Business Context and Reporting Period
Company: Forgent Networks, Inc. (d/b/a Asure Software)
Filing Type: Form 10-K (Annual Report)
Period Ended: July 31, 2009
Business Overview: Asure Software provides web-based workforce management solutions through two primary product lines: NetSimplicity (office administration and meeting room scheduling) and iEmployee (time & attendance, HR, and payroll). The company operates as a smaller reporting company.
Corporate Governance Changes: During the fiscal year, the company attempted to go private but withdrew the proposal following shareholder opposition. A new board of directors was elected in August 2009, and Patrick Goepel was appointed Interim CEO in September 2009.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Revenues | $10.0 million | $10.2 million |
| Gross Margin | $8.0 million (79.9%) | $7.9 million (78.0%) |
| Net Loss | $(9.7) million | $(12.7) million |
| Loss Per Share (Basic/Diluted) | $(0.31) | $(0.42) |
| Cash & Short-Term Investments | $9.7 million | $14.7 million |
| Working Capital | $1.2 million | $10.1 million |
| Cash Used in Operating Activities | $(4.6) million | $(13.3) million |
| Debt | None | None |
Material Changes vs. Prior Period
- Revenue Stability: Total revenue decreased slightly by 1.4% ($0.1 million). This was driven by a $1.1 million decrease in software license sales and a $0.2 million drop in hardware sales (due to the divestiture of the Visual Asset Manager product). These declines were offset by a $0.9 million increase in software subscription revenues and a $0.3 million increase in maintenance revenues.
- Profitability Improvement: Net loss decreased by 23.4% ($3.0 million) compared to the prior year. This improvement was primarily due to a $6.8 million reduction in asset impairment charges (specifically goodwill impairment recorded in 2008).
- Expense Increases: The reduction in net loss was partially offset by a $2.2 million litigation settlement expense and a $1.3 million increase in Selling, General, and Administrative (SG&A) expenses. SG&A rose due to legal fees associated with the failed privatization attempt and the Jenkens & Gilchrist litigation.
- Liquidity: Working capital declined significantly from $10.1 million to $1.2 million, largely due to the settlement of the Jenkens litigation and increased accounts payable.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Jenkins & Gilchrist Litigation: The company settled a lawsuit with former counsel for $4.3 million. A $2.2 million expense was accrued in FY2009, and the full amount was paid in August 2009.
- Asset Impairment: A $0.6 million impairment charge was recorded for lost sublease rental income at the Austin headquarters due to depressed market rates.
- Divestiture: The company sold its Visual Asset Manager (VAM) product line in February 2009 to focus on core workforce management solutions.
- Outlook & Guidance: Management expects to incur approximately $1.0 million in legal and proxy-related expenses in the first quarter of fiscal 2010. The company anticipates savings of approximately $1.7 million in compensation expenses in fiscal 2010 following a workforce reduction of approximately 25% in August 2009. Management believes current cash balances are sufficient to fund operations for the next 12 months.
- Risks:
- Nasdaq Compliance: The company is at risk of delisting from the Nasdaq Capital Market if it fails to regain compliance with the minimum $1.00 share bid price requirement by November 17, 2009.
- Liquidity: While currently sufficient, future business demands may require raising additional capital, which is not guaranteed.
- Customer Concentration: One customer accounted for 21.0% of total revenues in fiscal 2009.
Investor Verification Checklist
- Nasdaq Compliance Status: Verify if the company has met the $1.00 minimum bid price requirement by the November 17, 2009 deadline to avoid delisting.
- Cash Burn Rate: Monitor the impact of the $4.3 million litigation payment and ongoing legal expenses on the remaining $9.7 million cash balance.
- Revenue Mix Shift: Confirm the sustainability of the shift from perpetual license sales to recurring subscription (SaaS) revenue.
- Cost Reduction Execution: Verify the realization of the projected $1.7 million in compensation savings following the August 2009 workforce reduction.
- Wild Basin Lease: Review the status of the ongoing dispute with the landlord regarding withheld profit interest payments and the viability of subleasing the excess office space.