Asure Software Inc (ASUR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Quarter 2 2009 Asure Software earnings conference call.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host, Mr.

Sean Collins, Senior Partner CCG Investor Relations.

Good morning everyone and welcome to the Asure Software second quarter 2009 conference call.

Before we begin I would like to mention that some of the statements made by management during this call may include projections, estimates and other forward-looking statements.

Statements that are not historical are subject to certain risks and uncertainties that could materially affect their outcome.

Please review the risk factors relating to the Company's business that are contained in Asure Software's latest 10-K on file with the SEC.

EBITDA as it may be cited in this conference call is a measure not in accordance with generally accepted accounting principles, or GAAP.

Please be aware that EBITDA, as discussed on this call, may not be similar in non-GAAP income measures used by the Company.

Management of Asure Software believes that EBITDA provides investors with tools that are valuable when used in addition to GAAP metrics for evaluating the Company's core performance.

This call is being recorded on behalf of Asure Software, and is considered copyrighted material.

It may not be recorded or rebroadcasted or redistributed in any way without the Company's expressed written permission.

Your participation in this call implies your consent to be recorded.

Joining me on the call today are Mr.

Richard Snyder, Chairman and CEO of Asure Software; Ms.

Nancy Harris, Vice President and Chief Operating Officer; and Mr.

Jay Peterson, Vice President and CFO.

With those formalities out of the way, it is now my pleasure to turn the call over to Richard Snyder, Chairman and CEO of Asure.

Good morning and thanks again for joining us on the call today.

In our December call I commented that the economic downturn was gaining momentum and that it was affecting our software sales.

I also mentioned that our product offerings in workforce management positions us to weather this economic storm perhaps better than most, because business continues to look for ways to cut expenses and to improve workforce productivity.

As we are all painfully aware, the macroeconomic environment is even worse today than we saw at the time, and we're certainly not immune.

We have continued to seek a reduced, but a steady flow of orders.

We're hearing from some prospective customers that they are delaying purchases, but there are also hearing from many others who believe that this is just the right time to be acquiring solutions that will make them more cost competitive when we come out of this recession.

As a result of these uncertain circumstances we have redoubled our efforts to -- and attention in two basic areas, maximizing revenues and reducing our expenses.

We believe that it is critically important to stay on track to be cash flow positive this calendar year.

The only way to achieve that goal in this negative economic environment is to aggressively market attractive products that meet real customer needs and to find every unnecessary cost and to eliminate it.

Let me elaborate with a few comments on reducing the expense side of the equation.

We look at two major expense areas to manage, operational costs of running the business, and corporate overhead costs.

There are two main drivers to the corporate overhead costs, the costs associated with being publicly traded, and that amounts to about $1 million a year, and the lease for the building that houses our corporate headquarters in Austin, Texas.

As we noted on previous calls, closing a deal to reassign our building lease to an outside investor would save the Company approximately $200,000 per quarter.

We were successful in finally gaining approval to assign the lease after months of legal delay, and only to find that our investor was no longer in the financial position to close due to the downturn in the economy and the real estate market.

We are continuing to look for alternative investors, but given the circumstances, we may not be successful in the near term.

Consequently, we have developed an alternative plan to reduce expenses by at least the equivalent of the building liability of $200,000 per quarter.

The bulk of this reduction is a 10% wage cut across the Company, commensurate with a 10% work week furlough policy, under which all Asure Software team members take one unpaid furlough day every two weeks.

This policy will remain in effect until the end of our fiscal year, at which point we will reevaluate.

This plan is only one of -- one of key elements of our overall cost-cutting program to weather the current economy, while preserving sufficient staff resources to cultivate growth.

In fact, the total targeted reduction in expenses is closer to $300,000 a quarter.

Our plan to reduce corporate overhead cost by approximately $1 million per year is to take the Company private, a decision we announced in January.

The preconditions of this move are, first, SEC approval of the draft proxy solicitation, and then second, the scheduling of a special meeting of shareholders to secure shareholder approval.

Assuming that the plan goes into effect, and through a forward and then reverse stock split, holders of fewer than 750 shares of our stock would be cashed out at a significant premium over recent share price levels.

