possibility of being excluded from California for a substantial number of years in the future. The case with California also includes claims for damages for violating consumer protection law and for alleged violation of the SAMP Act. Considering all the foregoing we have been negotiating with California on a global settlement. The parameters of the settlement would be one; we would agree to register as a SAMP. This would not change our model as we would be able to invite people to an Express preview which would be outside the scope of the injunction in the SAMP and if they purchase at the preview, we would then provide them with the necessary disclosures which would allow them to upgrade and purchase at the workshop. We already provide most of the disclosures required by the SAMP Act. We would agree to pay costs and refunds totaling $850,000. We would still have notification and other ancillary requirements, but this would provide finality to the litigation and allow us to begin very shortly transacting business in California. If for some reason the final terms cannot be agreed to, we still reserve the right to immediately hold Express seminars and the right to consider holding upgrade Pro seminars. I don't want to give any more information at this point so as not to compromise our finishing negotiations.

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

Revenues for the second quarter for fiscal 2009 were $26.9 million compared to $38.9 million for the second quarter of fiscal 2008. Revenues were negatively impacted by additional reserves of $650,000 in customer refunds associated with various legal matters. Revenue for the second quarter fiscal 2009 excluding the charge for customer refunds was $27.5 million. Revenue was also negatively impacted as Steve mentioned by approximately $4.2 million due to a decrease in cash purchases to 42% in second quarter fiscal 2009 compared to 57% during the second quarter of last year. Because the company records revenue as cash it has received and not at the time of the sale, the decrease in percent of cash purchases negatively impacted revenue, operating income and cash flows from operating activities during the second quarter of fiscal 2009. During the second quarter of fiscal 2009 the average number of people attending our workshops was 87, up from 82 in the prior year. The average purchase price increased to $5,050 during the current quarter from $4,850 in the prior year quarter. Total operating expenses were lower at $33.8 million for the second quarter of fiscal 2009 compared to $39.1 million for the second quarter last year, primarily as a result of the lower number of workshops conducted. Total operating expenses were negatively impacted by significant charges of $1.9 million for reserves for outstanding legal matters, probable losses of excess office space and write offs of certain advertising and other assets. Total operating expenses for the second quarter of fiscal 2009 excluding these significant charges were $31.9 million. Selling and marketing expenses as a percentage of revenue were negatively impacted by lower response rates at our preview seminars and low response rate to our advertising incentives internationally as a result of the softening economy. Selling and marketing expenses were also negatively impacted by increased costs for advertising incentives. General administrative costs increased primarily due to the significant charges previously described and an increase in accounting fees of $115,000 associated with the IRS audit. For the second quarter fiscal 2009, the company had a loss from operations of $6.9 million compared to a loss from operations of $143,000 in the same quarter last year. Other income was $1.2 million for the quarter which included $1.8 million in interest income compared to $2.6 million of other income for the second quarter of last year which included $2.4 million of interest income. Loss before income tax provision for the second quarter of fiscal 2009 was $5.7 million compared to income before income tax provision of $2.5 million for the second quarter of last year. Loss before income tax provision excluding charges was $3.1 million for the second quarter of fiscal 2009. In October 2008, we received notice from the Internal Revenue Service contesting the company's deduction of 100% of the cost of meals that we provide to attendees at our previous seminars and workshops. The IRS contended only 50% of these costs of these meals provided to attendees is deductible. We contended that the meals are excluded from the deduction limitations of the IRS code section 274. The IRS has also challenged our ability to utilize more than $460,000 of our net operating losses per year. We contend the limitations are significantly higher than $460,000 per year under IRS code section 382. In November 2008, the company received an examination report from the IRS which also contested the company's ability to utilize it's NOL's during its fiscal years ended June 30, 2004 and 2003 under IRS code section 41. The company believes the IRS assertion that the NOL should be limited during those years is without merit and beyond the statute of limitations. While the company believes it will be able to defend its positions, based on settlement discussions with the IRS and the analysis performed in accordance with FAS interpretation number 48, the company has established a reserve of $9.3 million for the potential tax, penalties and interest costs and evaluation allowance of $3.6 million against certain deferred income tax assets as of December 31, 2008. As a result of the income tax reserve resulting from the IRS audit previously described, the provision for income taxes for the second quarter of fiscal 2009 was $4.5 million compared to an income tax provision of $844,000 in the same quarter last year. Net loss for the second quarter of fiscal 2009 was $10.1 million or $0.89 per common share compared to net income of $1.6 million or $0.14 per common share in the same quarter last year. Net loss for the second quarter fiscal 2009 excluding non recurring significant charges and assuming an income tax benefit of 40%, was $1.9 million. For the first six months of fiscal 2009 revenues for the six months ended December 31, 2008, were $54.1 million compared to $71.4 million for the same period last year. Total operating expenses were $64.3 million compared to $74.9 million in the same period last year. For the six months ended December 31, 2008 net loss was $17.6 million or $1.55 per common share which included a $10.3 million income tax provision related to the reserves and valuation allowance described earlier. Net income for the six months ended December 31, 2007 was $846,000 or $0.07 per diluted common share. Now for a review of our cash flows and balance sheet. Our cash flow during the quarter was negatively impacted by a reduction in revenue of 31% and a decrease in cash purchases of 57% during second quarter fiscal 2008 to 42% during the second quarter of 2009. Consequently, cash used by operating activities during the second quarter was $5.6 million compared to cash provided by operating activities of $2.0 million during the same quarter last year. As of December 31, 2008 cash and cash equivalents were $18.8 million. Working capital was $14.1 million and working capital excluding deferred revenue was $42.2 million. Total current and long term net trade receivables were $37.7 million at December 31, 2008. On a personal note, this will be my last conference call as the CFO of iMergent. It has been my pleasure to have worked for iMergent for the past five years. I have very much enjoyed working with a dynamic and talented management team here. I have accepted an opportunity I simply could not refuse. While I will miss the people here, I know I leave the company in very capable hands. I also believe that change within an organization is good. I firmly believe in Steve Mihaylo's vision for iMergent Inc. and that the changes he and his team are making will benefit the company, its customers and its shareholders. I also believe that these changes will produce long term sustainable growth and profitability over time. I'm excited that John Ericson will be assuming the position as iMergent's CFO effective February 7. John is a very talented, knowledgeable and integral part of the management team of iMergent. I'm confident that he will continue to be a valuable asset to iMergent in his capacity of CFO. With that, I'll turn the call back to Steve Mihaylo.

