**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**x****                             ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended April 30, 2007**

**OR**

**o****                                ****TRANSITIONREPORT****PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**Forthe transition period from          to             **

**Commission file number: 0-20008**

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**FORGENT NETWORKS, INC.**

(ExactName of Registrant as Specified in its Charter)

| **Delaware**                              |   | **74-2415696**       |
|-------------------------------------------|--------|----------------------|
| (State of other  jurisdiction of          |   | (I.R.S. Employer     |
| incorporation or  organization)           |   | Identification  No.) |
|                                      |   |                 |
| **108  Wild Basin Road**                  |   | ** **           |
| **Austin,  Texas**                        |   | **78746**            |
| (Address of  Principal Executive Offices) |   | (Zip Code)           |

 

**(512) 437-2700**

(Registrant’s TelephoneNumber, including Area Code)

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes  x     No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  o                   Accelerated filer  o                             Non-acceleratedfiler   x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o     No x

On June 8, 2007, theregistrant had outstanding 25,597,554 shares of its Common Stock, $0.01 parvalue.

 

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# **INDEX TOFINANCIAL STATEMENTS**

|                                                                                                       |   | **Page  Number**                                                                                                        |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|
| **PART I - FINANCIAL INFORMATION**                                                                    |   |                                                                                                                    |
|                                                                                                  |   |                                                                                                                    |
| Item 1 – Condensed  Consolidated Financial Statements                                            |   |                                                                                                                    |
|                                                                                                  |   | Condensed Consolidated  Balance Sheets as of April 30, 2007 (unaudited) and July 31, 2006                               |   | 3 |
|                                                                                                  |   | Unaudited  Condensed Consolidated Statements of Operations for the Three and Nine Months  Ended April 30, 2007 and 2006 |   | 4 |
|                                                                                                  |   | Unaudited  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended  April 30, 2007 and 2006           |   | 5 |
|                                                                                                  |   | Notes to  the Unaudited Condensed Consolidated Financial Statements                                                     |   | 6 |
| Item 2 -  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   | 11                                                                                                                      |
| Item 3 -  Quantitative and Qualitative Disclosures About Market Risk                                  |   | 19                                                                                                                      |
| Item 4 - Controls  and Procedures                                                                     |   | 19                                                                                                                      |
|                                                                                                  |   |                                                                                                                    |
| **PART II - OTHER  INFORMATION**                                                                      |   |                                                                                                                    |
|                                                                                                  |   |                                                                                                                    |
| Item 1 - Legal Proceedings                                                                            |   | 19                                                                                                                      |
| Item 1A - Risk Factors                                                                                |   | 20                                                                                                                      |
| Item 2 -  Unregistered Sales of Equity Securities and Use of Proceeds                                 |   | 25                                                                                                                      |
| Item 3 -  Defaults upon Senior Securities                                                             |   | 25                                                                                                                      |
| Item 4 -  Submission of Matters to a Vote of Security Holders                                         |   | 25                                                                                                                      |
| Item 5 - Other Information                                                                            |   | 25                                                                                                                      |
| Item 6 - Exhibits                                                                                     |   | 25                                                                                                                      |
|                                                                                                  |   |                                                                                                                    |
| **Signatures**                                                                                        |   | 27                                                                                                                      |
|                                                                                                  |   |                                                                                                                    |
| **Index to Exhibits**                                                                                 |   | 28                                                                                                                      |

 

2

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**FORGENT NETWORKS, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

(Amounts inthousands, except per share data)
| ** **                                                                                                                                                                 | ** ** | **APRIL 30,  2007** | ** ** | **JULY 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                 | ** ** | **(UNAUDITED)**          | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                 |       |                     |       |                    |       |
| Current Assets:                                                                                                                                                            |       |                     |       |                    |       |
| Cash and cash  equivalents, including restricted cash of $0 and $543 at April 30, 2007 and July 31, 2006                                                                   |       | $                        | 24,614     |                    | $          | 16,206 |   |
| Short-term  investments                                                                                                                                                    |       | 1,533                    |       | —                  |       |
| Accounts  receivable, net of allowance for doubtful accounts of $23 and $13 at April 30, 2007 and July  31, 2006, respectively                                             |       | 10,806                   |       | 714                     |       |
| Prepaid expenses  and other current assets                                                                                                                                 |       | 316                      |       | 274                     |       |
| Total Current  Assets                                                                                                                                                      | ** ** | **37,269**               | ** ** | **17,194**              | ** ** |
|                                                                                                                                                                       |       |                     |       |                    |       |
| Property and equipment,  net                                                                                                                                               |       | 814                      |       | 788                     |       |
| Intangible assets, net                                                                                                                                                     |       | —                   |       | 4                       |       |
| Other assets                                                                                                                                                               |       | 3                        |       | 3                       |       |
|                                                                                                                                                                       | ** ** | **$**                    | **38,086** | ** **              | **$**      | **17,989** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                             |       |                     |       |                    |       |
| Current Liabilities:                                                                                                                                                       |       |                     |       |                    |       |
| Accounts payable                                                                                                                                                           |       | $                        | 12,854     |                    | $          | 3,631 |   |
| Accrued  compensation and benefits                                                                                                                                         |       | 922                      |       | 547                     |       |
| Other accrued  liabilities                                                                                                                                                 |       | 1,642                    |       | 907                     |       |
| Notes payable,  current position                                                                                                                                           |       | —                   |       | 313                     |       |
| Deferred revenue                                                                                                                                                           |       | 900                      |       | 683                     |       |
| Total Current  Liabilities                                                                                                                                                 | ** ** | **16,318**               | ** ** | **6,081**               | ** ** |
|                                                                                                                                                                       |       |                     |       |                    |       |
| Long-Term Liabilities:                                                                                                                                                     |       |                     |       |                    |       |
| Deferred revenue                                                                                                                                                           |       | 23                       |       | 11                      |       |
| Other long-term  obligations                                                                                                                                               |       | 1,299                    |       | 1,777                   |       |
| Total Long-Term  Liabilities                                                                                                                                               | ** ** | **1,322**                | ** ** | **1,788**               | ** ** |
|                                                                                                                                                                       | ** ** | ** **               | ** ** | ** **              | ** ** |
| Stockholders’ Equity:                                                                                                                                                 |       |                     |       |                    |       |
| Preferred stock,  $.01 par value; 10,000 authorized; none issued or outstanding                                                                                            |       | —                   |       | —                  |       |
| Common stock,  $.01 par value; 40,000 authorized; 27,387 and 27,163 shares issued; 25,597 and 25,373 shares outstanding at April 30, 2007 and July 31,  2006, respectively |       | 274                      |       | 271                     |       |
| Treasury stock  at cost, 1,790 issued at April 30, 2007 and July 31, 2006                                                                                                  |       | (4,815                   | )          | (4,815                  | )          |
| Additional  paid-in capital                                                                                                                                                |       | 265,633                  |       | 265,406                 |       |
| Accumulated  deficit                                                                                                                                                       |       | (240,660                 | )          | (250,754                | )          |
| Accumulated  other comprehensive income                                                                                                                                    |       | 14                       |       | 12                      |       |
| Total  Stockholders’ Equity                                                                                                                                           | ** ** | **20,446**               | ** ** | **10,120**              | ** ** |
|                                                                                                                                                                       | ** ** | **$**                    | **38,086** | ** **              | **$**      | **17,989** | ** ** |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

3

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**FORGENT NETWORKS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

(Amounts inthousands, except per share data)
| ** **                                              | ** ** | **FOR THE  THREE MONTHS ENDED  APRIL 30,** | ** ** | **FOR THE  NINE MONTHS ENDED  APRIL 30,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                                       | ** ** | **2006**                                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                              | ** ** | **(UNAUDITED)**                                                | ** ** | **(UNAUDITED)**                                               | ** ** |
| **REVENUES:**                                           |       |                                                           |       |                                                          |       |   |   |   |   |
| Intellectual property  licensing                        |       | $                                                              | 20,000     |                                                          | $          | 1,891 |   | $ | 28,162 |   | $ | 8,613 |   |
| Software and services                                   |       | 978                                                            |       | 647                                                           |       | 2,957 |   | 1,924 |   |
| Total revenues                                          | ** ** | **20,978**                                                     | ** ** | **2,538**                                                     | ** ** | **31,119** | ** ** | **10,537** | ** ** |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **COST OF SALES:**                                      |       |                                                           |       |                                                          |       |   |   |   |   |
| Intellectual property  licensing                        |       | 10,592                                                         |       | 1,147                                                         |       | 14,135 |   | 5,314 |   |
| Software and services                                   |       | 196                                                            |       | 213                                                           |       | 698 |   | 604 |   |
| Total cost of sales                                     | ** ** | **10,788**                                                     | ** ** | **1,360**                                                     | ** ** | **14,833** | ** ** | **5,918** | ** ** |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **GROSS  MARGIN**                                       | ** ** | **10,190**                                                     | ** ** | **1,178**                                                     | ** ** | **16,286** | ** ** | **4,619** | ** ** |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **OPERATING EXPENSES:**                                 |       |                                                           |       |                                                          |       |   |   |   |   |
| Selling, general and  administrative                    |       | 3,971                                                          |       | 2,561                                                         |       | 9,009 |   | 7,721 |   |
| Research and development                                |       | 180                                                            |       | 153                                                           |       | 429 |   | 454 |   |
| Amortization of intangible assets                       |       | —                                                         |       | 6                                                             |       | 4 |   | 23 |   |
| Total operating expenses                                | ** ** | **4,151**                                                      | ** ** | **2,720**                                                     | ** ** | **9,442** | ** ** | **8,198** | ** ** |
|                                                    | ** ** | ** **                                                     | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **INCOME  (LOSS) FROM OPERATIONS**                      | ** ** | **6,039**                                                      | ** ** | **(1,542**                                                    | **)**      | **6,844** | ** ** | **(3,579** | **)** |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **OTHER INCOME AND (EXPENSES):**                        |       |                                                           |       |                                                          |       |   |   |   |   |
| Interest income                                         |       | 202                                                            |       | 128                                                           |       | 592 |   | 360 |   |
| Gain on sale of assets                                  |       | —                                                         |       | —                                                        |       | 2,896 |   | — |   |
| Interest expense and other                              |       | (25                                                            | )          | (12                                                           | )          | (68 | ) | (58 | ) |
| Total other income and  (expenses)                      | ** ** | **177**                                                        | ** ** | **116**                                                       | ** ** | **3,420** | ** ** | **302** | ** ** |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **INCOME  (LOSS) FROM OPERATIONS, BEFORE INCOME TAXES** | ** ** | **6,216**                                                      | ** ** | **(1,426**                                                    | **)**      | **10,264** | ** ** | **(3,277** | **)** |
| Provision for income taxes                              |       | (170                                                           | )          | (5                                                            | )          | (170 | ) | (15 | ) |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **NET INCOME (LOSS)**                                   | ** ** | **$**                                                          | **6,046**  | ** **                                                    | **$**      | **(1,431** | **)** | **$** | **10,094** | ** ** | **$** | **(3,292** | **)** |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **BASIC AND DILUTED INCOME (LOSS) PER SHARE:**          |       |                                                           |       |                                                          |       |   |   |   |   |
| Basic                                                   |       | $                                                              | 0.24       |                                                          | $          | (0.06 | ) | $ | 0.40 |   | $ | (0.13 | ) |
| Diluted                                                 |       | $                                                              | 0.23       |                                                          | $          | (0.06 | ) | $ | 0.39 |   | $ | (0.13 | ) |
| ** **                                              |       |                                                           |       |                                                          |       |   |   |   |   |
| **WEIGHTED AVERAGE SHARES OUTSTANDING:**                |       |                                                           |       |                                                          |       |   |   |   |   |
| Basic                                                   |       | 25,596                                                         |       | 25,372                                                        |       | 25,488 |   | 25,262 |   |
| Diluted                                                 |       | 26,202                                                         |       | 25,372                                                        |       | 26,022 |   | 25,262 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