While the holders of 750 shares or more would end up with the same number of shares as they held as of the record date, and remain as shareholders going forward.

We intend to move the new shares to trade on the over-the-counter Pink Sheet market.

We also plan to continue the high level of corporate governance that we have today, but leaner at a more affordable cost.

It was not easy to arrive at this decision.

We continue to firmly believe that the Company's potential is good.

In more favorable market conditions we believe that we could gain market recognition through revenue growth that might have allowed us to regain compliance with NASDAQ's bid requirements for maintaining a continued listing.

But today's market is so fear driven that even the best strategies any company can pursue are being drowned out by the ongoing din of bad financial news.

Failure to act to privatize at this time could result in not only the loss of liquidity of our shares due to delisting from NASDAQ, but also the loss of the $1 million savings due to being forced to move to the over-the-counter market while still remaining public and continuing to carry those costs.

The Board of Directors believes that the move to privatize is clearly in the best interest of all our stakeholders.

Finally, I would like to comment on our efforts to maximize revenue in this difficult market.

First, we have seen a dramatic shift toward our Software-as-a-Service offering.

In particular, new MRM SaaS bookings were up 119% over the first quarter, and up 126% year-over-year.

Customers are attracted to the SaaS model, because it does not require a large capital investment upfront, but allows them to achieve the productivity improvements over time on a pay-as-you-go basis.

Of course, our iEmployee product offering is 100% SaaS-based, so we have seen the benefits since acquiring that business a year ago.

Second, we have identified strong vertical segments which allow us to market and to sell very efficiently to our target customers.

In addition, we are focused on smaller and mid-sized market companies and divisions of enterprise, which amounts to over 600,000 organizations in the United States alone.

We have also seen growth in our international sales as American and international companies have expanded globally and need the same productivity enhancements to remain competitive.

In summary, the recent market conditions have affected our sales temporarily.

But we believe that there is enduring value in the small investments that increase a company's internal efficiencies.

And as conditions improve, customers will return to our products and services, because we offer competitive advantages in a time when every competitive advantage counts.

Now I will turn the call over to Nancy, our Senior Vice President and Chief Operating Officer.

In our last quarterly conference call we spoke of some large deals in the pipeline that did not close in the first quarter ended October 31, but have since closed in our fiscal Q2.

In the second quarter we added Dimensional Funds, JCPenney, Nestle Corporation, and the European Central Bank, among other deals to our customer roster.

In addition, we sold our largest SaaS deal in our corporate history, a two-year contract totaling $95,000 with a customer who asked not to be named.

In fact, while overall revenues were down we saw a silver lining.

A significant upward trend in our Meeting Room Manager Software-as-a-Service bookings during that second quarter.

That SaaS implementations require a lower upfront commitment of cash, we find it interesting to view our second quarter increase in SaaS bookings in the context of a quarter of almost constant bad economic news.

We conclude that there is a significant appetite for this product, and that only the constant drumbeat of red ink in the financial news prevented us from growing both perpetual license deals with the recurrent revenue stream that they bring, as well as new SaaS bookings.

We are certain that much of the SaaS business we garnered during the quarter would not have come our way, except in the form of a SaaS business.

So we're very pleased that we made the decision to offer MRM in both a perpetual and a SaaS model.

It is proving to be a good way to win new customers in uncertain times.

We are also pleased with our decision to sell Visual Asset Manager to our long-standing partner, EISG.

VAM Group [has] proven to be a perfect fit with EISG's asset management consulting business.

And EISG has provided a good home to our VAM customers following the sale.

EISG plans to continue the development of VAM.

And we're confident that our customers will continue to enjoy top-flight support.

The best upshot of the VAM sale is that it is allowing us to focus more attention on our flagship NetSimplicity product, Meeting Room Manager, in all areas of the NetSim business, including development, sales, and marketing.

Now turning to the iEmployee business, we were very pleased with our channel sales results in Q2, and in particular the productivity of our partnership with Oasis Outsourcing, the nation's largest privately held professional employer organization.

In fact, we almost doubled the number of new customers we had garnered to date through that referral partnership.

And we're optimistic that the partnership will play a key role in our growth moving forward.

Consistent with prior partnerships, Payroll Providers have proven to be an effective channel for both the time and attendance product and the HR benefits product.

