UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549











FORM 10-Q





xQUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934





For
the quarterly period ended October 31, 2009





OR





oTRANSITION
      REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





For
the transition period from          to





Commission
file number: 0-20008











FORGENT
NETWORKS, INC.


(Exact
Name of Registrant as Specified in its Charter)





Delaware
            
            74-2415696(State
      of other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)108
      Wild Basin RoadAustin,
      Texas
            
            78746(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





(512)
437-2700


(Registrant’s
Telephone Number, including Area Code)








Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.


Yes x     No  o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 Yes o  No o




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


Large
      accelerated filero
            Accelerated
      filero
            Non-accelerated
      filero
            Smaller
      reporting companyx





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o     No  x





At
December 11, 2009, the registrant had outstanding 31,615,890 shares of its
Common Stock, $0.01 par value.













INDEX TO FINANCIAL STATEMENTS





PageNumberPART I
      - FINANCIAL INFORMATIONItem
      1 – Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of
      October 31, 2009 (unaudited) and July 31,
    2009
            3Unaudited Condensed Consolidated Statements of
      Operations for the Three Months Ended October 31, 2009 and
      2008
            4Unaudited Condensed Consolidated Statements of Cash Flows for
      the Three Months Ended October 31, 2009 and 2008
            5Notes to the Unaudited Condensed Consolidated Financial
      Statements
            6Item 2 -  Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            11Item 3 -  Quantitative and Qualitative Disclosures About
      Market Risk
            16Item 4 -  Controls and Procedures
            16PART II - OTHER INFORMATIONItem 1 -  Legal Proceedings
            16Item 1A - Risk Factors
            17Item 2 -Unregistered Sales
      of Equity Securities and Use of Proceeds
            17Item 3 - Defaults upon Senior
    Securities
            17Item 4 - Submission of Matters to a Vote of Security
      Holders
            17Item 5 - Exhibits
            18Signatures
            19Index to Exhibits
            20







2
 Table of Contents





FORGENT NETWORKS, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Amounts
in thousands, except per share data)





OCTOBER 31,
              2009
            
            
            JULY 31,
              2009(UNAUDITED)ASSETSCurrent
      Assets:Cash
      and equivalents
            
            $
            1,651
            
            
            $
            4,375Short-term
      investments
            
            
            1,303
            
            
            
            5,339Accounts
      receivable, net of allowance for doubtful accounts of $17 and $20 atOctober 31,
      2009 and July 31, 2009, respectively
            
            
            1,576
            
            
            
            1,207Inventory
            
            
            31
            
            
            
            3Prepaid
      expenses and other current assets
            
            
            274
            
            
            
            143Total
      Current Assets
            
            
            4,835
            
            
            
            11,067Property
      and equipment, net
            
            
            625
            
            
            
            672Intangible
      assets, net
            
            
            3,753
            
            
            
            3,949Total
    Assets
            
            $
            9,213
            
            
            $
            15,688LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
            
            $
            1,601
            
            
            $
            6,294Accrued
      compensation and benefits
            
            
            188
            
            
            
            278Lease
      impairment and advance
            
            
            709
            
            
            
            899Other
      accrued liabilities
            
            
            439
            
            
            
            541Deferred
      revenue
            
            
            1,826
            
            
            
            1,897Total
      Current Liabilities
            
            
            4,763
            
            
            
            9,909Long-Term
      Liabilities:Deferred
      revenue
            
            
            120
            
            
            
            119Lease
      impairment and advance
            
            
            210
            
            
            
            250Other
      long-term obligations
            
            
            219
            
            
            
            206Total
      Long-Term Liabilities
            
            
            549
            
            
            
            575Stockholders’
      Equity:Preferred
      stock, $.01 par value; 10,000 shares authorized; none issued or
      outstanding
            
            
            —
            
            
            
            —Common
      stock, $.01 par value; 40,000 shares authorized; 33,406 and 32,906 shares
      issued; 31,616 and 31,116 shares outstanding at October 31, 2009
      and July 31, 2009, respectively
            
            
            334
            
            
            
            329Treasury
      stock at cost, 1,790 shares at October 31, 2009 and July 31,
      2009
            
            
            (4,815
            )
            
            
            (4,815
            )Additional
      paid-in capital
            
            
            270,915
            
            
            