4

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**FORGENT NETWORKS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

(Amounts in thousands)
| ** **                                                                                | ** ** | **FOR THE NINE  MONTHS ENDED  APRIL 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                                      | ** ** | **2006** | ** ** |
| ** **                                                                                | ** ** | **(UNAUDITED)**                                               | ** ** |
| ** **                                                                                |       |                                                          | ** ** | ** ** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                |       |                                                          |       |   |   |
| Net income (loss)                                                                         |       | $                                                             | 10,094     |   | $ | (3,292 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by (used in) operations: |       |                                                          |       |   |   |
|                                                                                      |       |                                                          |       |   |   |
| Depreciation and amortization                                                             |       | 423                                                           |       | 952 |   |
| Amortization of leasehold advance and lease  impairment                                   |       | (319                                                          | )          | (420 | ) |
| Provision for doubtful accounts                                                           |       | 19                                                            |       | 28 |   |
| Share-based compensation                                                                  |       | 144                                                           |       | 119 |   |
| Foreign currency translation loss (gain)                                                  |       | 13                                                            |       | (8 | ) |
| Gain on disposal of fixed assets                                                          |       | —                                                        |       | (6 | ) |
| Changes in operating assets and liabilities:                                              |       |                                                          |       |   |   |
| Accounts receivable                                                                       |       | (10,104                                                       | )          | (335 | ) |
| Prepaid expenses and other current assets                                                 |       | 90                                                            |       | (255 | ) |
| Accounts payable                                                                          |       | 9,091                                                         |       | 420 |   |
| Accrued expenses and other long-term obligations                                          |       | 1,183                                                         |       | (318 | ) |
| Deferred revenues                                                                         |       | 220                                                           |       | 175 |   |
| Net cash provided by (used in) operating activities                                       | ** ** | **10,854**                                                    | ** ** | **(2,940** | **)** |
|                                                                                      |       |                                                          |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                                |       |                                                          |       |   |   |
| Net (purchases) sales of short-term investments                                           |       | (1,533                                                        | )          | 1,491 |   |
| Net purchases of property and equipment                                                   |       | (445                                                          | )          | (42 | ) |
| Net cash (used in) provided by investing activities                                       | ** ** | **(1,978**                                                    | **)**      | **1,449** | ** ** |
|                                                                                      |       |                                                          |       |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                |       |                                                          |       |   |   |
| Net proceeds from issuance of stock                                                       |       | 86                                                            |       | 240 |   |
| Proceeds from notes payable                                                               |       | —                                                        |       | 297 |   |
| Payments on notes payable                                                                 |       | (543                                                          | )          | (297 | ) |
| Net cash (used in) provided by financing activities                                       | ** ** | **(457**                                                      | **)**      | **240** | ** ** |
|                                                                                      |       |                                                          |       |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                             |       | (11                                                           | )          | — |   |
|                                                                                      |       |                                                          |       |   |   |
| Net change in  cash and cash equivalents                                                  |       | 8,408                                                         |       | (1,251 | ) |
| Cash and cash  equivalents at beginning of period                                         |       | 16,206                                                        |       | 15,861 |   |
| Cash and cash  equivalents at end of period                                               | ** ** | **$**                                                         | **24,614** | ** ** | **$** | **14,610** | ** ** |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

5

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**FORGENT NETWORKS, INC.**

**NOTES TOTHE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Amounts inthousands, except per share data unless otherwise noted)

**NOTE 1 -GENERAL AND BASIS OF FINANCIAL STATEMENTS**

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with the rules and regulations of the Securities and ExchangeCommission and accordingly, do not include all information and footnotesrequired under U.S. generally accepted accounting principles for completefinancial statements. In the opinion of management, these interim financialstatements contain all adjustments, consisting of normal, recurringadjustments, necessary for a fair presentation of the financial position ofForgent Networks, Inc. (“Forgent” or the “Company”) as of April 30, 2007 andJuly 31, 2006, the results of operations for the three and nine months endedApril 30, 2007 and April 30, 2006, and thecash flows for the nine months ended April 30, 2007 and April 30, 2006.These condensed consolidated financial statements should be read in conjunctionwith the Company’s audited consolidated financial statements and notes theretofiled with the Securities and Exchange Commission in the Company’s annualreport on Form 10-K/A for the fiscal year ended July 31, 2006.   The results for the interim periods are notnecessarily indicative of results for a full fiscal year.

**NOTE 2 –LITIGATION SETTLEMENTS**

Forgent was inlegal proceedings with multiple companies in the United States District Courtfor the Eastern District of Texas, Tyler Division (the “ ‘746 Litigation”),regarding the infringement of its U.S. Patent No. 6,285,746 (the “ ‘746patent).  Effective April 26, 2007,Forgent entered into settlement and license agreements with nine of thedefendants: Cable One, Inc.; Charter Communications, Inc.; ComcastCorporation; Comcast STB Software DVR, LLC; Coxcom, Inc.; Digeo, Inc.;Motorola, Inc.; Scientific-Atlanta, Inc.; and Time Warner Cable,Inc.  These defendants were dismissed from the ‘746 Litigation withprejudice.  Under these agreements,Forgent granted the defendants a patent license and other benefits and thedefendants agreed to pay the Company a total of $20,000. Additionally, all parties agreed to release all claims against each other.  The $20,000 was recorded as intellectualproperty licensing revenue on the Consolidated Statement of Operations for thethree months ended April 30, 2007.

Forgent was inlegal proceedings with multiple companies in the United States District Courtfor the Northern District of California (the “ ‘672 Litigation) regarding theinfringement of its U.S. Patent No. 4,698,672 (the “ ‘672 patent).  On October 25, 2006, Forgent signed a PatentLicense and Settlement Agreement with the remaining defendants in the ‘672 Litigation.  Under this agreement, Forgent granted the defendants a patent licenseand the defendants paid Forgent $8,000. Additionally, all parties agreed to release all claims against eachother.  The $8,000 was recorded asintellectual property licensing revenue on the Consolidated Statement ofOperations for the three months ended October 31, 2006.

**NOTE3 - INTELLECTUAL PROPERTY LEGAL CONTRACTS**

In April 2006, Forgent engaged Hagans BurdineMontgomery Rustay & Winchester (“Hagans”) and Bracewell & Giuliani,L.L.P. (“Bracewell”) to provide legal services related to the litigation of the‘746 Litigation.  Hagans is the leadcounsel on the ‘746 Litigation.

On December 1,2006, Forgent signed an amendment to the Legal Services Fee Agreement withHagans and Bracewell.  This amendmentincreased the contingency fee payable to Hagans and Bracewell from 30% (15% toeach law firm) of all license and litigation proceeds related to the ‘746patent and other patents, net of expenses, to 37.5% (20% to Hagans and 17.5% toBracewell).  Additionally, effectiveSeptember 1, 2006, all related expenses, including consultant fees, travelexpenses, document production expenses, etc. are allocated as follows: 25% toForgent, 50% to Hagans, and 25% to Bracewell, until total expenses reach$2,500. Prior to the amendment, Forgent was liable for all relatedexpenses.  During the third fiscalquarter, the $2,500 threshold was exceeded and Forgent is liable for allsubsequent expenses which exceed the $2,500 threshold.  In addition to Hagans and Bracewell, Forgentis also liable for contingency fees to The Roth Law Firm, P.C. for 10% of the ‘746and other patents litigation proceeds, net of expenses, and to Jenkens &Gilchrist for 10% of all gross license and litigation proceeds related to the ‘746patent.

Legal expenses forcontingency fees and legal counsel’s time incurred are recorded as part of costof sales from Forgent’s intellectual property licensing business on theConsolidated Statements of Operations. Cost of sales for the intellectual property licensing business for thethree and nine months ended April 30, 2007 were $10,592 and

6

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$14,135,****respectively.  Cost of sales for the intellectual propertylicensing business for the three and nine months ended April 30, 2006 were$1,147 and $5,314, respectively.  Otherlegal expenses incurred related to the Patent Licensing Program are recorded aspart of operating expenses on the Consolidated Statements of Operations.  Other related legal expenses for the threeand nine months ended April 30, 2007 were $1,522 and $2,396, respectively.  Other related legal expenses for the threeand nine months ended April 30, 2006 were $562 and $1,379, respectively.

**NOTE4 – SALE OF ASSETS**

In November 2006, Forgent sold certain patents andapplications associated with videoconferencing and related fields andtechnology, together with related goodwill, rights and documentation, toTandberg Telecom AS (“Tandberg”) for $3,150.  Upon closing, Forgentreceived $2,900 of the purchase price, all of which was recorded as a gain onsale of assets.  The remaining balance of$250 will be held in escrow for two years for indemnity claims.  Followingthis sale, Forgent maintained several active patents and patent applications,including the ‘746patent.

**NOTE 5 -COMPREHENSIVE INCOME (LOSS)**

In accordance withthe disclosure requirements of Statement of Financial Accounting Standard No.130, *“Reporting Comprehensive Income,”*the Company’s comprehensive income (loss) is comprised of net income (loss),foreign currency translation adjustments and unrealized gains and losses onshort-term investments held as available-for-sale securities. Comprehensive income for the three and ninemonths ended April 30, 2007 was $6,060 and $10,096, respectively. Comprehensiveloss for the three and nine months ended April 30, 2006 was $1,443 and $3,296,respectively.

##### **NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS**

In February 2007,the Financial Accounting Standard Board (“FASB”) issued Statement No. 159, *“The Fair Value Option for Financial Assets andFinancial Liabilities.”*Statement No. 159 provides companies with anoption to report selected financial assets and liabilities at fair value. Thestandard’s objective is to reduce both complexity in accounting for financialinstruments and the volatility in earnings caused by measuring related assetsand liabilities differently.  Thestandard requires companies to provide additional information that will helpinvestors and other users of financial statements to more easily understand theeffect of the company’s choice to use fair value on its earnings. It alsorequires companies to display the fair value of those assets and liabilitiesfor which the company has chosen to use fair value on the face of the balancesheet. This new statement does not eliminate disclosure requirements includedin other accounting standards, including requirements for disclosures aboutfair value measurements included in Statement No. 157, *“Fair Value Measurements,”*and StatementNo. 107, *“Disclosures about Fair Value ofFinancial Instruments.”*Statement No. 159 is effective as of thebeginning of fiscal years beginning after November 15, 2007. Forgent iscurrently evaluating the effect that the adoption of Statement No. 159 willhave on its financial position and results of operations.

In September 2006, theFASB issued Statement No. 157, *“Fair ValueMeasurements.”  *Statement No. 157 defines fair value,establishes a framework for measuring fair value in U.S. generally acceptedaccounting principles and expands disclosures about fair value measurements. Statement No. 157 is effective for fiscal years beginning after November15, 2007 and interim periods within those fiscal years. Forgent is currentlyevaluating the effect that the adoption of Statement No. 157 will have on its financialposition and results of operations.

In June 2006, the FASBissued Interpretation No. 48, “*Accountingfor Uncertainty in Income Taxes—an interpretation of FASB StatementNo. 109”* (“FIN 48”). FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with Statement No. 109, *“Accountingfor Income Taxes.” *This interpretation defines the minimumrecognition threshold a tax position is required to meet before beingrecognized in the financial statements.  Additionally, FIN 48 providesguidance on derecognition, classification, interest and penalties, accountingin interim periods and transition. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006. Forgent believes the adoption ofFIN 48 will not have a material effect on its consolidated financialstatements.