And in that vein we continue to cultivate additional channel partners to drive new sales.

Also in the second quarter we evolved our Web-based marketing model to increase leads at the top of the funnel and improve lead quality.

For both the iEmployee and NetSimplicity productlines we introduced new marketing automation programs that focus on building the respective databases and nurturing Web-originated leads through the sales process.

Through these programs and our search engine marketing efforts, we are seeing an increase in the number of leads and an improvement in the maturity and rightness of leads that reach our sales force.

In summary, we believe that we are at the very least weathering the economic storm.

We continue to provide products and services that automate important and typically inefficient manual tasks for office workers.

We know that our SaaS model allows our customers to afford these productivity tools at a time when they're needed most.

Above all, we believe we're positioning ourselves to emerge from the storm in stronger condition than ever before, and in better competitive shape then our rivals in the marketplace.

With that, I will turn the call over to CFO, Jay Peterson, to provide additional details on our financial performance during the 2009 fiscal second quarter.

This morning I will comment on the financial highlights of the second fiscal quarter, and then I will provide some high-level guidance for the near future.

First off, I want to point out that sequentially our software and services revenue increased by 13% to $2.4 million from $2.8 million in the first quarter.

Recurring revenues, that is revenue either under a SaaS or a maintenance contract, improved to 73% of our total revenue this past fiscal quarter versus 62% in the prior quarter.

Our deferred revenue actually grew this past quarter by 5% to $2.0 million.

In addition, our SaaS bookings increased by 117% over the prior quarter.

Our gross margins grew to 81% this past quarter versus 80% in the prior quarter and 78% two quarters ago.

This growth was due to a favorable mix of software and a decline in lower margin hardware revenue.

We saw a sequential decrease in our operating expenses of a approximately 5% in the quarter, with additional expense reductions planned for both Q3 and Q4.

These reductions hit virtually every category of spending, including Companywide salary reductions.

Our EBITDA loss in Q2 decreased slightly to just under $1.2 million.

Excluding privatization costs, legal costs related to the building assignment, and a escrow receivable relating to the past asset sale, our EBITDA loss would have declined significantly this past quarter to just over $800,000.

Once the privatization is complete, we expect to save approximately $250,000 a quarter in public company related expenses.

Turning to our balance sheet and liquidity measures, we had working capital of just over $7 million at the end of the quarter, and cash and cash equivalents of over $12 million as of January 31.

Also, I would like to call out that of our $7 million in liabilities, $2 million of those liabilities relate to deferred revenue, which is a non-cash liability, and $700,000 relates to non-cash liabilities relating to our lease facility.

Our trade days sales outstanding for the quarter ended at 38 days versus 35 days in the prior quarter.

The Company continues to have no long-term debt.

And as of the end of January we had federal net operating loss carryforwards in excess of $150 million.

Let me now turn to the guidance portion.

Our most important financial objective for our Company continues to be to achieve EBITDA profitability as quickly as possible.

In order to accomplish this goal we are focused on the following.

Number one, continued management of expenses, including the aforementioned Companywide salary reduction.

Number two, reductions in cost of goods sold.

Number three, continued gross margin improvement.

And number four, an increase in topline revenue.

We are confident that we can accomplish the first three items, and with a little help from the macroeconomy, the fourth item as well.

With that, I would like to turn the call back over to Shane, our moderator.

(Operator Instructions).

[Adrian Prateria], Pinnacle Fund.

I have two long questions, so please bear with me.

Most companies hold their annual meeting within six months after the end of their fiscal year.

It has now been seven and a half months since the '08 fiscal year ended.

Last year's meeting was held late due to the iEmployee purchase.

This year's meeting was held late due to potentially selling the lease.

It is clear that the sale has not has not occurred.

Why has the annual meeting not been scheduled?

At least held coincident with the go private vote?

Is there an interest to not allow shareholders their opportunity to vote for Directors and other proposals, which may be submitted in an annual meeting?

I believe the last three or four, maybe even five years we have had our annual meeting in the May/June/July timeframe.

And that is what we're planning on this year.

So this year is no different than the last, like I say, four or five years.