            270,738Accumulated
      deficit
            
            
            (262,453
            )
            
            
            (260,947
            )Accumulated
      other comprehensive income
            
            
            (80
            )
            
            
            (101
            )Total
      Stockholders’ Equity
            
            
            3,901
            
            
            
            5,204Total
      Liabilities and Stockholders’ Equity
            
            $
            9,213
            
            
            $
            15,688





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




3





FORGENT NETWORKS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts
in thousands, except per share data)





FOR THE THREE
              MONTHS ENDED
              OCTOBER 31,2009
            
            
            2008(UNAUDITED)Revenues
            
            $
            2,321
            
            
            $
            2,792Cost
      of Sales
            
            
            (479
            )
            
            
            (564
            )Gross
      Margin
            
            
            1,842
            
            
            
            2,228OPERATING
      EXPENSE:Selling,
      general and administrative
            
            
            2,741
            
            
            
            3,197Research
      and development
            
            
            411
            
            
            
            561Amortization
      of intangible assets
            
            
            149
            
            
            
            149Total
      Operating Expense
            
            
            3,301
            
            
            
            3,907LOSS
      FROM OPERATIONS
            
            
            (1,459
            )
            
            
            (1,679
            )OTHER
      INCOME AND (EXPENSE):Interest
      income
            
            
            7
            
            
            
            55Foreign
      currency translation
            
            
            (31
            )
            
            
            120Interest
      expense and other
            
            
            (11
            )
            
            
            (10
            )Total
      Other Income and (Expense)
            
            
            (35
            )
            
            
            165LOSS
      FROM OPERATIONS, BEFORE INCOME TAXES
            
            
            (1,494
            )
            
            
            (1,514
            )Provision
      for income taxes
            
            
            (12
            )
            
            
            (25
            )NET
      LOSS
            
            $
            (1,506
            )
            
            $
            (1,539
            )BASIC
      AND DILUTED LOSS PER SHARE:Net
      loss per share - basic and diluted
            
            $
            (0.05
            )
            
            $
            (0.05
            )WEIGHTED
      AVERAGE SHARES OUTSTANDING:Basic
            
            
            31,317
            
            
            
            31,104Diluted
            
            
            31,317
            
            
            
            31,104





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




4





FORGENT NETWORKS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands)


FOR THE THREE
                MONTHS ENDED
                OCTOBER 31,2009
              
              
              2008(UNAUDITED)CASH
      FLOWS FROM OPERATING ACTIVITIES:Loss
      from operations
              
              $
              (1,506
              )
              
              $
              (1,539
              )Adjustments
      to reconcile net loss to net cash used in operations:Depreciation
      and amortization
              
              
              278
              
              
              
              327Amortization
      of leasehold advance and lease impairment
              
              
              (212
              )
              
              
              (96
              )Provision
      for doubtful accounts
              
              
              (16
              )
              
              
              8Share-based
      compensation
              
              
              7
              
              
              
              36Foreign
      currency translation (gain) loss
              
              
              31
              
              
              
              (120
              )Gain
      on sale of assets
              
              
              —
              
              
              
              (5
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (429
              )
              
              
              335Inventory
              
              
              (28
              )
              
              
              16Prepaid
      expenses and other current assets
              
              
              (130
              )
              
              
              (25
              )Accounts
      payable
              
              
              (4,703
              )
              
              
              243Accrued
      expenses and other long-term obligations
              
              
              (165
              )
              
              
              (62
              )Deferred
      revenue
              
              
              —
              
              
              
              74Net
      cash used in operating activities
              
              
              (6,873
              )
              
              
              (808
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      sales (purchases) of short-term investments
              
              
              4,034
              
              
              
              (658
              )Net
      purchases of property and equipment
              
              
              (33
              )
              
              
              (25
              )Net
      cash provided by (used in) investing activities
              
              
              4,001
              
              
              
              (683
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of stock
              
              
              175
              
              
              
              2Payments
      on capital leases
              
              
              (16
              )
              
              
              (7
              )Net
      cash provided by (used in) financing activities
              
              
              159
              
              
              
              (5
              )Effect
      of translation exchange rates
              
              
              (11
              )
              
              
              (12
              )Net
      decrease in cash and equivalents
              
              
              (2,724
              )
              
              
              (1,508
              )Cash
      and equivalents at beginning of period
              
              
              4,375
              
              
              