7

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## **NOTE 7 – SHARE BASED COMPENSATION**

Share basedcompensation for the Company’s stock option, restricted stock and stockpurchase plans for the three months ended April 30, 2007 and 2006 was $14 and$18, respectively.  Share basedcompensation for the Company’s stock option, restricted stock and stockpurchase plans for the nine months ended April 30, 2007 and 2006 was $144 and$119, respectively.

On August 1, 2006 theCompany’s Board of Directors approved the repricing of all employee stockoptions with an exercise price greater than $0.385 (the average of the high andlow for August 1, 2006). The new exercise price is $0.385. The Board ofDirectors determined that the repricing was the most cost effective way tomotivate employees with options that had exercise prices greater than thecurrent fair market value.  The repricingresulted in a charge of $88 based on the incremental fair value of the newoptions versus the fair value of the old options for the nine months endedApril 30, 2007.  Previously, on September14, 2005 the Company’s Board of Directors approved the repricing of allemployee stock options with an exercise price greater than $1.42 (the averageof the high and low for September 14, 2005). The new exercise price was $1.42.The repricing resulted in a charge of $65 based on the incremental fair valueof the new options versus the fair value of the old options for the nine monthsended April 30, 2006.

The Company issued2 and 3 shares of common stock related to exercises of stock options grantedfrom its stock option and stock purchase plans for the three months ended April30, 2007 and 2006, respectively.  TheCompany issued 224 and 173 shares of common stock related to exercises of stockoptions granted from its stock option and stock purchase plans for the ninemonths ended April 30, 2007 and 2006, respectively.

##### **NOTE 8 - SEGMENT INFORMATION**

Currently, the Company operates in two distinct segments: intellectualproperty licensing and software and services. During the nine months ended April 30, 2007, Forgent’s intellectualproperty licensing business focused on generating licensing revenues relatingto the Company’s technologies embodied in the ‘672 patent and its foreigncounterparts, as well as in the ‘746 patent. In October 2006, the Company settled with the remaining defendants inthe ‘672 Litigation and does not anticipate generating additional licensingrevenues from non-defendants going forward. In April 2007, Forgent settled with some of the defendants in the ‘746Litigation and received the jury’s verdict related to this litigation in May2007.  See Note 9 “Contingencies” for more detail.  Forgent’ssoftware and services business provides customers with scheduling and assetmanagement software as well as software maintenance and support, installationand training services. In order to evaluate the intellectual property andsoftware segments as stand-alone businesses, the Company records all unallocatedcorporate operating expenses in the Corporate segment.

The Company evaluates theperformance as well as the financial results of its segments. Included in thesegment operating income (loss) is an allocation of certain corporate operatingexpenses. The Company does not identify assets or capital expenditures byreportable segments, and the Company’s Chief Executive Officer and ChiefFinancial Officer do not evaluate the segments based on these criteria.

The table below presents segment information aboutrevenue from unaffiliated customers, gross margins, and operating income (loss)for the three and nine months ended April 30, 2007 and 2006:
| ** **                                     | ** ** | **Intellectual** | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|------------------|------------|-------------------------|------------|---------------|------------|------------|------------|
| ** **                                     | ** ** | **Property**     | ** ** | **Software &** | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **Licensing**    | ** ** | **Services**            | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
| ** **                                     | ** ** | ** **       | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the  Three Months Ended April 30, 2007** | ** ** | ** **       | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues from  unaffiliated customers          |       | $                | 20,000     |                    | $          | 978           |       | $          | —     |   | $ | 20,978 |   |
| Gross margin                                   |       | 9,408            |       | 782                     |       | —        |       | 10,190     |       |
| Operating income  (loss)                       |       | 7,229            |       | (500                    | )          | (690          | )          | 6,039      |       |
| ** **                                     | ** ** | ** **       | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the  Three Months Ended April 30, 2006** | ** ** | ** **       | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues from  unaffiliated customers          |       | $                | 1,891      |                    | $          | 647           |       | $          | —     |   | $ | 2,538 |   |
| Gross margin                                   |       | 744              |       | 434                     |       | —        |       | 1,178      |       |
| Operating income  (loss)                       |       | (237             | )          | (535                    | )          | (770          | )          | (1,542     | )          |
| ** **                                     | ** ** | ** **       | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the  Nine Months Ended April 30, 2007**  |       |             | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues from  unaffiliated customers          |       | $                | 28,162     |                    | $          | 2,957         |       | $          | —     |   | $ | 31,119 |   |
| Gross margin                                   |       | 14,027           |       | 2,259                   |       | —        |       | 16,286     |       |
| Operating income  (loss)                       |       | 10,118           |       | (941                    | )          | (2,333        | )          | 6,844      |       |
|                                           |       |             | ** ** | ** **              | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the  Nine Months Ended April 30, 2006**  |       |             |       |                    |       |          |       |       |       |
| Revenues from  unaffiliated customers          |       | $                | 8,613      |                    | $          | 1,924         |       | $          | —     |   | $ | 10,537 |   |
| Gross margin                                   |       | 3,299            |       | 1,320                   |       | —        |       | 4,619      |       |
| Operating income  (loss)                       |       | 788              |       | (1,503                  | )          | (2,864        | )          | (3,579     | )          |
|                                           |       |             |       |                    |       |          |       |       |       |

 

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**NOTE 9 -CONTINGENCIES**

Forgentis the defendant or plaintiff in various actions that arose in the normalcourse of business.  With the exception of the proceedingsdescribed below, none of the pending legal proceedings to which the Company isa party are material to the Company.

**Re-examinationof United States Patent No. 4,698,672**

In January 2006, theUnited States Patent and Trademark Office (the “USPTO”) granted a petition tore-examine the ‘672 patent and subsequently issued its first office action onMay 25, 2006.  Forgent responded to thisfirst office action, which confirmed 27 of the 46 claims in the ‘672 patent.  On March 26, 2007, the USPTO issued its finaloffice action, which affirmed its first office action.  Forgent responded to the USPTO on May 11,2007 and is currently waiting for the USPTO’s reply.

###### **Litigation and Re-examination of UnitedStates Patent No. 6,285,746**

Forgent was in legalproceedings with multiple companies in the United States District Court for theEastern District of Texas, Tyler Division, for infringement of its ‘746 patent.

Effective April 26, 2007,Forgent entered into settlement and license agreements with nine of thedefendants, who were dismissed from the ‘746 Litigation with prejudice.

Effective May 13, 2007,Forgent reached an agreement in principle to settle the ‘746 Litigation withrespect to DIRECTV, Inc. (“DIRECTV”).  Pursuant to such agreement inprinciple, Forgent and DIRECTV have agreed to work in good faith to reach afinal definitive settlement agreement. The terms of a final definitive settlement agreement, which have beenagreed to in principle, include Forgent’s agreement to grant DIRECTV a patentlicense, DIRECTV’s agreement to pay the Company $8,000 and the parties’agreement to release all claims against each other.  The Company anticipates it will finalize adefinitive settlement and license agreement with DIRECTV during the fourthfiscal quarter.

On May 16, 2007, TiVo Inc. (“TiVo”) filed a complaint for declaratory judgment in the United States District Court for the Northern District of California against Forgent relating to the ‘746 patent.  TiVo is seeking declarations of equitable estoppel and patent noninfringement and invalidity, among other relief sought.  Forgent is currently reviewing its options to resolve this matter.

OnMay 21, 2007, a jury for the United States District Court for theEastern District of Texas, Tyler Division, found the four asserted claims ofthe ‘746 patent to be invalid.  Thisfinding was in favor of EchoStarTechnologies Corporation and Echosphere L.L.C., the two remaining defendants inthe ‘746 Litigation.  The Companycontinues to believe in the validity of the ‘746 patent and is currentlyassessing its options.

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On October 2, 2006, theUSPTO ordered an **inter partes** re-examination of the ‘746patent and issued its first office action related to this re-examination onOctober 30, 2006.  This first action,which is not the final conclusion of the re-examination, rejected the fiveclaims in the ‘746 patent.  Forgentresponded to the USPTO and anticipates working to vigorously defend all of theclaims of the ‘746 patent.** **If the Company is unsuccessful indefending its patent’s claims with the USPTO examiner, Forgent could pursue theappeal process within the USPTO and within the federal court system, ifnecessary.  The USPTO has not issued anyadditional office actions related to this re-examination.

Forgent continues tomonitor the progress of the ‘746 Litigation and the USPTO’s re-examinations ofits ‘746 and ‘672 patents.  Resolution ofsome or all of these matters could materially affect the Company’s business,future results of operations, financial position or cash flows in a particularperiod.

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**ITEM 2. **** MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The followingreview of Forgent’s financial position as of April 30, 2007 and July 31, 2006,and for the three and nine months ended April 30, 2007 and 2006, should be readin conjunction with the Company’s 2006 Annual Report on Form 10-K/A filed withthe Securities and Exchange Commission. Forgent’s internet website address is http://www.forgent.com.  TheCompany’s annual report on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K and amendments to those reports filed or furnished pursuantto Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are availablethrough the investor relations page of the Company’s internet website free ofcharge as soon as reasonably practicable after they are electronically filed,or furnished to, the Securities and Exchange Commission.  Forgent’sinternet website and the information contained therein or connected thereto arenot intended to be incorporated into this Quarterly Report on Form10-Q.  

**CAUTIONARY STATEMENT REGARDINGFORWARD-LOOKING STATEMENTS**

Certainstatements in this report represent forward-looking statements. Thesestatements involve known and unknown risks, uncertainties and other factorsthat may cause actual results of operations, levels of activity, economicperformance, financial condition or achievements to be materially differentfrom future results of operations, levels of activity, economic performance,financial condition or achievements as expressed or implied by suchforward-looking statements.

Forgent has attempted to identify these forward-looking statements withthe words “believes,” “estimates,” “plans,” “expects,” “anticipates,” “may,” “could”and other similar expressions. Although these forward-looking statementsreflect management’s current plans and expectations, which are believed to bereasonable as of the filing date of this report, they inherently are subject tocertain risks and uncertainties.  Suchrisks and uncertainties include, but are not limited to, those described under “RiskFactors” in this report and other risks indicated in Forgent’s filings with theSecurities and Exchange Commission from time to time.  Additionally, Forgent is under no obligationto update any of the forward-looking statements after the date of this Form10-Q to conform such statements to actual results.

**RESULTSOF OPERATIONS**

The followingtable sets forth for the periods indicated the percentage of total revenuesrepresented by certain items in Forgent’s Consolidated Statements ofOperations:

|                                          | ** ** | **FOR THE THREE  MONTHS ENDED  APRIL 30,** | ** ** | **FOR THE NINE  MONTHS ENDED  APRIL 30,** | ** ** |
|------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                                       | ** ** | **2006**                                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                     |       |                                                           |       |                                                          |       |   |   |   |   |
| Intellectual property licensing revenues |       | 95                                                             | %          | 75                                                            | %          | 90 | % | 82 | % |
| Software and  services revenues          |       | 5                                                              |       | 25                                                            |       | 10 |   | 18 |   |
| Gross margin                             |       | 49                                                             |       | 46                                                            |       | 52 |   | 44 |   |
| Selling, general and administrative      |       | 19                                                             |       | 101                                                           |       | 29 |   | 73 |   |
| Research and development                 |       | 1                                                              |       | 6                                                             |       | 1 |   | 4 |   |
| Total operating expenses                 |       | 20                                                             |       | 107                                                           |       | 30 |   | 78 |   |
| Other income, net                        |       | 1                                                              |       | 5                                                             |       | 11 |   | 3 |   |
| Net  income (loss)                       |       | 29                                                             | %          | (56                                                           | %)         | 32 | % | (31 | %) |

 

**THREE ANDNINE MONTHS ENDED APRIL 30, 2007 AND 2006**

### **Revenues**

Revenues for the threemonths ended April 30, 2007 were $20.9 million, an increase of $18.4 million,or 727%, from the $2.5 million reported for the three months ended April 30,2006. Revenues for the nine months ended April 30, 2007 were $31.1 million, anincrease of $20.6 million, or 195%, from the $10.5 million reported for thenine months ended April 30, 2006. Consolidated revenues represent the combinedrevenues of the Company and

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its subsidiaries, including royalties andsettlements received from licensing the Company’s intellectual property as wellas sales of Forgent’s NetSimplicity software, installation and training andsoftware maintenance services.