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

(Operator Instructions) Your first call comes from Neal Goldman – Goldman Capital. Neal Goldman – Goldman Capital: First, maybe this is for Rob, on the receivables side it looks like you set up a higher reserve against the current receivables while the long term receivables looks like pretty much the same reserve as last year.

Let me first make sure that you understand that we're on a cash basis accounting and we don't record any revenue unless we actually have the money in hand. The receivables on our balance sheet is somewhat of a guideline and even though the reserve is bigger or smaller, it doesn't impact the P&L and the revenues recorded. With that I'll let Rob give you the rest of the details on it.

That is correct as far as the percentage goes. When we ran it through our calculation we did set up a higher reserve percentage for current receivables based upon where things are currently at. We did also establish extra reserves for our receivables as you probably noticed. Our allowances as a percentage of total A/R is now at about 37% and that reflects the deteriorating conditions in the marketplace these days and so we felt that the additional reserve was necessary during the period. Neal Goldman – Goldman Capital: I assume those available to sell securities which is not current is the auction rate securities?

That is correct. Those have all been collected as of today. Neal Goldman – Goldman Capital: So if I add up, that's like $22.8 million of cash and then you have the income tax receivable of $786,000, so it's like $23.5 million?

Correct. Neal Goldman – Goldman Capital: Less the tax liability of $9 million four, right?

That's correct. Neal Goldman – Goldman Capital: Which you paid out or going to pay out?

We're looking at that right now. We're in the final stages of making that determination. Neal Goldman – Goldman Capital: From an operating standpoint now with the cost cuts and obviously not all of them have been reflected, at what level are you cash flow breakeven in terms of revenue?

In terms of revenues, it's actually pretty close to where we are but I'm going to let Rob go through that because we just did some new modeling today. But I don't want to get into a forward-looking situation here but we're just going to do this in a broad overview.

We believe that based upon the current statistics that we're currently seeing as far as at our previews and workshops and the cost cutting measures that we're doing, unless there's another significant deterioration we should be able to, we can generate cash at these levels but it's really dependent upon various factors that could change over time. So we're pretty confident that we can do well at these current levels, but there's a lot caveat to that. Neal Goldman – Goldman Capital: Cash went from $42 million to $32 million, it's a different story, but basically this has been the lowest level. Right now you're essentially at that cash flow breakeven.

Yes. There's so many mitigating factors though. We're bringing our costs down at a faster clip than the sales have deteriorated. So yes, the answer is yes. We feel we're close to that right now. Neal Goldman – Goldman Capital: Steve, I've know you from my prior days at Intertel. Can you give me what your vision is for this company going forward? I know you're focused on the S&B market and recurring revenue side, but I'd like to hear you give your overview of where you think this company will be somewhere down the road.

