Business Context and Reporting Period
This summary covers the Form 10-Q filed by Forgent Networks, Inc. (trading symbol ASUR) for the quarterly period ended April 30, 2009. The company provides workforce management software solutions, including scheduling, asset management, and time and attendance products. The filing notes that the company is a smaller reporting company and is currently facing challenges related to the economic recession and Nasdaq listing compliance.
Key Financial Metrics
| Metric | Three Months Ended Apr 30, 2009 |
Nine Months Ended Apr 30, 2009 |
Nine Months Ended Apr 30, 2008 |
|---|---|---|---|
| Revenues | $2.4 million | $7.6 million | $7.3 million |
| Gross Margin | $1.9 million (79%) | $6.1 million (80%) | $5.7 million (78%) |
| Net Loss | $(1.4) million | $(4.5) million | $(4.0) million |
| Loss Per Share (Basic/Diluted) | $(0.04) | $(0.14) | $(0.13) |
| Cash and Cash Equivalents | $8.2 million | Balance Sheet Data (Apr 30, 2009) | |
| Short-term Investments | $2.9 million | ||
| Total Current Assets | $12.5 million | Balance Sheet Data (Apr 30, 2009) | |
| Total Current Liabilities | $6.4 million | ||
| Working Capital | $6.1 million | Balance Sheet Data (Apr 30, 2009) | |
| Stockholders' Equity | $10.4 million |
Cash Flow (Nine Months Ended Apr 30, 2009):
- Net cash used in operating activities: $(3.3) million
- Net cash used in investing activities: $(0.5) million
- Net cash used in financing activities: $(0.02) million
Material Changes vs. Prior Period
- Revenue: For the three months ended April 30, 2009, revenue decreased 11% ($0.3 million) compared to the prior year quarter, primarily due to an 84% reduction in software license revenues attributed to the economic recession. However, for the nine-month period, revenue increased 4% ($0.3 million) driven by a $0.9 million increase in software subscription revenues from the iEmployee operations, which offset a $0.8 million decline in license sales.
- Expenses: Selling, general, and administrative (SG&A) expenses decreased 11% in the quarter due to a mandatory 10% pay reduction for personnel and marketing cuts. However, for the nine-month period, SG&A increased 6% due to significant legal expenses related to litigation with Wild Basin and privatization efforts.
- Profitability: The net loss for the nine months ended April 30, 2009, widened to $4.5 million from $4.0 million in the prior year period, despite the revenue increase, due to higher operating expenses and lower interest income.
Guidance, Outlook, Risks, and Unusual Items
- Privatization Attempt Cancelled: On June 1, 2009, the Board cancelled a special stockholder meeting intended to vote on a reverse/forward stock split to take the company private. The Board determined the proposals would not pass due to stockholder concerns regarding liquidity loss. The company will remain publicly traded.
- Nasdaq Compliance Risk: The company has not met the Nasdaq minimum $1.00 bid price requirement. While enforcement was suspended until July 20, 2009, the compliance deadline is November 3, 2009. Failure to comply by this date could result in delisting, significantly limiting the ability to raise capital.
- Legal Contingencies:
- Jenkens & Gilchrist: Ongoing litigation regarding a breach of contract. Jenkens seeks approximately $3.4 million. A trial is scheduled for July 13, 2009. The outcome could materially impact financial statements.
- Wild Basin: Litigation regarding a lease assignment was settled, but the assignment is stalled due to the third party's inability to secure financing in tight capital markets. The company recorded a $0.2 million reserve against receivables from Wild Basin.
- Asset Sale: In February 2009, the company sold assets related to its Visual Asset Manager (VAM) software to E-Innovative Services Group, LLC, recording a gain of $26,000. This allows the company to focus on its NetSimplicity scheduling software.
- Liquidity: Management believes current cash and short-term investments ($11.1 million) are sufficient to fund operations for the next 12 months without long-term financing, though future capital needs may arise.
Investor Verification Checklist
- Verify the status of the Jenkens & Gilchrist litigation trial scheduled for July 13, 2009, and potential liability exposure up to $3.4 million.
- Monitor the company's ability to regain Nasdaq compliance (minimum $1.00 bid price) by the November 3, 2009 deadline to avoid delisting.
- Assess the progress of the lease assignment with Wild Basin and the likelihood of the third party securing financing to sublease the Austin facility.
- Review the impact of the mandatory 10% pay reduction on employee retention and future operational capacity.
- Confirm the sustainability of subscription revenue growth from iEmployee operations as a counterbalance to declining license sales in a recessionary environment.