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, 2008
Business Overview: The Company operates two segments: Software & Services (web-based workforce management solutions including NetSimplicity and iEmployee) and Intellectual Property Licensing. In fiscal 2008, the Company shifted focus entirely to the Software & Services segment after concluding major patent litigations in the prior year. The Company rebranded to "Asure Software" in September 2007 and acquired iSarla Inc. (iEmployee) in October 2007.
Key Financial Metrics
| Metric | Fiscal 2008 | Fiscal 2007 |
|---|---|---|
| Total Revenues | $10.2 million | $40.4 million |
| Software & Services Revenue | $10.2 million | $4.2 million |
| Intellectual Property Revenue | $0 | $36.2 million |
| Gross Margin | $7.9 million (78.0%) | $21.2 million (52.4%) |
| Net (Loss) Income | $(12.7) million | $12.2 million |
| Operating Cash Flow | $(13.3) million | $19.9 million |
| Cash & Equivalents (End of Period) | $12.1 million | $33.5 million |
| Working Capital | $10.1 million | $22.9 million |
| Debt | None | None |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 74.8% to $10.2 million, driven by the cessation of Intellectual Property licensing revenue ($36.2 million in 2007 vs. $0 in 2008) following the conclusion of patent litigations.
- Software Growth: Software and services revenue increased 139.9% to $10.2 million, fueled by the acquisition of iEmployee and growth in the NetSimplicity product line.
- Net Loss: The Company reported a net loss of $12.7 million in 2008 compared to net income of $12.2 million in 2007. This swing was primarily due to the loss of licensing revenue and a non-cash goodwill impairment charge of $7.4 million related to the iEmployee acquisition.
- Cash Flow: Operating cash flow turned negative ($13.3 million used) compared to positive ($19.9 million provided) in the prior year, largely due to the net loss and a decrease in accounts payable.
Guidance, Outlook, Risks, and Contingencies
Outlook: Management plans to modestly invest in revenue-generating areas and explore acquisitions to complement existing product lines. The Company expects to generate cash from operations in the future as the software segment grows and rent expenses decrease following a lease assignment.
Material Risks & Contingencies:
- Nasdaq Compliance: The Company received a deficiency letter for failing to maintain a $1.00 minimum bid price. It was transferred to the Nasdaq Capital Market and granted an extension until May 5, 2009, to regain compliance. Failure to comply could result in delisting.
- Legal Litigation (Jenkens & Gilchrist): Former counsel Jenkens & Gilchrist sued for contingency fees. A court ordered the Company to pay $2.8 million, which was appealed. A trial is scheduled for April 2009. The outcome could materially impact financial statements.
- Lease Assignment (Wild Basin): The Company settled litigation with its landlord, Wild Basin, agreeing to pay $75,000 to consent to a lease assignment. Finalization is expected by December 31, 2008, which would significantly reduce rent expenses.
- Goodwill Impairment: Due to depressed stock prices, the Company recorded a full impairment of goodwill ($7.4 million) associated with the iEmployee acquisition.
Investor Verification Checklist
- Delisting Risk: Verify the current stock price and the Company's status regarding the May 5, 2009, Nasdaq compliance deadline.
- Jenkens Litigation: Monitor the status of the appeal and the April 2009 trial date regarding the $2.8 million legal fee dispute.
- Lease Assignment: Confirm whether the Wild Basin lease assignment was finalized by December 31, 2008, to validate expected rent savings.
- Cash Burn Rate: Assess the sustainability of the $12.1 million cash balance given the negative operating cash flow of $13.3 million.
- Revenue Concentration: Note that one customer accounted for 18.5% of total revenue in fiscal 2008.