              12,062Cash
      and equivalents at end of period
              
              $
              1,651
              
              
              $
              10,554





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




5





FORGENT NETWORKS, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





NOTE
1 - GENERAL AND BASIS OF FINANCIAL STATEMENTS





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and accordingly, do not include all information and
footnotes required under U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, these interim
financial statements contain all adjustments, consisting of normal, recurring
adjustments, necessary for a fair presentation of the financial position of
Forgent Networks, Inc. (“Forgent” or the “Company”) as of October 31,
2009 and July 31, 2009, and the results of operations and cash flows for
the three months ended October 31, 2009 and 2008. These condensed
consolidated financial statements should be read in conjunction with the
Company’s audited consolidated financial statements and notes thereto filed with
the Securities and Exchange Commission in the Company’s annual report on
Form 10-K for the fiscal year ended July 31, 2009.  The results
for the interim periods are not necessarily indicative of results for a full
fiscal year.





As of
October 31, 2009, Forgent’s principal sources of liquidity consisted of
$3.0 million of cash, cash equivalents and short-term investments. 
Management is focused on growing its existing software operations and thus plans
to utilize its cash balances to expand its operations by making additional
prudent investments as necessary and may repurchase outstanding
shares.





There is
no assurance that the Company will be able to limit its cash consumption and
preserve its cash balances, and it is possible that the Company’s future
business demands may lead to cash utilization at levels greater than recently
experienced. Management believes that the Company has sufficient capital and
liquidity to fund and cultivate the growth of its current and future operations
for the next 12 months and thereafter.  However, due to uncertainties
related to the timing and costs of these efforts, Forgent may need to raise
additional capital in the future.  Yet, there is no assurance that the
Company will be able to raise additional capital if and when it is
needed.





2.
INTANGIBLE ASSETS







Forgent
accounted for its historical acquisitions in accordance with FASB ASC
805,Business Combinations(FASB ASC 805).  The Company recorded the amount exceeding the
fair value of net assets acquired at the date of acquisition as goodwill. The
Company recorded intangible assets apart from goodwill if the assets had
contractual or other legal rights or if the assets could be separated and sold,
transferred, licensed, rented or exchanged.  Forgent’s goodwill and
intangible assets relate to its acquisition of iSarla Inc. and the iEmployee
operations.





In
accordance with FASB ASC 350,Intangibles-Goodwill and Other(FASB ASC 350), Forgent reviews
and evaluates its long-lived assets, including intangible assets with finite
lives, for impairment whenever events or changes in circumstances indicate that
their net book value may not be recoverable.  Based on Forgent’s
impairment test, no impairment was identified for the Company’s intangible
assets for the years ended July 31, 2009 or 2008.





The gross
carrying amount and accumulated amortization of the Company’s intangible assets
as of October 31, 2009 and July 31, 2009 are as
follows:


6





FORGENT
NETWORKS, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





October 31, 2009Amortization
            
            
            
            
            
            AccumulatedIntangible Asset
            
            Period (in Years)
            
            
            Gross
            
            
            Amortization
            
            
            NetDeveloped
      Technology
            
            
            5
            
            
            $
            915
            
            
            $
            (379
            )
            
            $
            536Customer
      Relationships
            
            
            8
            
            
            
            2,470
            
            
            
            (639
            )
            
            
            1,831Ceridian
      Contract
            
            
            8
            
            
            
            1,545
            
            
            
            (400
            )
            
            
            1,145Trade
      Names
            
            
            5
            
            
            
            288
            
            
            
            (119
            )
            
            
            169Covenant
      not-to-compete
            
            
            4
            
            
            
            150
            
            
            
            (78
            )
            
            
            72$
            5,368
            
            
            $
            (1,615
            )
            
            $
            3,753





July 31, 2009Amortization
            
            
            
            
            
            AccumulatedIntangible Asset
            
            Period (in Years)
            
            
            Gross
            
            
            Amortization
            
            
            NetDeveloped
      Technology
            
            
            5
            
            
            $
            915
            
            
            $
            (333
            )
            
            $
            582Customer
      Relationships
            
            
            8
            
            
            
            2,470
            
            
            
            (562
            )
            
            
            1,908Ceridian
      Contract
            
            
            8
            
            
            
            1,545
            
            
            