Without making a giant forward-looking statement here, I'll do that. As you know, my entire career has been spent in Telecom and data and software focused on the small and mid sized business market; b to b in other words. And I think there's a tremendous opportunity here to use some of that knowledge if not all of it to leverage what we have. We have software which is designed to condition web sites for e-commerce. As you know we've been selling it mostly to entrepreneurs and in some cases very small businesses, but mostly on entrepreneurs through our group sales approach. I think there's a huge opportunity to expand on that through additional training to really start focusing more on the small and mid sized market as opposed to the entrepreneurs. Not that we're going to abandon the entrepreneur market, we certainly won't but we're going to figure out ways to get more qualified entrepreneurs into our group sales atmosphere. We're also driving down the cost by looking at eliminating such things as meals and other things that are very expensive and of course have created the current situation with the IRS. We think we have a good solid position there, but one way to make sure you don't have a problem going forward is just to not provide meals. So that's bringing our costs down. On expanding the products, we think there's a great opportunity to do such things as hosted telecom and the resell of our current e-commerce software and the implementation and the integration of the software through some of the same type of dealers or VARS that we had in the telecom business at Intertel. A lot of these things are in the exploratory stage. Others are more concentrated and we're in a better position to pull the trigger. In fact, I'll talk about; I'm going to have Clint Sanderson talk about what we're doing as far as selling to the S&B market through a modified version of our current sales model which will be group sales, but doing it in such a way that we've got highly, highly qualified prospects.

One of the directives from Mr. Mihaylo to us as a sales organization is to expand from our model selling to entrepreneurs and grow that model into the S&B space, and it's something that we've tested several times for the past couple of years moving into that space with several different approaches. We're trying some new approaches that we have not done in the past. We're testing those coming up here in the next few months and we're confident and optimistic that we're going to be able to get into that market and attract more of the S&B buyers and more people in that S&B space to our model and to the products that we offer.

Keep in mind Neal we're also expanding the way we go to market through a free webinar which will reduce our costs even more. In other words, instead of having the preview that we currently do, we're going to drive people to a landing page which will bring them into a free webinar and then we'll take them into our group sales or workshop environment. But we think we'll have a much higher qualified prospect and a much better qualified prospect. In addition to the webinar, we'll offer a certain amount of training to see if they're really qualified before we get them into an actual selling situation.

Your next question comes from Jeff Bass – Private Investor. Jeff Bass – Private Investor: I got the impression that you feel the company is right sized now, is that a fair statement?

Right sized is based on where you think you're at. Providing the economy doesn't slide more, I think we are right sized. Jeff Bass – Private Investor: What I'm getting at, Mr. Korn's interesting comments about California. Would it then be fair to say that California would represent the potential for positive upside if this materializes as you hope?

It does, but this is sort of like Star Trek where under the new rules in California, we're going where no man has gone before. So I say that with qualification. Jeff Bass – Private Investor: With respect to the new initiatives and related revenue streams, I understand the comments about some of them are more on the drawing board stage and some of them are more ready to go. What kind of time frame do you think it might take before we see something from you folks from the new initiatives? Are we talking a year? Are we talking two years?

The initiatives that Clint Sanderson talked about, we should start seeing some revenue from those initiatives either late this quarter like the third or fourth week of March, or certainly by the first of second week of April. As far as hosted telecom services, reselling software through VARS and so on, I don't expect to see anything from that until third or fourth quarter at the earliest, and even perhaps even first quarter of next calendar year. And when I say third or fourth quarter I was talking calendar year. I'm still getting used to this fiscal year business here. Jeff Bass – Private Investor: So we're really talking the VARS and so forth initiatives are really 2010 calendar year.

Yes, it's either later calendar, in other words the December quarter or early in the new year 2010. Jeff Bass – Private Investor: Based on your prior experience, do you have any feeling that once it gets going can it build rapidly?

I don't want to speculate on what it's going to do Jeff, but I think we're in a very nice position to attract a substantial VAR community before we add it into our current customer base. And the reason I say that, you know we should be able to offer them additional revenue streams through the e-commerce software, so they can go into their revenue base or their customer base and sell the e-commerce. And then of course, you've always got in the telecom business, you've got customers that have systems that are four, five, eight, ten years old that want to upgrade and that's a possibility for selling hosted services to those customers. So the way I would see this coming on once we start setting up VARS is having them sell our e-commerce solutions first in a one on one setting where they actually have sales people on the street that go out and sell not only the software but the consultation and the implementation of that software and then you've got continuing revenue streams for hosting and maintenance and so on. This would be a model very similar to Oracle systems big business software company. That would be one revenue stream I'd see coming on first. Then shortly after that, you'd see the VARS selling hosted telecom services and all of the necessary hardware that goes with the telephone instruments, the cabling, the routers, the data circuits and so on. And then we would provide the hosting. In other words, the ongoing service for that. That would come on shortly after the e-commerce sales start rolling in. And then last but not least, you'd start seeing us offer the hosted telecom services to our existing customer base and new customers on the group sales seminar approach to selling the product. It doesn't look like we have any more questions. With that in mind, I want to thank everyone for being on the conference today, and remind you that from time to time we'll have press releases announcing new initiatives here and that we look forward to being with you for the third fiscal quarter which will be March 31 and it will be in approximately early to mid May that we'll be having that conference call. Thank you everyone and good day.