***IntellectualProperty Licensing Business***

Intellectualproperty licensing revenues for the threemonths ended April 30, 2007 were $20.0 million, an increase of $18.1 million,or 958%, from the $1.9 million reported for the three months ended April 30,2006.  Intellectual propertylicensing revenues for the nine monthsended April 30, 2007 were $28.1 million, an increase of $19.5 million, or 227%,from the $8.6 million reported for the nine months ended April 30, 2006.  Intellectual property licensingrevenues as a percentage of total revenueswere 95% and 75% for the three months ended April 30, 2007 and 2006,respectively.  Intellectualproperty licensing revenues as a percentageof total revenues were 90% and 82% for the nine months ended April 30, 2007 and2006, respectively.  Forgent’s licensingrevenues relate primarily to one-time intellectual property license agreementswith companies for Forgent’s technologies embodied in U.S. Patent No. 4,698,672(the “ ‘672 patent”) and its foreign counterparts as well as in U.S. Patent No6,285,746 (the “ ‘746 patent”). Additionally, the ‘672 patent is included in a group of Moving PictureExperts Group (“MPEG”) patents that garner royalties.  Forgent’s licensing revenues includeroyalties received from this MPEG-2 consortium.

Forgent’s intellectualproperty licensing business was in legal proceedings with multiple companies inthe United States District Court for the Eastern District of Texas, TylerDivision (the “ ‘746 Litigation”), regarding the infringement of its U.S.Patent No. 6,285,746 (the “ ‘746 patent”) and in legal proceedings withmultiple other companies in the United States District Court for the NorthernDistrict of California (the “ ‘672 Litigation”), regarding the infringement ofits U.S. Patent No. 4,698,672 (the “ ‘672 patent”).

Effective April26, 2007, Forgent entered into settlement and license agreements with nine ofthe defendants in the ‘746 Litigation, who were dismissed from the ‘746Litigation with prejudice.  Under theseagreements, Forgent granted the defendants a patent license and other benefitsand the defendants agreed to pay the Company a total of $20.0million.  Additionally, all parties agreed to release all claims againsteach other.  The $20.0 million wasrecorded as intellectual property licensing revenue on the ConsolidatedStatement of Operations for the three months ended April 30, 2007.  Effective May 13, 2007, Forgent reached anagreement in principle to settle the ‘746 Litigation with respect to DIRECTV,Inc. (“DIRECTV”).  Pursuant to such agreement in principle, Forgent andDIRECTV have agreed to work in good faith to reach a final definitivesettlement agreement.  The terms of afinal definitive settlement agreement, which have been agreed to in principle,include Forgent’s agreement to grant DIRECTV a patent license, DIRECTV’sagreement to pay the Company $8.0 million and the parties’ agreement to releaseall claims against each other.  TheCompany anticipates it will finalize a definitive settlement and licenseagreement with DIRECTV during the fourth fiscal quarter.  On May 21, 2007, a jury for the United StatesDistrict Court for the Eastern District of Texas, Tyler Division, found thefour asserted claims of the ‘746 patent to be invalid.  This finding was in favor of EchoStarTechnologies Corporation and Echosphere L.L.C., the two remaining defendants inthe ‘746 Litigation.  The Companycontinues to believe in the validity of the ‘746 patent and is currentlyassessing its options.

OnOctober 25, 2006, Forgent signed a Patent License and Settlement Agreement withthe remaining defendants in the ‘672 Litigation.  Under this agreement, Forgent granted the defendants a patent licenseand the defendants paid Forgent $8.0 million. Program to date, theCompany has achieved approximately $121.6 million in aggregate revenuesgenerated from one-time license agreementsrelated to its ‘672 patent. Since a settlement was reached with the remainingdefendants and since the Company is not actively pursuing additional ‘672license agreements, no additional licensing revenues from one-time licenseagreements were generated during the three months ended April 30, 2007.

The one-time license agreements related to the ‘746 patentand the ‘672 patent generated approximately 100% and 99% of the intellectualproperty segment’s licensing revenues for the three and nine months ended April30, 2007, respectively, and approximately 96% and 96% of the intellectualproperty segment’s licensing revenues for the three and nine months ended April30, 2006, respectively.  The otherlicensing revenues generated during the first two fiscal quarters of 2007 andduring fiscal 2006 relate to royalties received from the MPEG-2consortium.  The ‘672 patent expired in October 2006 in the United States; therefore,Forgent will not receive any additional royalties from the consortium.

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***Softwareand Services Business***

Software and services revenues for the three months ended April 30, 2007were $0.9 million, an increase of $0.3 million, or 51%, from the $0.6 millionreported for the three months ended April 30, 2006. Software and servicesrevenues for the nine months ended April 30, 2007 were $2.9 million, anincrease of $1.0 million, or 54%, from the $1.9 million reported for the ninemonths ended April 30, 2006. Software and services revenues as a percentage oftotal revenues were 5% and 25% for the three months ended April 30, 2007and 2006, respectively.  Software andservices revenues as a percentage of total revenues were 10% and 18% for thenine months ended April 30, 2007 and 2006, respectively.  Revenues from this line of business include salesof Forgent’s NetSimplicity scheduling and asset management software, whichincludes Meeting Room Manager (“MRM”),Visual Asset Manager (“VAM”) and Resource Scheduler.  Also included in this segment’s revenues aresoftware maintenance and professional services, such as add-on softwarecustomization, installation and training.

During the three and nine monthsended April 30, 2007, increases in software, hardware and maintenance revenuesaccounted for approximately 78% and 86%, of the total increases in the softwaresegment’s revenues, respectively. Software sales increased by $0.1 million and $0.4 million, for the threeand nine months ended April 30, 2007, respectively, due to (1) growing averagesales price resulting primarily from increased sales to larger enterprisecustomers, (2) improved overall sales performance resulting from an increase inForgent’s sales and marketing teams as well as stronger individual salesachievements and (3) additional sales to existing customers who furtherinvested in their original software purchases. The increase in software sales, as well as the continued pursuit ofmaintenance renewals, led to additional sales of maintenance and supportcontracts, which increased maintenance revenues by $0.1 million and $0.3million during the three and nine months ended April 30, 2007, respectively. Towardsthe end of fiscal year 2006, Forgent partnered with several vendors, whichenabled the Company to resell touch screen and display panel hardware tocomplement its MRM software and barcode scanning hardware devices to complementits VAM software.  Revenues from hardwaresales during the three and nine months ended April 30, 2007 increased by $0.1million and $0.2 million, respectively, since the Company had minimal hardwaresales during the 2006 fiscal periods. Forgent will continue to target North American and internationalcompanies in the education, governmental, healthcare and legal sectors, whichgenerated approximately 61% and 55% of its software revenues during the threeand nine months ended April 30, 2007, respectively.  Forgent is currently exploring opportunitiesto acquire profitable businesses, products or technologies to complement itscurrent software products and services in order to grow the software segmentand become profitable for this segment. As the Company continues to make progress on its sales performance,release new software updates and enhancements, and explore these opportunities,management believes its software and services revenues will continue toincrease.

### **Gross Margin**

Gross margin forthe three months ended April 30, 2007 was $10.2 million, an increase of $9.0million, or 765%, from the $1.2 million reported for the three months endedApril 30, 2006. Gross margin for the nine months ended April 30, 2007 was $16.3million, an increase of $11.7 million, or 253%, from the $4.6 million reportedfor the nine months ended April 30, 2006. Gross margin as a percentage of total revenues were 49% and 46% for the three monthsended April 30, 2007 and 2006, respectively. Gross margin as a percentageof total revenues were 52% and 44% for the nine months ended April 30, 2007 and2006, respectively.

The $9.0 million increase in gross margin for the three months endedApril 30, 2007, as compared to the three months ended April 30, 2006, is dueprimarily to the $8.7 million increase in gross margin resulting from intellectualproperty segment.  Similarly, the $11.7million increase in gross margin for the nine months ended April 30, 2007, ascompared to the nine months ended April 30, 2006, is due primarily to the $10.7million increase in gross margin resulting from intellectual propertysegment.  Because the ‘746Litigation may be wrapping up, the ‘672 Litigation is concluded and the U.S. ‘672patent expired in October 2006, intellectual property licensing revenues willdecline unless alternative sources of revenue are found.  If intellectual property licensing revenuesdecline, total gross margins will be adversely affected.

***Intellectual Property Licensing Business***

Intellectualproperty gross margin forthe three months ended April 30, 2007 was $9.4 million, an increase of $8.7million, or 1,165%, from the $0.7 million reported for the three months endedApril 30, 2006.  Intellectual property gross margin for the nine months ended April 30, 2007 was$14.0 million, an increase of $10.7 million, or 325%, from the $3.3 millionreported for the nine months ended April 30, 2006. Intellectual property gross margin

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as a percentage of total revenues were 47% and 39% for the three monthsended April 30, 2007 and 2006, respectively. Intellectualproperty gross margin as apercentage of total revenues were 50% and 38% for the nine months ended April30, 2007 and 2006, respectively.

The cost of sales fromthe intellectual property segment relates to the legal contingency feesincurred on successfully achieving signed license agreements as well as legalexpenses incurred from legal counsel’s time in connection with licensing andlitigating the Company’s patents. Since the ‘672 Litigation was concludedduring the first fiscal quarter, cost of sales related to legal expensesincurred from legal counsel’s time decreased $0.3 million and $1.4 million forthe three and nine months ended April 30, 2007, respectively, asForgent is not liable for any legal expenses for legal counsel’s time relatedto the ‘746 Litigation.  Additionally,the contingency fees related to the ‘672 Litigation decreased $0.8 million and$0.4 million for the three and nine months ended April 30, 2007,respectively, as a result of the final ‘672 settlement in the first fiscalquarter.  These decreases were offset byan increase of $10.6 million in contingency fees during the three and ninemonths ended April 30, 2007, as Forgent recognized its first licensing revenuesrelated to the ‘746 Litigation during the third fiscal quarter.  The contingency fees related to the ‘746Litigation are management’s current best estimate, based on known and estimatedexpenses related to the licensing revenues from the ‘746 patent.  As these expenses are finalized, the relatedcontingency fees may be adjusted in a future period.

Despite the increase intotal cost of sales from the intellectual property segment, the decrease incontingency fees to Jenkens& Gilchrist during fiscal 2006 and the decrease in legal expenses for legalcounsel’s time during fiscal 2007 led to an increase in intellectual propertylicensing gross margins for the three and nine months ended April 30,2007.  The increase in total intellectualproperty gross margin resulted in Forgent’s gross margins as a percentage ofrevenues from the intellectual property licensing business to increase to 47%and 50% for the three and nine months ended April 30, 2007, respectively, ascompared to 39% and 38% for the three and nine months ended April 30, 2006,respectively.