            (351
            )
            
            
            1,194Trade
      Names
            
            
            5
            
            
            
            288
            
            
            
            (105
            )
            
            
            183Covenant
      not-to-compete
            
            
            4
            
            
            
            150
            
            
            
            (68
            )
            
            
            82$
            5,368
            
            
            $
            (1,419
            )
            
            $
            3,949





Amortization
expense is recorded using the straight-line method over the estimated economic
useful lives of the intangible assets, as noted above.  Amortization
expense for the three months ended October 31, 2009 and 2008 was $149 and
$149, respectively.  The following table summarizes the estimated
amortization expense relating to the Company’s intangible assets for the next
five fiscal years and thereafter as of October 31, 2009:





Fiscal YearsRemaining
      2010
            
            $
            5852011
            
            7802012
            
            7492013
            
            5452014
            
            502Thereafter
            
            592$
            3,753





NOTE
3 – FAIR VALUE MEASUREMENTS





Effective
August 1, 2008, Forgent adopted ASC 820, Fair Value Measurements and
Disclosures (FASB ASC 820).  FASB ASC 820 defines fair value,
establishes a framework for measuring fair value in U.S. generally accepted
accounting principles and expands disclosures about fair value measurements.
 The adoption of FASB ASC 820 did not have a material impact to the
Company’s consolidated financial statements.





FASB ASC
820 establishes a three-tier fair value hierarchy, which are based on the
reliability of the inputs used in measuring fair values. These tiers
include:





Level 1:
Quoted prices in active markets foridentical assets or
liabilities;





7





FORGENT
NETWORKS, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





Level
      2: Quoted prices in active markets forsimilar assets or
      liabilities; quoted prices in markets that are not active for identical or
      similar assets or liabilities; and model-driven
                valuations
      whose significant inputs are observable; andLevel
      3: Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.


The
following table presents the fair value hierarchy for the Company’s financial
assets (cash equivalents and short-term investments) measured at fair value on a
recurring basis as of October 31, 2009:




Fair Value Measure at October 31, 2009Total
            
            
            Quoted
            
            
            SignificantCarrying
            
            
            Prices
            
            
            Other
            
            
            SignificantValue at
            
            
            in Active
            
            
            Observable
            
            
            UnobservableOctober 31,
            
            
            Market
            
            
            Inputs
            
            
            InputsDescription
            
            2009
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Cash
      Equivalents
            
            $
            1,651
            
            
            $
            1,651
            
            
            $
            —
            
            
            $
            —Short-term
      investments available for sale
            
            
            1,303
            
            
            
            1,303
            
            
            
            —
            
            
            
            —Total
            
            $
            2,954
            
            
            $
            2,954
            
            
            $
            —
            
            
            $
            —


Short-term
investments consists of U.S. Government Agency securities with various maturity
dates less than 180 days from October 31, 2009.




FASB ASC
825,Financial Instruments(FASB ASC 825) provides companies with an option to report selected
financial assets and liabilities at fair value.  The standard’s
objective is to reduce both complexity in accounting for financial instruments
and the volatility in earnings caused by measuring related assets and
liabilities differently.  The standard requires companies to provide
additional information that will help investors and other users of financial
statements to more easily understand the effect of the company’s choice to use
fair value on its earnings. It also requires companies to display the fair value
of those assets and liabilities for which the company has chosen to use fair
value on the face of the balance sheet. This statement does not eliminate
disclosure requirements included in other accounting standards, including
requirements for disclosures about fair value measurements included in FASB ASC
820.   Forgent
adopted FASB ASC 825, effective August 1, 2008, and elected not to measure
any additional financial instruments at fair value.  Therefore, the
adoption of FASB ASC 825 did not have a material impact to the Company’s
consolidated financial statements.





