ASUR

Business Context and Reporting Period

Company: Asure Software, Inc. (ASUR)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: Asure provides web-based workforce management solutions through two primary product lines: NetSimplicity (office administration and meeting room scheduling) and iEmployee (HR, time & attendance, and payroll). The company operates on a mix of perpetual license and Software-as-a-Service (SaaS) models.
Key Corporate Events: The company changed its fiscal year-end from July 31 to December 31 effective January 1, 2010. In late 2009, a reverse stock split (10-for-1) was implemented to regain Nasdaq compliance. A failed attempt to take the company private in 2009 resulted in a change of the Board of Directors and the appointment of a new CEO in early 2010.

Key Financial Metrics

Note: 2009 figures represent a combined period of the 12 months ended July 31, 2009, and the 5 months ended December 31, 2009, to provide a comparable 12-month view.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased by 2.5% ($0.2 million) driven by a $0.3 million increase in software subscription (SaaS) revenues, partially offset by a $0.1 million decrease in perpetual software license revenues.
• Expense Reduction: Selling, General, and Administrative (SG&A) expenses decreased significantly by 48.2% ($5.3 million). This reduction was primarily due to the absence of one-time legal and proxy expenses related to the 2009 privatization attempt and litigation, as well as workforce reductions and salary cuts implemented in 2009.
• Profitability Improvement: Net loss decreased by 87.0% ($7.6 million) compared to the prior year. The improvement is attributed to the drastic reduction in SG&A and the absence of the $2.2 million litigation settlement and $0.6 million asset impairment charges recorded in 2009.
• One-Time Charges: In 2010, the company recorded a $1.2 million loss on a lease amendment to reduce its Austin office footprint from 137,000 sq. ft. to 9,000 sq. ft.

Guidance, Outlook, and Risks

• Outlook: Management expects to generate positive cash flows from operating activities in fiscal year 2011. The strategy focuses on growing the core software business, specifically SaaS products (Meeting Room Manager On Demand and iEmployee), and reducing unnecessary expenses.
• Liquidity: As of December 31, 2010, the company held $1.1 million in cash. While working capital was negative ($0.3 million), management notes that $1.9 million of current liabilities consists of deferred revenue (prepaid contracts), which does not represent an immediate cash outflow. Excluding deferred revenue, working capital is positive ($1.6 million).
• Risks:
  • Cash Constraints: There is no assurance the company can limit cash consumption or raise additional capital if needed for future growth or acquisitions.
  • Competition: The market faces low barriers to entry and competition from large vendors (e.g., ADP) offering loss-leader products.
  • Tax Attributes: The company has significant Net Operating Loss (NOL) carryforwards ($152.6 million) but has placed a full valuation allowance against them due to uncertainty regarding future utilization.

Investor Verification Checklist

• Deferred Revenue Quality: Verify the sustainability of the $1.9 million deferred revenue balance, which masks the negative working capital position.
• Lease Cost Savings: Confirm the realization of the projected $120,000 annual cash flow savings from the April 2010 lease amendment.
• SaaS Transition: Monitor the continued shift from perpetual licenses to recurring SaaS revenue to ensure long-term revenue stability.
• Cash Burn Rate: Assess whether the $0.9 million operating cash outflow in 2010 is a trend or a one-time anomaly driven by the lease payment.
• Customer Concentration: Note that one customer represented 12.6% of total revenue in 2010; verify the retention of this key account.