Isn't there a cost to holding a meeting or a vote for the go private anyway, thus we could kill two birds with one stone, and make it cheaper given continually lower cash levels, and given the annual meetings is already late?

Provided you do intend to comply with Delaware law and hold an annual meeting for each fiscal year.

We do intend on having an annual meeting.

I believe we talked about that in our proxy with the SEC as one of our ongoing corporate governance items.

In terms of the cost savings, it would have saved a little money had we combined the two, but what we're finding out from talking to shareholders is that this is a little confusing already, what we're attempting to do with the reverse split, and we wanted to keep the items on the proxy to a minimum in order to afford them the ability to focus on the one item at hand.

I see.

How many employees are there now?

Approximately 100.

According to our math that comes out to about $100,000 per employee, which is an extraordinarily low number, and indicative of a growth spend, especially as a significant portion of those revenues are recurring and require less of a new sales effort.

Given this low number, are there still excess costs which can be trimmed, aside from the public company costs?

And to what degree is this being reconsidered, given how much worse the economy is shaping out, and how much worse cash burn is than you estimated it would be just two quarters ago?

And where should we expect headcount to go within the next two quarters?

It might be helpful to review the headcount reductions that we have had over the past year, which have been significant, and have brought the productivity to where it is.

$100,000 per employee for a software company is really not out of line.

We obviously intend to improve that through revenue growth.

We believe the Company is rightsized right now in both the development activity, as well as marketing and sales.

So we do have any plan to attrit.

As you noted, or should have noted in the call, we do have a salary reduction in force, and we intend for that to be a way to reduce expenses significantly.

If we are able to achieve somewhere in the order of $300,000 per quarter, that is going to change your productivity number significantly as well.

We appreciate you answering these questions, and we don't agree with the current strategy.

We believe Pinnacle, along with our other managed funds, Red Oak and Bear-Market, are ASUR's largest shareholders.

Certainly the largest reported shareholders.

And we are extremely disappointed with how costs have been managed.

We believe that it is entirely irresponsible real monies were -- that real monies were spent on a go private effort, without at least mentioning consideration of a go private conference call and receiving feedback from your largest shareholders.

We view these surprise costs as corporate waste.

Especially as we go -- especially as we have no intent of voting in favor of the go private in advance of an annual meeting and Director elections.

Given insiders own just 2% of the Company, we hope and expect that management and the Board will not seek to entrench themselves, and will instead listen to their shareholders and abide by Delaware law by finally holding the annual meeting.

We thank you for your input and your editorial comments.

Obviously we feel far differently.

We do stay in touch with our shareholder base, which is a much larger shareholder based then just yours.

And we feel that this is the appropriate action.

So we continue to meet all of the corporate and legal objectives that are necessary in this transaction, and we will be moving forward.

Garrett Wilson, Sirius Advisors.

Can you give a little more granularity on what led to the sequential revenue decline?

Was this -- was the bulk of it from customer order delays, or did you see an increase in customer attrition from cutbacks, bankruptcies or increased competitive offerings out there?

Let me try that one.

We look at several different metrics, including maintenance renewals, including monthly renewals of the SaaS business, the iEmployee and the NetSim MRM business.

Both of those performed as typical, as we expected.

What we did see a significant drop on is new license sales for our MRM product.

And we typically have plus or minus 100 new licenses per quarter.

In this last fiscal quarter that particular number dropped precipitously.

So it was new business, new customer acquisition.

However, it is interesting that the actual ASP of those new licenses was very consistent -- it actually grew over many of the past quarters.

If I might, this is Nancy Harris, I will add just a bit of color to what Jay just said.

And that is, to your point, we are seeing delays in these new orders due to softness on our prospects' part in their budget, either budget cuts or deferring projects.

Most of these opportunities have not left the funnel, but they have been pushed out.

So we're optimistic that when things turnaround we will be in a good position to provide products to those buyers.

But currently a lot of the budgets and the projects have been put on hold.

You are pretty certain a lot of these customers still understand the productivity gains and the cost savings from utilizing your (technical difficulty) in the downturn?

Or is it kind of upper management put the freeze on decisions for everybody, so it kind of gets swept along with everything else?

That's right.