***Software and Services Business***

Softwareand services gross margin forthe three months ended April 30, 2007 was $0.7 million, an increase of $0.3million, or 80%, from the $0.4 million reported for the three months endedApril 30, 2006.  Software and services gross margin for the nine months ended April 30, 2007 was$2.2 million, an increase of $0.9 million, or 71%, from the $1.3 millionreported for the nine months ended April 30, 2006. Software and services gross margins as a percentage of totalrevenues were 80% and 67% for the three months ended April 30, 2007 and 2006,respectively.  Software and services gross margins as a percentage of totalrevenues were 76% and 69% for the nine months ended April 30, 2007 and 2006,respectively.

The cost of salesassociated with the software segment relates primarily to the amortization ofthe Company’s purchased software development costs, compensation expenses andhardware expenses.  For the three andnine months ended April 30, 2007, these expenses represented 68% and 73% ofcost of sales for the software segment, respectively.  For the three and nine months ended April 30,2006, these expenses represented 91% and 92% of cost of sales for the softwaresegment, respectively.  During the firstfiscal quarter of 2007, the purchased software development costs were fullyamortized, which reduced cost of sales by $0.2 million and $0.4 million for thethree and nine months ended April 30, 2007, respectively.  This reduction was offset by increases incompensation expenses and hardware expenses. As of July 31,2006, the Company formalized a groupdedicated to providing maintenance and support. The compensation expenses and related expenses for this group wereclassified as cost of sales during the three and nine months ended April 30,2007.  Since the group did not existduring the three and nine months ended April 30, 2006, no related expenses wererecorded during the fiscal periods in 2006. Additionally, Forgent incurred increased hardware expenses during thethree and nine months ended April 30, 2007, as compared to the three and ninemonths ended April 30, 2006, since the Company had minimal hardware salesduring fiscal 2006.

The decrease in amortization expenses was offsetby increases in compensation expenses and hardware expenses, which resulted inthe cost of sales for the software segment to remain relatively flat during thethree and nine months ended April 30, 2007. Therefore, the $0.3 million and $1.0 million increases in software andservices revenues for the three and nine months ended April 30, 2007,respectively, directly led to the $0.3 million and $0.9 million increases insoftware and services gross margins, respectively.  As a result, gross margin as a percentage ofrevenues increased to 80% and 76% for the three and nine months ended April 30,2007, respectively, as compared to 67% and 69% for the three and nine monthsended April 30, 2006.  Since the purchased software development

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costswere fully amortized and since Forgentexpects to generate more business from its software segment, management expectscontinued similar gross margin from its software and services business in termsof dollars and percentage of revenue.

**Selling, General andAdministrative**

Selling, generaland administrative (“SG&A”) expenses for the three months ended April 30,2007 were $4.0 million, an increase of $1.4 million, or 55%, from the $2.6million reported for the three months ended April 30, 2006. SG&Aexpenses for the nine months ended April 30, 2007 were $9.0 million, anincrease of $1.3 million, or 17%, from the $7.7 million reported for the ninemonths ended April 30, 2006. SG&A expenses as a percentage of total revenues were 19% and 101% for the three monthsended April 30, 2007 and 2006, respectively.  SG&A expenses as a percentage of total revenues were 29% and73% for the nine months ended April 30, 2007 and 2006, respectively.

During the thirdfiscal quarter, the Company expended significant efforts related to the ‘746Litigation.  As a result of theseefforts, Forgent achieved $20.0 million in intellectual property licensing revenuesduring the three months ended April 30, 2007 and anticipates recording anadditional $8.0 million in intellectual property licensing revenues during thefourth fiscal quarter.  The legal feesand other expenses incurred related to the ‘746 Litigation led to an increaseof $1.2 million and $1.4 million in SG&A expenses for the intellectualproperty segment for the three and nine months ended April 30, 2007,respectively.  These increases represent85% and 109% of the Company’s total SG&A increases for the three and ninemonths ended April 30, 2007, respectively.

With the conclusion ofthe ‘746 trial in May 2007, managementexpects its SG&A expenses to decrease from its current levels during thefourth fiscal quarter.  Forgent willcontinue to make modest investments in its sales and marketing teams, asnecessary, in order to further grow its software and services business.  Forgent will also continue to evaluate and reduce any unnecessarySG&A expenses that do not directly support the generation of revenues forthe Company.

### **Research and Development**

Research anddevelopment (“R&D”) expenses for the three months ended April 30, 2007 were$0.2 million, a decrease of $27 thousand, or 186%, from the $0.2 millionreported for the three months ended April 30, 2006. R&D expenses for thenine months ended April 30, 2007 were $0.4 million, a decrease of $25 thousand,or 6%, from the $0.4 million reported for the nine months ended April 30, 2006.R&D expenses as a percentage of totalrevenues were 1% and 6% for the three months ended April 30, 2007 and 2006,respectively.  R&D expenses as a percentage of total revenues were 1% and 4%for the nine months ended April 30, 2007 and 2006, respectively.

During the thirdfiscal quarter, Forgent finalized its development of MRM 7.5, which includes anAdvanced Services Management feature for its Enterprise edition.  The Advanced Services Management featurereplaces the prior Advanced Catering Module and is able to manage equipment andother meeting service requests beyond only catering.  MRM 7.5, which also includes an improvedOutlook Scheduling interface with new capabilities, was released on May 21,2007.  With the goal of accelerating thedelivery of new features and enhancements by releasing more frequent andfocused software updates, Forgent also implemented a new “agile” softwaredevelopment methodology during the third fiscal quarter. As such, the Companyis dividing the formerly announced VAM 6.0 release into multiple smallerreleases.  The first of these releaseswill be VAM 5.7 and MRM 5.7.1, both of which include minor enhancementupdates.  Forgent expects both to bereleased by the end of the fourth fiscal quarter.  Managementwill attempt to maintain R&D expenses at reasonable levels in terms ofpercentage of revenue and anticipates R&D expenses to remain relativelyflat during the next fiscal quarter.

### **Other Income and Expenses**

Other income andexpenses for the three months ended April 30, 2007 were $0.2 million, anincrease of $0.1 million, or 53%, from the $0.1 million reported for the threemonths ended April 30, 2006. Other income and expenses for the ninemonths ended April 30, 2007 were $3.4 million, an increase of $3.1million, or 1,032%, from the $0.3 million reported for the nine months endedApril 30, 2006. Other income and expenses asa percentage of total revenues were 1% and 5% for the three months ended April 30, 2007and 2006, respectively.  Otherincome and expenses as a percentage oftotal revenues were 11% and 3% for the nine months ended April 30, 2007and 2006, respectively.

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The $3.1 million increase for the nine months endedApril 30, 2007 resulted from the sale of assets during the second fiscalquarter of 2007.  In November 2006,Forgent sold certain patents and applications associated with videoconferencingand related fields and technology, together with related goodwill, rights anddocumentation, to Tandberg Telecom AS for $3.2 million.  Upon closing,Forgent received $2.9 million of the purchase price, all of which was recordedas a gain on sale of assets.  Theremaining balance of $0.3 million will be held in escrow for two years forindemnity claims.  Following this sale, Forgent continued to maintainseveral active patents and patent applications, including the ‘746 patent.

**NetIncome (Loss)**

Forgentgenerated net income of $6.0 million, or $0.23 per share, during the threemonths ended April 30, 2007 compared to a net loss of $1.4 million, or $0.06per share, during the three months ended April 30, 2006. Forgent generated netincome of $10.1 million, or $0.39 per share, during the nine months ended April30, 2007 compared to a net loss of $3.3 million, or $0.13 per share, during thenine months ended April 30, 2006. Net income (loss) as a percentage of totalrevenues were 29% and (56%) for the three months ended April 30, 2007 and 2006,respectively. Net income (loss) as a percentage of total revenues were 32% and(31%) for the nine months ended April 30, 2007 and 2006, respectively. The $7.5million increase in the Company’s net income during the three months endedApril 30, 2007, as compared to the three months ended April 30, 2006, isprimarily attributable to the $8.7 million increase in gross margin from theintellectual property segment, which is offset by the $1.4 million increase inSG&A expenses.  The $13.4 millionincrease in the Company’s net income during the nine months ended April 30,2007, as compared to the nine months ended April 30, 2006, is primarilyattributable to the $10.7 million increase in gross margin from the intellectualproperty segment and the $2.9 million gain from the sale of assets, which areoffset by the $1.3 million increase in SG&A expenses.

**LIQUIDITYAND CAPITAL RESOURCES**
|                                                    | ** ** | **FOR THE NINE** | ** ** |
|----------------------------------------------------|------------|----------------------------|------------|
| ** **                                         | ** ** | **MONTHS ENDED**      | ** ** |
| ** **                                         | ** ** | **APRIL 30,**         | ** ** |
| ** **                                         | ** ** | **2007**                   | ** ** | **2006** | ** ** |
| ** **                                         | ** ** | **(in thousands)**    | ** ** |
|                                               | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Working capital                                    |       | $                          | 20,951     |   | $ | 11,225 |   |
| Cash, cash  equivalents and short-term investments |       | 26,147                     |       | 14,610 |   |
| Cash provided by  (used in) operating activities   |       | 10,854                     |       | (2,940 | ) |
| Cash (used in)  provided by investing activities   |       | (1,978                     | )          | 1,449 |   |
| Cash (used in) provided  by financing activities   |       | (457                       | )          | 240 |   |
|                                                    |            |                            |            |  |  |  |  |

 

Cash provided byoperating activities was $10.9 million for the nine months ended April 30, 2007due primarily to the $10.1 million in net income and a $9.1 million increase inaccounts payables, which were offset by a $10.1 million increase in accountsreceivables. Cash used in operating activities was $2.9 million for the ninemonths ended April 30, 2006 due primarily to a $3.3 million net loss, which wasoffset by $0.5 million in non-cash depreciation and amortization expenses.During the nine months ended April 30, 2007, Forgent collected $28.0 million incash receipts from its intellectual property licensing business.  Management plans to utilize these cashreceipts to pay its legal counsel for services rendered and to support thegrowth of its software operations, organically as well as inorganically.  Forgent’s average days sales outstanding was46 for the third fiscal quarter, a decrease of 15 days from the 61 daysreported for the second fiscal quarter.

Cash used ininvesting activities was $2.0 million for the nine months ended April 30, 2007due primarily to $1.5 million in net purchases of short-term investments.  Cash provided by investing activities was$1.4 million for the nine months ended April 30, 2006 due primarily to $1.5million in net sales/maturities of short-term investments. Forgent manages itsinvestments portfolio in order to fulfill corporate liquidity requirements andmaximize investment returns while preserving the quality of the portfolio.  As the Company’s cash balances have grownduring fiscal 2007, Forgent has shifted its investment portfolio to investmentswith slightly longer maturities in order to capitalize on the increases ininterest rates.  These investmentsachieved a 64% increase in interest income during the nine months ended April30, 2007, as compared to the nine months ended April 30, 2006.  During

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the third fiscal quarter,Forgent made a one-time purchase for software related to the barcode scannersutilized with its VAM software.  Thispurchase and payments for leasehold improvements, primarily for new subtenantsand subtenant expansions, account for approximately 88% of Forgent’s purchasedfixed assets during the nine months ended April 30, 2007.  Management does not anticipate anysignificant purchases of fixed assets during the fourth fiscal quarter.

