Business Context and Reporting Period
Company: Asure Software, Inc.
Filing Type: Form 10-Q (Transition Report)
Reporting Period: Five-month transition period from August 1, 2009, to December 31, 2009.
Context: The Company changed its fiscal year-end from July 31 to December 31, effective January 1, 2010. Asure focuses on software and services, primarily the NetSimplicity (Meeting Room Manager) and iEmployee (HR/Time & Attendance) product lines. The Company recently implemented a 10-for-1 reverse stock split to regain compliance with Nasdaq listing requirements.
Key Financial Metrics
| Metric (in thousands) | 5 Months Ended Dec 31, 2009 | 5 Months Ended Dec 31, 2008 |
|---|---|---|
| Revenues | $4,000 | $4,259 |
| Gross Margin | $3,086 (77.2%) | $3,401 (79.9%) |
| Net Income (Loss) | $(1,457) | $(2,407) |
| EPS (Basic & Diluted) | $(0.46) | $(0.77) |
| Cash and Equivalents (End of Period) | $2,263 | $9,235 |
| Working Capital | $216 | $7,843 |
| Net Cash Used in Operating Activities | $(7,502) | $(2,451) |
Material Changes vs. Prior Period
- Revenue: Decreased 6.1% to $4.0 million. The decline was driven by a $0.5 million decrease in software license and deployment revenues, partially offset by increases in hardware and subscription revenues.
- Profitability: Net loss improved significantly by $0.95 million (39.5% reduction) compared to the prior year period. This improvement was primarily due to a $1.7 million reduction in operating expenses.
- Operating Expenses: Selling, General, and Administrative (SG&A) expenses decreased by $1.5 million (29.8%) due to a mandatory 10% pay reduction, headcount reductions, and marketing budget cuts. R&D expenses decreased by $0.2 million (25.2%) primarily due to lower compensation costs.
- Liquidity: Cash and equivalents decreased by $2.1 million. This was driven by a $5.3 million outflow from operating activities, largely attributed to a one-time $4.3 million settlement payment for litigation with former counsel Jenkens & Gilchrist, P.C. This was partially offset by $5.3 million provided by investing activities through the liquidation of short-term investments.
Outlook, Risks, and Management Commentary
- Strategy: Management is focused on growing existing software operations, targeting small and medium businesses, and expanding SaaS offerings (MRM On Demand and iEmployee). The Company plans to utilize cash balances for prudent investments and share repurchases.
- Liquidity Outlook: Management believes current cash balances ($2.3 million) are sufficient to fund operations for the next 12 months. However, there is no assurance that the Company can limit cash consumption or raise additional capital if needed in the future.
- Legal Contingencies:
- Jenkens & Gilchrist: Litigation concluded with a $4.3 million settlement paid in August 2009.
- Wild Basin: Ongoing dispute regarding lease assignment and withheld distributions. A partial settlement was reached in 2008, but the Company may renew litigation if necessary.
- Risks: The Company faces risks related to the macroeconomic downturn, potential inability to raise capital, and the success of its new management team in executing the growth strategy.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of operations given the $7.5 million cash outflow from operations and the reduction in working capital to $216,000.
- Revenue Mix: Confirm the trend of declining software license revenue versus increasing hardware/subscription revenue and its impact on long-term gross margins.
- Legal Exposure: Review the status of the Wild Basin litigation to assess potential future liabilities regarding withheld distributions.
- Capital Needs: Assess the likelihood of needing to raise additional capital within the next 12 months given the current cash position and operating losses.
- Stock Split Impact: Verify the post-split trading volume and price stability following the 10-for-1 reverse stock split implemented in December 2009.