It is what you describe, in that all of our positioning and messaging we have really worked to talk about, productivity gains and the need to get more with your workforce in a time where you have fewer workers in many cases.

But what we are seeing is when some of these purchases go up-line for approval, they are getting kicked back.

So it is just a sign of the times overall, I believe.

I have a general question on corporate strategy.

Realistically how are you guys going to be able to effectively tap your $150 million in a lull?

Is there -- I want to hear from your mouth -- you have analyzed that selling the businesses and paying out proceeds and all the cash and investments to shareholders, which at current market caps one-third of your cash and short-term investments, I am just wondering why going private and continuing on this course is a better option for shareholders?

I think the best answer to that is in my comments I mentioned that we're faced with a situation with our NASDAQ listing, which if we're not able to cure that in the period of time given, up we will be delisted from NASDAQ and be trading over-the-counter.

We will be a public company with public company costs with the illiquidity of the over-the-counter market.

That is probably the worst of all worlds.

We believe that by shedding the costs of being public, it gives the opportunity for the core business to grow, and for the shareholders that continue with us, to have the ongoing benefit that can be realized through the growth of the Company, either through a later sale of the Company or through other merger or acquisition strategies.

So it sounds like you all are still open to various transactions in the future, but you are saying this is the best scenario in terms of having to trade on the Pink Sheet [irregardless].

Yes, that is correct.

It is taking the current environment, the current position of the Company, it is trying to make a maximum use of our assets.

And taking into consideration all of the shareholders come out with a plan that is best -- we're best able to execute.

[Joseph Levy], [LOG Equities].

After going private do you still intent to file quarterly reports with the SEC, your 10-Qs and the annual 10-K?

Yes, I think if we were to file them -- there is not a process in which a private company can file with the SEC.

But we will have annual audits and we will make those audits available.

We don't know at this point in time whether we will have quarterly audits, but right now we're leaning toward published annual audits.

But what about quarterly unaudited figures, will they be released to shareholders?

We just don't know at this point in time.

Why would that be?

That seems to me that it would -- is not something that would require a tremendous amount of expense, and yet it would still keep shareholders informed.

I think what we are attempting to do here is to make sure that the reporting costs that we currently have decline.

And that is the -- all of the compliance issues of 404, Sarbanes-Oxley, the current auditors we use, everything is structured at a premium cost, if you will, that that amounts to the approximate $1 million a year that we have outlined.

It is not our intention to change the structure or the integrity of the financial system.

We will maintain that because we believe that has been a keystone of the Company and the strength of the Company going back a long time.

Now as to reporting publicly, we're going to follow whatever is legally and sort of the precedent set by private companies, so in concert with the that costs.

So if something doesn't cost us something, we will certainly consider doing that.

But the whole point of this exercise is to shed cost as quickly as possible.

I can appreciate the fact that when you are looking to eliminate Sarbanes-Oxley cost that you would go about reducing what you would have to pay to our outside accountants.

But any viable business is going to be producing financial statements on a monthly and a quarterly basis.

And it just seems that for -- to keep Asure in a -- let's say, in a mode where people believe that there is honesty and integrity from the management, because you're still going to have such a diverse stockholder group, that you should be reporting to these shareholders rather then just waiting once a year.

I think that is an obligation of a company that went public and everything that -- you get the benefits of being public.

And I think you're still looking in a sense to get the benefits of having a publicly traded security by having your securities published on -- the prices traded at least through the vehicle of the Pink Sheet.

I think it would be a real big mistake to discontinue that quarterly reporting, because it really raises questions in people's eyes as to to exactly what the management is doing and why they're not willing to be transparent.

You bring up some very good points.

We will consider that, definitely.

One other question.

Based upon the changes that you have made, and taking into account the current environment, when do you anticipated that you might be able to reach a breakeven level, and what level of revenue do you anticipate that would be?

It is actually a very good question.

I mentioned before, if we take our past EBITDA performance, and that was on down revenues, it was a little over a loss of $800,000.

We equate that to the EBITDA generation or the nongeneration of cash, the EBITDA number.

Just for rounding sake, let's call it $800,000.

We know that privatization will save us approximately $250,000 a quarter.

So now I'm down to $550,000 loss.

We mentioned these salaried reductions that we have implemented, along with some other reductions in operating expenses.