The Company leases office space and equipment under non-cancelableoperating leases that expire at various dates through 2013. Certain leasesobligate Forgent to pay property taxes, maintenance and insurance and includeescalation clauses.  The total amount of base rentals over the termof the Company’s leases is charged to expense on a straight-line basis, withthe amount of the rental expense in excess of the lease payments recorded as adeferred rent liability.  During the second fiscal quarter of 2007,Forgent fully repaid its loans from Silicon Valley Bank.  As of April 30, 2007, Forgent had $1.0million available in notes payable from Silicon Valley Bank.  Additional notes payable obtained from Silicon Valley Bank would bearinterest at prime plus 0.75% and require monthly installments over a three yearterm.  Forgent may periodically makeother commitments and thus become subject to other contractualobligations.   Forgent’s future minimumlease payments under all operating and capital leases as of April 30, 2007are as follows:
| ** **                   | ** ** | **Payments Due By Period** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| ** **                   | ** ** | **(in thousands)**                   | ** ** |
| ** **                   | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1 - 3 years** | ** ** | **3- 5 years** | ** ** | **More than**

**5 years** | ** ** |
|                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating lease  obligations |       | $                                         | 20,229     |   | $ | 3,517 |   | $ | 6,943 |   | $ | 6,836 |   | $ | 2,933 |   |
| Capital lease  obligations   |       | 2                                         |       | 2 |   | —- |   | — |   | — |   |
| **Total**                    | ** ** | **$**                                     | **20,231** | ** ** | **$** | **3,519** | ** ** | **$** | **6,943** | ** ** | **$** | **6,836** | ** ** | **$** | **2,933** | ** ** |

 

Approximately 99% of the Company’s operating leaseobligations relates to its corporate office location at 108 Wild Basin Road inAustin, Texas.  As of April 30, 2007,Forgent had $4.7 million in future minimum lease payments receivable undernon-cancelable sublease arrangements. Additionally, Forgent had a $0.9 million liability related to impairmentcharges for the economic value of the lost sublease rental income related toits Austin property.

Cashused in financing activities was $0.5 million for the nine months ended April30, 2007 due primarily to the repayment of Forgent’s outstanding notespayable.  Cash provided by financingactivities was $0.2 million for the nine months ended April 30, 2006 dueprimarily to $0.2 million in proceeds received from the issuance of stock.  Forgent’s stock repurchase program allows the Company to purchase up tothree million shares of the Company’s common stock. No shares were repurchasedduring the nine months ended April 30, 2007 or 2006.  As of April 30, 2007, Forgent had repurchased1,790,401 shares for approximately $4.8 million and had the approval torepurchase approximately 1.2 million additional shares.  During the fourth fiscal quarter, managementwill repurchase additional shares, depending on the Company’s cash position,market conditions and other factors.

As of April 30, 2007, Forgent’s principal source of liquidity consistedof $26.1 million in cash, cash equivalents, short-term investments and itsability to generate cash from its intellectual property licensingbusiness.  Management currently plans toutilize its cash balances to grow its software operations internally by makingadditional prudent investments, explore potential opportunities in acquiring agrowing and profitable public or privately held technology business or productline and buy back shares.  Forgent’s ability to generate cash from itsintellectual property licensing business is subject to certain risks asdiscussed under “Risk Factors.” There is no assurance that the Company will beable to limit its cash consumption and preserve its cash balances, and it ispossible that the Company’s future business demands may lead to cashutilization at levels greater than recently experienced due to potentialacquisitions. Management believes that the Company has sufficient capital andliquidity to fund and cultivate growth of its current operations.

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#### **CRITICAL ACCOUNTING POLICIES**

TheCompany’s condensed consolidated financial statements have been prepared inaccordance with U.S. generally accepted accounting principles and include theaccounts of Forgent’s wholly owned subsidiaries. All significant intercompanytransactions and balances have been eliminated in the consolidation.Preparation of the condensed consolidated financial statements in conformitywith U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of the assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. The more significant estimates made by managementinclude the valuation allowance for the gross deferred tax asset, contingencyreserves, useful lives of fixed assets and the determination of the fair valueof its long-lived assets. These estimates could be materially different underdifferent conditions and assumptions. Additionally, the actual amounts could differ from the estimates made.Management periodically evaluates estimates used in the preparation of thefinancial statements for continued reasonableness. Appropriate adjustments, ifany, to the estimates used are made prospectively based upon such periodicevaluation.

Managementbelieves the following represent Forgent’s critical accounting policies:

**Revenue Recognition**

The Companyrecognizes revenue when persuasive evidence of an arrangement exists, deliveryhas occurred, the fee is fixed or determinable and collectibility isprobable.   The Company recognizessoftware revenue in accordance with Statement of Position (“SOP”) 97-2, *“Software Revenue Recognition,”*as amendedby SOP 98-4, “*Deferral of the Effective Date of a Provision of SOP 97-2,”*and SOP 98-9, “*Modification of SOP 97-2 With Respect to CertainTransactions,”* Securities and Exchange CommissionStaff Accounting Bulletin 104, *“RevenueRecognition”*and Emerging Issues Task Force Issue No. 00-21, *“Revenue Arrangements with Multiple Deliverables.”*

Intellectualproperty licensing revenue is derived from the Company’s Patent LicensingProgram, which has generated licensing revenues relating to the Company’s technologies embodied in the ‘672patent and the ‘746 patent.  Grossintellectual property licensing revenue is recognized at the time a licenseagreement has been executed and collection has been deemed probable.  Related costs are recorded as cost ofsales.  The cost of sales on theintellectual property licensing business relates to contingent legalfees incurred on successfully achieving signed agreements, as well as legalfees incurred based upon legal counsel’s time.

Softwareand service revenue consists of software license and service fees.  Revenue from the software element is earnedthrough the licensing or right to use the Company’s software and from the saleof specific software products.  Servicefee income is earned through the sale of maintenance and technical support,training and installation. Forgent sells multiple elements within a singlesale.  The Company allocates the totalfee to the various elements based on the relative fair values of the elementsspecific to the Company.  The Companydetermines the fair value of each element in the arrangement based onvendor-specific objective evidence (“VSOE”) of fair value.  VSOE of fair value for the software,maintenance, and training and installation services are based on the pricescharged for the software, maintenance and services when sold separately.  Revenue allocated to maintenance andtechnical support is recognized ratably over the maintenance term (typicallyone year).  Revenue allocated toinstallation and training is recognized upon completion of these services.  The Company’s training and installationservices are not essential to the functionality of its products as suchservices can be provided by a third party or the customers themselves.  For instances in which VSOE cannot bedetermined for undelivered elements, and these undelivered elements do notprovide significant customization or modification of its software product,Forgent recognizes the entire contract amount ratably over the period during whichthe services are expected to be performed.

TheCompany does not recognize revenue for agreements with rights of return,refundable fees, cancellation rights or acceptance clauses until such rights ofreturn, refund or cancellation have expired or acceptance has occurred.  The Company’s arrangements with resellers donot allow for any rights of return.

Deferred revenueincludes amounts received from customers in excess of revenue recognized, andis comprised of deferred maintenance, service and other revenue.  Deferred revenues are recognized in theCondensed Consolidated Statements of Operations when the service is completedand over the terms of the arrangements, primarily ranging from one to threeyears.

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**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

TheCompany’s primary market risk exposure relates to interest rate risk. Forgent’sinterest income is sensitive to changes in U.S. interest rates.  However, due to the short-term nature of theCompany’s investments, Forgent does not consider these risks to besignificant.  For additional Quantitativeand Qualitative Disclosures about Market Risk, reference is made to Part II,Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in theCompany’s Annual Report on Form 10-K/A for the year ended July 31, 2006.

**ITEM 4.CONTROLS AND PROCEDURES**

Management established and is responsible formaintaining internal control over the Company’s financial reporting.  Under the supervision and with theparticipation of the Company’s Chief Executive Officer and Chief FinancialOfficer, management of the Company has evaluated the effectiveness of theCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) andRule 15d-15 under the Securities Exchange Act of 1934) as of a date within90 days prior to the filing date of this report. Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that, as of thedate of the evaluation, the Company’s disclosure controls and procedures areeffective in timely alerting them to the material information relating to theCompany required to be included in its periodic filings with the Securities andExchange Commission.  No changes weremade in the Company’s internal controls over financial reporting during thequarter ended April 30, 2007, that have materially affected, or is reasonablylikely to materially affect, the Company’s internal controls over financialreporting.

**PART II —OTHER INFORMATION**

**ITEM 1.LEGAL PROCEEDINGS**

Forgentis the defendant or plaintiff in various actions that arose in the normalcourse of business. Withthe exception of the proceedings described below, none of the pending legalproceedings to which the Company is a party are material to the Company.

###### **Litigationof United States Patent No. 6,285,746**

InJuly 2005, Forgent initiated litigation against 15 companies for infringementof the United States Patent No. 6,285,746 (the “ ‘746 patent”) in the UnitedStates District Court for the Eastern District of Texas, Marshall Division (the“ ‘746 Litigation”), seeking injunctive relief against sales of infringingproducts and monetary damages, among other relief sought.  Since the initial ‘746 Litigation, Forgenthas dismissed six defendants and three other defendants have been added.  The ‘746 Litigation was moved to the UnitedStates District Court for the Eastern District of Texas, Tyler Division.

Effective April26, 2007, Forgent entered into settlement and license agreements with nine ofthe defendants: Cable One, Inc.; Charter Communications, Inc.; ComcastCorporation; Comcast STB Software DVR, LLC; Coxcom, Inc.; Digeo, Inc.;Motorola, Inc.; Scientific-Atlanta, Inc.; and Time Warner Cable,Inc.  These defendants were dismissed from the ‘746 Litigation withprejudice.  Under the agreements, Forgentgranted the defendants a patent license and other benefits and the defendantsagreed to pay the Company a total of $20.0 million.  Additionally,all parties agreed to release all claims against each other.

Effective May 13, 2007,Forgent reached an agreement in principle to settle the ‘746 Litigation withrespect to one of the remaining defendants: DIRECTV, Inc. (“DIRECTV”). Pursuant to such agreement in principle, Forgent and DIRECTV have agreed to workin good faith to reach a final definitive settlement agreement.  The termsof a final definitive settlement agreement, which have been agreed to inprinciple, include Forgent’s agreement to grant DIRECTV a patent license,DIRECTV’s agreement to pay the Company $8.0 million, and the parties’ agreementto release all claims against each other. The Company anticipates it will finalize a definitive settlement andlicense agreement with DIRECTV during the fourth fiscal quarter.

On May 16, 2007, TiVo Inc. (“TiVo”) filed a complaint for declaratory judgment in the United States District Court for the Northern District of California against Forgent relating to the ‘746 patent.  TiVo is seeking

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declarations of equitable estoppel and patent noninfringement and invalidity, among other relief sought.  Forgent is currently reviewing its options to resolve this matter.

OnMay 21, 2007, a jury for the United States District Court for theEastern District of Texas, Tyler Division, found the four asserted claims ofthe ‘746 patent to be invalid.  Thisfinding was in favor of EchoStarTechnologies Corporation and Echosphere L.L.C., the two remaining defendants inthe ‘746 Litigation.  The Companycontinues to believe in the validity of the ‘746 patent and is currently assessingits options.

**Re-examinationof United States Patent No. 6,285,746**

On October 2, 2006, theUnited States Patent and Trademark Office (the “USPTO”) ordered an **inter partes** re-examinationof the ‘746 patent and issued its first office action related to thisre-examination on October 30, 2006.  Thisfirst action, which is not the final conclusion of the re-examination, rejectedthe five claims in the ‘746 patent. Forgent responded to the USPTO and anticipates working to vigorouslydefend all of the claims of the ‘746 patent.** **If the Company is unsuccessful indefending its patent’s claims with the USPTO examiner, Forgent could pursue theappeal process within the USPTO and within the federal court system, ifnecessary.  The USPTO has not issued anyadditional office actions related to this re-examination.

