Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended October 31, 2009, for Forgent Networks, Inc. (trading as Asure Software, ticker: ASUR). The company operates as a software and services provider, focusing on two main product lines: NetSimplicity (facility scheduling) and iEmployee (workforce management and HR solutions). The company is classified as a smaller reporting company and a shell company check was marked "No".
Key Financial Metrics
| Metric | Q3 2009 (Three Months Ended Oct 31) | Q3 2008 (Three Months Ended Oct 31) |
|---|---|---|
| Revenues | $2,321,000 | $2,792,000 |
| Gross Margin | $1,842,000 (79.4%) | $2,228,000 (79.8%) |
| Net Loss | $(1,506,000) | $(1,539,000) |
| Loss Per Share (Basic/Diluted) | $(0.05) | $(0.05) |
| Cash and Equivalents | $1,651,000 | $10,554,000 (End of Period) |
| Short-term Investments | $1,303,000 | $3,290,000 (End of Period) |
| Total Liquidity | $2,954,000 | $13,844,000 |
| Working Capital | $72,000 | $8,641,000 |
| Net Cash Used in Operating Activities | $(6,873,000) | $(808,000) |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased by 16.9% ($0.5 million) compared to the prior year. This was primarily driven by a reduction in software license and service revenue due to the economic recession and the strategic sale of the Visual Asset Manager (VAM) product line in the previous fiscal year.
- Expense Reductions: Selling, General, and Administrative (SG&A) expenses decreased by 14.3% ($0.5 million) due to a mandatory 10% pay reduction, headcount termination, and reduced marketing budgets. Research and Development (R&D) expenses decreased by 26.7% ($0.2 million) due to lower compensation costs.
- Liquidity Impact: Working capital dropped significantly from $8.6 million to $72,000. Net cash used in operating activities surged to $6.9 million, largely due to a one-time payment of $4.3 million to settle litigation with former counsel Jenkens & Gilchrist, P.C., which reduced accounts payable by $4.7 million.
- Investing Activities: The company generated $4.0 million in cash from investing activities through the net sale of short-term investments.
Guidance, Outlook, and Risks
- Management Outlook: Management believes it has sufficient capital to fund operations for the next 12 months. The strategy focuses on growing the NetSimplicity (MRM) and iEmployee SaaS products. Management anticipates revenue growth in calendar year 2010 as the economy recovers.
- Nasdaq Delisting Risk: The company failed to meet the minimum $1.00 bid price requirement. Nasdaq notified the company of delisting on November 30, 2009, unless an appeal was successful. The company requested a hearing and is seeking shareholder approval for a 10-for-1 reverse stock split to regain compliance.
- Legal Contingencies:
- Jenkens & Gilchrist: Litigation was settled in August 2009 for $4.3 million. The company considers this matter concluded.
- Wild Basin: A lease dispute was partially settled in 2008. The company continues to work with Wild Basin regarding withheld amounts but will only renew litigation if necessary.
- Capital Needs: While current liquidity is deemed sufficient for 12 months, there is no assurance the company can limit cash consumption or raise additional capital if future demands exceed expectations.
Investor Verification Checklist
- Reverse Stock Split Approval: Verify the outcome of the shareholder vote on the 10-for-1 reverse stock split scheduled for December 17, 2009, and the subsequent Nasdaq hearing decision.
- Cash Burn Rate: Monitor the sustainability of the $2.95 million liquidity position given the high operating cash burn ($6.9 million in one quarter) driven by litigation settlements.
- Revenue Recovery: Assess whether the strategic focus on MRM and iEmployee SaaS products is generating the anticipated revenue growth in the recovering economy.
- Legal Reserves: Confirm that no further accruals are required for the Wild Basin lease dispute or other contingent liabilities.