And just to give you a flavor for that, we're looking at everything from our phone system to copier leases to our WebEx contract, to our FedEx contract to our insurance policies to the number of contractors we have in the work.

Even where we buy our office supplies.

We've been about 25 different initiatives to reduce costs, in addition to a whole host of other items that we're going to be working again later this quarter.

So to answer your question, we think on steady revenues we can get very close.

And with those a small uptick to historical revenue levels, we will be in a position to generate cash.

When we're going to do that?

We are endeavoring to do that this calendar year.

But I mentioned before, we're going to need just a little help from the macroenvironment in order to grow our revenues.

You figure around $12 million in revenues would be a point where you would be cash flow neutral?

Yes, I think very close to that.

$3 million a quarter.

[Tony Tristani], Astral Capital.

I have got a couple of questions, if I could.

First question is on the lease deal that kind of fell through.

I am just curious if -- I guess the deal would have saved you $800,000 a year.

So I guess in my mind that would imply that you have an asset that is -- what is your current appraisal of your asset?

I guess half your building -- I guess using a 20% rate of return would that -- am I correct in thinking that will be worth somewhere around $4 million that I don't see on your balance sheet?

Yes, based on our last estimate of the building value we got from the building owner, that would be consistent with his thoughts.

Is this because of -- do you own -- you own half the building, is that correct?

We have an equity interest in half the building.

Yes, in the (multiple speakers).

Why isn't that listed on the balance sheet?

We have had that discussion with our auditors several times.

Unless we are actually on the mortgage and on the deed, we're not able to put that asset on our books.

They take a very conservative approach to that.

That is basically what your stock price is at now.

Forget about all your other cash and assets and business.

Correct.

That is kind of absurd.

Second question, I guess I was going to go to the EBITDA level.

From your analysis it said maybe $2.7 million, $2.8 million, but let's call it $3 million as EBITDA cash flow positive.

That would be great, because you would have -- plus also you would have interest on your cash I assume right on top of that.

I guess I had a question for Nancy.

You said you had push outs, etc., on the license deals for NetSimplicity products, I guess was the main issue on the revenue decline sequentially?

That is correct.

Are you confident that you're not losing sales to competitors on that?

And if they are push outs does your pipeline continue to grow, and what is your confidence in that pipeline?

In fact, we are still seeing that we are winning in a lot of the competitive deals that we're in.

We're having good success vis-a-vis the competition in NetSim.

We tend to continue to be the value play there, where we have greater functionality for equivalent or less price than our competitors.

So at a time like this it is a good strategy to have.

We do see these things remaining in our funnel, but again it is a delay of a decision on the part of the buyer, not a loss in most cases.

And as it relates to the funnel, I think I mentioned, one other programs that we started in Q2 is an aggressive program to add net new names and opportunities at the top of the funnel, and then through marketing automation to nurture those prospects to deliver warmer qualified leads to the sales reps, which should in turn increase their productivity as the quality of those leads goes up.

We are seeing success.

We are seeing more leads coming into the funnel.

And again as Jay said, if we get some help from the macroenvironment, we think we can turn that into a growth strategy.

By my calculation your reps -- if you only did $700,000 of nonrecurring revenue, I guess, license revenue in the quarter, that means -- your sales reps are at about 13 reps, I guess, you are only annualizing about $200,000 a year in sales right now.

Is that roughly correct?

I don't follow the math.

$200,000 --.

I am trying to say that you did $2.4 million in revenue.

I guess Jay said 72% was recurring, which is iEmployee plus maintenance, etc.

So your non-recurring was $700,000.

That is $2.8 million a year, divided by 13 reps or so, and I get roughly $200,000 a year of sales per rep.

Is that rough calculation correct?

Actually, our rep level is not as high as what you are suggesting.

Our rep level I believe with MRM at this point is nine reps.

So maybe it is $250,000 or -- I mean, it seems like your rep productivity is very low because of the economy, etc.

If the economy turned and let's say we had growth in the economy, and your customers' enterprises were not scared to purchase product now, why are you confident that let's say we can get back up to $500,000 or $600,000 per rep.

Based on your analysis of the market, I am worried that competitively maybe your product is not that great.