##### **Litigationof United States Patent Nos. 5,720,023 and 6,295,527**

On February 14,2007, Cisco Systems, Inc. and Cisco Technology, Inc. (collectively “Cisco”)initiated litigation in the United States District Court for the WesternDistrict of Wisconsin against Forgent for alleged infringement of United StatesPatent Nos. 5,720,023 and 6,295,527.  Cisco sought injunctive relief against salesof Forgent’s Virtual Asset Manager software product and monetary damages, amongother relief sought.  On April 30, 2007,Cisco dismissed its claims with prejudice and Forgent likewise dismissed itscounterclaims.

**Litigationof United States Patent No. 4,698,672**

BetweenApril 2004 and November 2004, Forgent’s wholly-owned subsidiary, CompressionLabs, Incorporated (“CLI”), initiated litigation against multiple companies forinfringement of the ‘672 patent in the United States District Court for theEastern District of Texas, Marshall Division, seeking royalties from sales ofinfringing products and monetary damages, among other relief sought.  Prior to fiscal year 2007, Forgent settledwith defendants Adobe Systems, Inc.; Apple Computer, Incorporated; AudioVoxCorporation; Axis Communications, Incorporated; BenQ America Corporation; ColorDreams, Inc.; JASC Software; Google Inc.; Macromedia, Inc.; ScanSoft, Inc.; Oce’North America, Incorporated; Onkyo Corporation; Riverdeep, Incorporated; XeroxCorporation and Yahoo! Inc.  On October25, 2006, Forgent signed a Patent License and Settlement Agreement with theremaining defendants.  Under thisagreement, Forgent granted the defendants a patent license and the defendantspaid Forgent $8.0 million.  Additionally,all parties agreed to release all claims against each other.

**Re-examinationof United States Patent No. 4,698,672**

In January 2006, theUSPTO granted a petition to re-examine the ‘672 patent and subsequently issuedits first office action on May 25, 2006. Forgent responded to this first office action, which confirmed 27 of the46 claims in the ‘672 patent.  On March26, 2007, the USPTO issued its final office action, which affirmed its firstoffice action.  Forgent responded to theUSPTO on May 11, 2007 and is currently waiting for the USPTO’s reply.

##### **ITEM1A. RISK FACTORS**

Thereare many factors that affect Forgent’s business, prospects, liquidity and theresults of operations, some of which are beyond the control of the Company. Thefollowing is a discussion of important risk factors that may cause the actualresults of the Company’s operations in future periods to differ materially fromthose currently expected or desired. Additional risks not presently known tomanagement or risks that are currently believed to be immaterial, but which maybecome material, may also affect the Company’s business, prospects, liquidityand results of operations.

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#### **INTELLECTUAL PROPERTY LICENSING BUSINESS**

**If the Company is unable toobtain new license agreements, operating results will decline.**

The Company’s PatentLicensing Program involves risks inherent in licensing intellectual property,including risks of protracted delays, legal or regulatory challenges that wouldlead to disruption or curtailment of the program, increasing expendituresassociated with the pursuit of the program and other risks. Failure to sign newlicense agreements would cause operating results to suffer.  There can be no assurance that the Companywill be able to continue to license its technology to others.  Additionally, quarterly operating results mayfail to meet expectations for a number of reasons, including a decline in thedemand for the Company’s patented technology, higher than expected operatingexpenses and license delays due to legal and other factors.

**Forgent’s litigation is dependent on highly competent,experienced and qualified legal counsel. If the Company changes its legalcounsel, the Company’s operating results and financial condition could suffer.**

Forgent’s litigation involves intensive legal due diligence andnegotiations.  In the past, the Companychanged its legal counsel, which cost the Company in terms of time andmoney.  The Company may stillencounter a number of risks associated with its current legal counsel,including but not limited to (1) turnover of individual attorneys working onthe Company’s Patent Licensing Program; (2) availability of key attorneysworking on the program; (3) financial and other resources available to legalcounsel; and (4) the financial strength of legal counsel.  Theserisks may cause delays in Forgent’s ability to pursue licensing agreements andsettlements, which could require significant additional legal expenditures andcould result in declining revenues and earnings for the Company.

**TheFederal Trade Commission is conducting a non-public inquiry into the Company’sPatent Licensing Program, as it relates to the ‘672 patent.  Any negative results from the inquiry couldadversely affect the Company.**

In December 2003, the Company received notification from the FederalTrade Commission (the “FTC”) that it is conducting a non-public investigationto determine whether the Company may have engaged in violation of the FederalTrade Commission Act by reason of the alleged involvement of CLI in the JPEGstandard-setting process during the 1980’s and very early 1990’s and itssubsequent licensing of the ‘672 patent. The Company responded to the FTC’s subpoena and the civilinvestigative demand in 2005.  Forgenthas not received any final conclusion from the FTC on its inquiries.  Ifthe FTC proceeds with its inquiry and thereafter determines that the Companyacted improperly, further proceedings before the FTC could ensue.

#### **SOFTWARE & SERVICES BUSINESS**

**Claims of intellectual property infringement by third partiesmay adversely affect Forgent’s business.**

On February 14, 2007,Cisco Systems, Inc. and Cisco Technology, Inc. (collectively “Cisco”) initiatedlitigation in the United States District Court for the Western District ofWisconsin against Forgent for alleged infringement of United Statements Patent Nos. 5,720,023and 6,295,527.  Cisco sought injunctiverelief against sales of Forgent’s Virtual Asset Manager software product andmonetary damages, among other relief sought. On April 30, 2007, Cisco dismissed its claims with prejudice and Forgentlikewise dismissed its counterclaims.

However, Forgent may become subjected to other claims ofintellectual property infringement by third parties as the number ofcompetitors and available software products continues to grow and thefunctionality of such products increasingly overlap. Any infringement claims,with or without merit, could be time-consuming, result in costly litigation,divert management’s attention and financial resources, cause the loss ordeferral of sales or require Forgent to enter into royalty or license agreements.In the event of a successful claim of intellectual property infringementagainst Forgent, the Company’s business, operating results and financialcondition could be materially adversely affected, if Forgent is unable toeither license the technology or similar technology or develop alternativetechnology on a timely basis. If Forgent is able to license the technology,such royalty or license agreements may not be available on terms acceptable tothe Company.

**If Forgent is unable tosuccessfully market and sell its software products and services, futuresoftware revenues will decline.**

The future successof the Company’s software segment is dependent in significant part on itsability to generate demand for its NetSimplicity software products and services.To this end, Forgent’s marketing and sales operations must increase marketawareness of its products and services to generate increased revenue. All salesnew hires will require training and may take time to achieve full productivity.Forgent cannot be certain that its new hires

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will become as productiveas necessary or that it will be able to hire enough qualified individuals orretain existing employees in the future. The Company cannot be certain that itwill be successful in its efforts to market and sell its products andservices.  If it is not successful inbuilding greater market awareness and generating increased sales, futuresoftware revenues may decline.

**Lack ofnew customers or additional sales from current customers could negatively affectthe Company’s ability to grow revenues.**

Forgent’s businessmodel depends on the expanded use of its software and Forgent must execute onits growth objectives.  If the Companyfails to grow its customer base or generate repeat and expanded business fromits current customers, Forgent’s software revenues could be adverselyaffected.  Since the Company’smaintenance and other service fees depend largely on the size and number oflicenses that are sold, any downturn in Forgent’s software license revenue wouldnegatively impact the Company’s deployment services revenue and futuremaintenance revenue. Additionally, if customers elect not to renew theirmaintenance agreements, Forgent’s maintenance revenue could be adverselyaffected.

**Increased competition may have anadverse effect on the Company’s profitability.**

The Company mayencounter new entrants or competition from competitors in some or all aspectsof its software business. The Company currently competes on the basis of price,technology, availability, performance, quality, reliability, service andsupport. There can be no assurance that the Company will be able to maintain acompetitive advantage with respect to any of these factors. Many of Forgent’scurrent and possibly future competitors have greater resources than the Companyand, therefore, may be able to compete more effectively on price and otherterms.

**Open source software may increasecompetition, resulting in decreases in Forgent’s prices of its softwareproducts.**

Manydifferent formal and informal groups of software developers and individualshave created a wide variety of software and have made that software availablefor use, distribution and modification, often free of charge. Such open sourcesoftware has been gaining in popularity among business users, particularlysmall to medium sized businesses, which are some of Forgent’s targetedcustomers. Although management is currently unaware of any competing opensource software, if developers make scheduling or asset management softwareapplications available to the open source community, and that software hascompetitive features, Forgent may need to change its pricing and distributionstrategy in order to compete.

**Forgent’ssoftware products’ functionality may be impaired if third-party hardwareproducts associated with the NetSimplicity software do not operatesuccessfully.**

Inaddition to its software products, Forgent currently sells hardware frompartnered vendors to its customers.  Theeffective implementation of Forgent’s software products depends upon thesuccessful operation of these third-party hardware products. Any undetecteddefects in these third-party products could prevent the implementation of orimpair the functionality of Forgent’s software or blemish the Company’sreputation.

**IfForgent fails to introduce new versions and releases of functional and scalablesoftware products in a cost-effective and timely manner, customers may licensecompeting products and Forgent’s revenues will decline.**

The technologyindustry is characterized by continuing improvements in technology, resultingin the frequent introduction of new products, short product life cycles,changes in customer needs and continual improvement in product performancecharacteristics.  Forgent expects thatits future financial performance will depend, in part, on revenue generatedfrom its existing and future software products and the related products thatthe Company plans to develop and/or acquire. To be successful, Forgent must becost-effective and timely in enhancing its existing software applications,developing new software technology and solutions that address the increasinglysophisticated and varied needs of its existing and prospective clients, andanticipating technological advances and evolving industry standards andpractices.

Forgentspends a large portion of its research and development resources on productupgrades and may need to invest further in research and development in order tokeep its software applications and solutions viable in the rapidly changingmarketplace. This research and development effort, which may requiresignificant resources, could ultimately be unsuccessful if Forgent does notachieve market acceptance for its new products or enhancements.  Additionally, if the Company fails to anticipateand respond effectively to technological improvements or if Forgent’scompetitors release new products that are superior to Forgent’s products in

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performance and/or price, demand for the Company’s software productsmay decline and Forgent may lose sales and fail to achieve anticipatedrevenues.

**Errorsor defects in Forgent’s software could reduce demand for its software andresult in decreased revenues, decreased market acceptance and injury to theCompany’s reputation.**

Errors or defectsin the Company’s software, sometimes called “bugs,” may be found fromtime-to-time, particularly when new versions or enhancements are released. Anysignificant software errors or defects may result in loss of sales, decreasedrevenues, delay in market acceptance and injury to the Company’s reputation.Despite extensive product testing during development, new versions orenhancements of Forgent’s software may still have errors after commencement ofcommercial shipments.  Forgent correctsthe “bugs” and delivers the corrections in subsequent maintenance releases andpatches.  However, errors or defectscould put Forgent at a competitive disadvantage and can be costly andtime-consuming to correct.

**IfForgent is unable to develop or maintain strategic relationships with itsresellers and vendor partners who market and sell the Company’s products,software revenues may decline.**

Forgentsupplements its direct sales force by contracting with resellers to generateinternational sales and vendor partners to help increase sales.  Currently, resellers generate a relativelysmall portion of Forgent’s software sales. Therefore, Forgent’s software revenue growth will depend, in part, onadding new resellers and partners to expand its sales channels, as well asleveraging the relationships with existing resellers and partners. If theCompany is unable to enter into successful new strategic relationships in thefuture or if the Company’s current relationships with its resellers andpartners deteriorate or terminate, Forgent may lose sales and software revenuesmay decline.

#### **OTHER**

**Historically, the Company has notbeen profitable and Forgent may continue to incur losses, which may result indecreases in revenues if customers raise viability concerns.**

Although Forgent generated net income for the nine months ended April30, 2007, the Company incurred losses during the prior fiscal quarters.  As of April 30, 2007, Forgent had anaccumulated deficit of $240.7 million and Forgent may incur additional lossesin the future.  Continued losses may causeexisting and new customers to question the Company’s viability and be reluctantto purchase from the Company.  If Forgentis unable to increase its sales due to such concerns, revenues will decline,which would further adversely affect the Company’s operating results.Therefore, there are no assurances that the Company can achieve or generatesufficient revenues to continue its current profitability.

**Forgent may not be able toprotect or enforce its intellectual property rights which could cause the Company’sability to license its technologies to be impaired.**

The Company’ssuccess and ability to compete are substantially dependent on its proprietarytechnology and trademarks. The Company seeks to protect these assets through acombination of patent and trademark laws as well as confidentiality proceduresand contractual provisions. These legal protections afford only limitedprotection and enforcement of these rights may be time consuming and expensive.If Forgent cannot protect or enforce these rights, the Company’s ability toobtain future licenses could be impaired. Furthermore, despite best efforts, the Company may be unable to preventthird parties from infringing upon or misappropriating its intellectualproperty. Competitors may also independently develop similar, but notinfringing, technology, duplicate products or design around the Company’spatents or other intellectual property. Additionally, the Company’s patent applications or trademarkregistrations may not be approved. Moreover, even if approved, the resultingpatents or trademarks may not provide Forgent with any competitive advantage ormay be challenged by third parties. If challenged, patents might not be upheldor claims could be narrowed. Any litigation surrounding the Company’s rightswould force Forgent to divert important financial and other resources away frombusiness operations.

Although Forgent isunable to determine the extent to which piracy of its software products occurs,management believes software piracy could be a problem.  Since Forgent has international resellers andcustomers, piracy may occur in foreign countries where laws do not protectproprietary rights to the same extent as the laws in the United States.

**Forgentmay face problems in connection with future acquisitions, which could createbusiness difficulties and adversely affect operations.**

As part of Forgent’sbusiness strategy, Forgent may acquire additional businesses, products andtechnologies that could complement or expand its ongoing business.  However, Forgent may be unable to identify

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suitable acquisitions orinvestment candidates. Even if Forgent identifies suitable candidates, thereare no assurances that the Company will be able to make the acquisitions orinvestments on favorable terms. Negotiations of potential acquisitions coulddivert management time and resources and the Company may incorrectly judge thevalue or worth of an acquired business, product or technology. Additionally,Forgent may incur significant debt or be required to issue equity securities topay for such future acquisitions or investments.

If Forgentacquires a company, Forgent may have difficulties integrating the products,services, technologies, personnel and operations into the Company’s ongoingbusiness. These difficulties could disrupt Forgent’s ongoing business, distractmanagement and the workforce, increase expenses and adversely affect operatingresults.  If Forgent is unable to fullyintegrate acquired businesses, products or technologies with its existingoperations, Forgent may not achieve the intended benefits of such acquisitionsand related expenditures.

**If Forgent elects to raiseadditional capital, funds may not be available or if available, may not be onfavorable terms to the Company.**

In the future,Forgent may elect to raise additional capital to fund its operations and/oracquisitions. However, Forgent cannot be certain that it will be able to obtainadditional financing on favorable terms, if at all.  If Forgent takes out additional loans, theCompany may incur significant interest expense, which could adversely affectresults of operations.  If Forgent issuesequity securities, its stockholders’ percentage of ownership would be reducedand the new equity securities may have rights, preferences or privileges seniorto those existing stockholders of the Company’s common stock.  If Forgent is unable to raise funds onacceptable terms, Forgent may not be able to acquire additional businesses,products or technologies, develop or enhance its existing products, respond tocompetitive pressures or unanticipated requirements, or take advantage offuture opportunities, all of which could adversely affect Forgent’s business,operating results and financial condition.

**Forgentmay experience significant fluctuations in its quarterly results and if theCompany’s future results are below expectations, the price for the Company’scommon stock may decline.**

Inthe past, Forgent’s revenues and operating results have varied significantlyfrom quarter to quarter.  Additionally,management expects that revenues and operating results may continue tofluctuate significantly from quarter to quarter.  These fluctuations may lead to reduced pricesfor the Company’s common stock.  Severalfactors may cause the quarterly results to fluctuate, including:

·      timing of intellectual property licenseagreements and related recording of licensing revenues;

·      resolution of the FTC’s non-publicinvestigation;

·      timing and costs related to the Company’s ‘746Litigation;

·      market demand for NetSimplicity’s softwareproducts and services;

·      timing of customers’ budget cycles;

·      timing of customer orders and deployment ofNetSimplicity’s software products and services;

·      the mix of software license and servicesrevenues;

·      timing ofintroducing new products and services or enhancements to existing products andservices;

·      new productreleases or pricing policies by Forgent’s competitors;

·      seasonal fluctuations in capital spending;

·      changes in the rapidly evolving market forweb-based applications;

·      management’s ability to manage operatingcosts, a large portion of which are relatively fixed in advance of anyparticular quarter;

·      timing and costs related to possibleacquisitions of businesses, products or technologies;

·      costs of attracting, retaining and trainingskilled personnel;

·      management’s ability to manage future growth;

·      changes in U.S.generally accepted accounting principles; and

·      general economic climate.

Some of these factors are within management’scontrol while others are not.  Accordingly,management believes that quarter-to-quarter comparisons of the Company’srevenues and operating results are not necessarily meaningful and that marketanalysts and investors should not rely on the results of any particular quarteras an indication of future performance.

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**The loss of key management andpersonnel could hinder the development of Forgent’s technology and otherwiseadversely affect the Company’s business.**

Forgent relies on thecontinued contributions of its senior management, sales and marketing,professional services and finance personnel. Forgent’s success depends upon itsability to attract, hire and retainhighly qualified and experienced personnel, especially softwaredevelopers and engineers who design and develop software applications in order to keep pace with client demand forrapidly evolving technologies and varying client needs.  The Company’s operations are also dependenton the continued efforts of its executive officers and senior management andForgent will likely depend on the senior management of any business it mayacquire in the future.  If any of theCompany’s key personnel or senior management are unable or unwilling tocontinue in his or her present role, or if Forgent is unable to attract,train, retain and manage its employees effectively,Forgent could encounterdifficulties in developing new products and product enhancements,generating revenue through increased sales efforts and providing high qualitycustomer service.

**Forgentexecuted a new shareholders rights plan that could make it difficult foranother company to acquire control of the Company.**

In December 2005,Forgent’s Board of Directors approved and executed a shareholder rights plan (“RightsPlan”) whereby one preferred share purchase right was distributed for eachoutstanding share of Forgent’s common stock for all stockholders of record onDecember 31, 2005.  The Rights Plan,which was not adopted in response to any threat to the Company, was designed toguard against any proposed takeover, partial tender offers, open marketaccumulations and other tactics designed to gain control of the Company. Underthe new plan, the rights become exercisable if a person or group thereafteracquires 15% or more of Forgent’s common stock or announces a tender offer for15% or more of Forgent’s common stock. Such events, or if the Company isacquired in a merger or other business combination transaction after a personor group acquires 15% or more of its common stock, would entitle the rightholder to purchase, at an exercise price of $13.00, a number of shares ofcommon stock having a market value at that time of twice the right’s exerciseprice. The Rights Plan may have the effect of discouraging, delaying orpreventing unsolicited acquisition proposals, but there are no assurances achange of control will not occur.

Dueto the risk factors noted above and elsewhere in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations of the Company,”Forgent’s past earnings and stock price have been, and future earnings andstock price potentially may be, subject to significant volatility, particularlyon a quarterly basis. Past financial performance should not be considered areliable indicator of future performance and investors are cautioned in usinghistorical trends to anticipate results or trends in future periods. Anyshortfall in revenue or earnings from the levels anticipated by market analystsand investors could have an immediate and significant effect on the tradingprice of the Company’s common stock.

**ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None

**ITEM 3.DEFAULTS UPON SENIOR SECURITIES**

None

**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

None

**ITEM 5.OTHER INFORMATION**

None

### **ITEM 6. EXHIBITS**

| Exhibits: | ** ** | ** **                                                                                                                                                                          |
|-----------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |       |                                                                                                                                                                                |
| 3.1       |       | Restated Certificate of Incorporation (incorporated  by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q  for the three months ended October 31, 2004). |

 

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| 3.2    |   | Restated Bylaws (incorporated by reference to  Exhibit 3.2 to the Company’s quarterly report on Form 10-Q for the three  months ended October 31, 2004).                                                                                                                                                                                                                                  |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1    |   | Specimen Certificate for the Common Stock  (incorporated by reference to Exhibit 4.1 to the Company’s Registration  Statement on Form S-1, File No. 33-45876, as amended).                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2    |   | Rights Agreement, dated as of December 19,  2005, between Forgent Networks, Inc. and American Stock Transfer & Trust  Company, which includes the form of Series A Preferred Stock, $0.01 par  value, the form of Rights Certificate, and the Summary of Rights (incorporated by reference to Exhibit 4.1 to  the Company’s Current Report on Form 8-K dated December 19, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.38* |   | Settlement and Patent License Agreement, effective  April 25, 2007, by and among Forgent Networks, Inc., Motorola, Inc, and  Digeo, Inc.                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.39* |   | Settlement and License Agreement, effective April  25, 2007, between Forgent Networks, Inc. and Cisco Systems, Inc.                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.1** |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.2** |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.1** |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.2** |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                       |

 

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*              Filed herewith;confidential treatment has been requested for certain portions of the Exhibit.

**           Filed herewith.

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#### **SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                                       | FORGENT NETWORKS, INC. |
|---------------------------------------|------------------------|
|                                  |                   |
|                                  |                   |
| Date:   June  14, 2007 | By:                    | /s/ RICHARD N.  SNYDER |
|                                  |                   | Richard N.  Snyder |
|                                  |                   | Chief Executive  Officer |
|                                  |                   |   |
| Date:   June  14, 2007 | By:                    | /s/ JAY C.  PETERSON |
|                                  |                   | Jay C. Peterson |
|                                  |                   | Chief Financial  Officer |

 

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**INDEX TO EXHIBITS**
| EXHIBIT  NUMBER | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.1             |       | Restated Certificate of Incorporation (incorporated  by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q  for the three months ended October 31, 2004).                                                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2             |       | Restated Bylaws (incorporated by reference to  Exhibit 3.2 to the Company’s quarterly report on Form 10-Q for the three  months ended October 31, 2004).                                                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1             |       | Specimen Certificate for the Common Stock  (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement  on Form S-1, File No. 33-45876, as amended).                                                                                                                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2             |       | Rights Agreement, dated as of December 19,  2005, between Forgent Networks, Inc. and American Stock Transfer & Trust  Company, which includes the form of Series A Preferred Stock, $0.01 par  value, the form of Rights Certificate, and the Summary of Rights (incorporated by reference to Exhibit 4.1 to  the Company’s Current Report on Form 8-K dated December 19, 2005). |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.38*          |       | Settlement and Patent License Agreement, effective  April 25, 2007, by and among Forgent Networks, Inc., Motorola, Inc, and  Digeo, Inc.                                                                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.39*          |       | Settlement and License Agreement, effective April  25, 2007, between Forgent Networks, Inc. and Cisco Systems, Inc.                                                                                                                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.1            |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.2            |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.1            |       | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.2            |       | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        |

 

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* Confidential treatmenthas been requested for certain portions of the Exhibit.

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