You have got -- you're losing out to larger software companies.

Can you give me some confidence -- if the economy does turn, and let's say we're back to a normal mode in let's say within a year, why do you think you can sell $500,000 or $600,000 per rep?

Can you give us a little backup on that?

Because we're all betting on that right now, holding your stock at this depressed level, that you're going to be able to turn this around when the economy turns.

Let me give you a feel for what we were able to do in the recent past before the economic conditions turned south.

Our reps were carrying -- and it varies from region to region, but let's just say on average $150,000 in quota per quarter.

And we were having on the magnitude of 80% to 90% of our reps making that number per quarter.

We had more reps in the green in their quota then most companies do.

In fact, we had a higher percentage making their number.

That was prior to the downturn.

So the numbers of $400,000 a year are actually low relative to what the reps are doing today.

That is not an accurate figure of merit.

They are still carrying -- some reps are carrying north of $200,000 in quota and some reps are carrying around the $150,000 mark.

We have had fewer people in quota in the last couple of quarters because of the downturn.

But we believe we can see them get back up into quota making range again when we see that turnaround.

I guess in the recurring revenue is that -- let's say we go out three quarters, is recurring revenue expected to grow because of maintenance contracts, etc., or should I expect that to grow over time and then add the license revenue on top of that?

Yes, it has traditionally grown over time.

And what we look at, is we look at how much we put on the balance sheet.

I think now for five or six consecutive quarters what we put on the balance sheet has grown.

But it does grow slowly.

So when it does get amortized off, you will see growth in the annuity component, but it is slow growth.

So I mean just based on that rough analysis, if the economy turns and you get back to quota, I guess that you could probably get back to that $12 million level, which should be pretty decently cash flow positive.

Yes.

That's correct.

I guess another thing it would be -- I guess in the proxy there was -- I guess, you're paying the odd lot shareholders $0.36 a share in cash?

Yes.

Can you maybe just give a rough -- the stock is $0.13.

Can you give a rough kind of overview of how your consultant got there, with the stock trading where it is?

I guess you could put multiples of revenue plus the cash, but the cash is burning and the stock market valuations are depressed.

Can you give us a rough analysis why the consultant came up with three times the current stock price?

I know the stock price was higher when it was done, but does that $0.36 still stand in your mind?

Yes, the process -- I can help you with the process.

It was a traditional valuation process, where they looked at the assets and liabilities that you had with the Company, including cash and all the other items on the balance sheet.

They looked at a discounted cash flow analysis.

They looked at a liquidation analysis.

I think one of the driving things that came up with that particular premium was sheerly the amount of cash that we had on the balance sheet.

In addition, the investment banker worked with our subcommittee, the Independent Subcommittee on our Board that was essentially half of our Board, and that is the conclusion they came with.

This is Dick.

As you mentioned, the stock price has moved down a bit from where that decision was made.

On the other hand, they felt that that was probably the fairest representation of where they felt the premium could be set to ensure that we would be successful with this transaction.

You have got two major stakeholders going forward.

You got those you are cashing out, and then there is those that are going forward with you.

So they both have different interests, and you look to try to make sure that you are addressing the interests of both those parties.

Last question.

Sorry to take so much time.

On the building, obviously you got that asset.

Are you going to be, guys, pretty aggressive to find other investors?

Just because that one investor's financial situation deteriorated, there is probably lots of investors out there that wouldn't mind -- in Austin and elsewhere having an asset in Austin, because obviously Austin has been a better market then the country.

It is still a growth market, and is expected to snap back pretty good when the economy does.

Are you guys going to be aggressive in trying to find other investors?

It seemed like a pretty good return for that investor.

Just because his situation changed, why don't you have backup investors, or why don't you be aggressive in going after other investors to monetize -- to lower your expenses by trading that asset?

Good point, Tony.

Yes, we are in fact working with another broker to help us find investors.

That will be an ongoing process.

In addition, we're still talking with the former investor, who has sunk a fair amount of cash into this transaction themselves, and they would like to see a payoff from that.

So the answer is yes to both.

There are no more questions at this time.

I would like to turn the call over to management for closing remarks.

Thank you for your participation in today's call.

We appreciate your support.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a good day.