NOTE
4 - COMPREHENSIVE INCOME (LOSS)





In
accordance with the disclosure requirements of FASB ASC 220, Comprehensive Income(FASB
ASC 220), the Company’s comprehensive income (loss) is comprised of net income
(loss), foreign currency translation adjustments and unrealized gains and losses
on short-term investments held as available-for-sale securities.  The
following table presents the Company’s comprehensive loss and its components for
the three months ended October 31, 2009 and 2008:





For the Three MonthsEnded October 31,2009
            
            
            2008Net
      Loss
            
            $
            (1,506
            )
            
            $
            (1,539
            )Foreign
      currency (loss) gain
            
            
            23
            
            
            
            (162
            )Unrealized
      gain
            
            
            (2
            )
            
            
            4Comprehensive
      Loss
            
            $
            (1,485
            )
            
            $
            (1,697
            )





8





FORGENT
NETWORKS, INC.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data unless otherwise noted)





NOTE
5 - RECENT ACCOUNTING PRONOUNCEMENTS





In
October 2009, the FASB updated FASB ASC 605, Revenue Recognition (FASB ASC
605) to address how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting and how the arrangement
consideration should be measured and allocated to the separate units of
accounting. This guidance eliminates the residual method and replaces it with
the “relative selling price” method when allocating revenue in a multiple
deliverable arrangement. The selling price for each deliverable shall be
determined using vendor specific objective evidence of selling price, if it
exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the
selling price for that deliverable. After adoption, this guidance will also
require expanded qualitative and quantitative disclosures. The updated FASB ASC
605 is effective for the Company’s revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The Company is currently evaluating the impact of
adoption on its consolidated results of operations and financial
position.





In
April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life
of Intangible Assets.” FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB ASC 350,Intangibles-Goodwill and Other(FASB ASC 350).  This new guidance applies prospectively to
intangible assets that are acquired individually or with a group of other assets
in business combinations and asset acquisitions. FSP 142-3 is effective for
fiscal years beginning after December 15, 2008 and early adoption is
prohibited.  Forgent does not expect that the adoption of FSP 142-3
during fiscal year 2010 will have a material impact on the useful lives of its
intangible assets, or on its financial position or results of
operations.





NOTE
6 – SHARE BASED COMPENSATION





Share
based compensation for the Company’s stock option, restricted stock and stock
purchase plans for the three months ended October 31, 2009 and 2008 was $8
and $36, respectively.  The Company issued 0 and 7 shares of common stock
related to exercises of stock options granted from its Stock Option, Restricted
Stock, and Stock Purchase Plans for the three months ended October 31, 2009
and 2008, respectively.


On September 21, 2009, the
Board adopted the Company’s 2009 Equity Plan (the “2009 Equity Plan”) and has
submitted the plan for approval by the Company’s stockholders at the December
17, 2009 Annual Meeting of Stockholders.  The purpose of the 2009
Equity Plan is to enhance the long-term stockholder value of the Company by
offering opportunities to directors, officers, employees and eligible
consultants of the Company to acquire and maintain stock ownership in the
Company in order to give these persons the opportunity to participate in the
Company’s growth and success, and to encourage them to remain in the service of
the Company.  A total of 2,000,000 shares of the Company’s Common
Stock would be available for issuance under the 2009 Equity Plan and provides
for the granting of (i) incentive stock options, (ii) non statutory stock
options and (iii) stock purchase rights.  A total of 912,500 options
have been granted pursuant to the plan and subject to stockholder
approval.





NOTE
7 - CONTINGENCIES





Forgent
was the defendant or plaintiff in various actions that arose in the normal
course of business. With the exception of the proceedings described below, none
of the pending legal proceedings to which the Company is a party are material to
the Company.





Litigation
with Jenkens & Gilchrist, P.C.





On July
16, 2007, Jenkens & Gilchrist, P.C. (“Jenkens”), Forgent’s former legal
counsel, filed a complaint against Forgent and Compressions Labs, Inc., in the
District Court of Dallas County, Texas.  In its complaint, Jenkens
alleged a breach of contract and sought a declaratory
judgment.  Forgent disputed Jenkens’ claims and also sought relief
through the court system.





9





FORGENT
NETWORKS, INC.


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands, except per share data or otherwise noted)





After
Forgent terminated Jenkens, the Company entered into a Resolution Agreement with
Jenkens in December 2004.  Under the Resolution Agreement, the Company
believed Jenkens was entitled to $1,400 for all fees and expenses related to
certain settlements received from licensing the Company's intellectual
property.  Jenkens interpreted the Resolution Agreement on broader
terms and initially believed it was entitled to $2,800.  As of July
31, 2007, Forgent accrued $2,100 for Jenkens’ contingency fees related to these
settlements. The Company recorded the contingency fees as part of cost of sales
on its Consolidated Statement of Operations for the year ended July 31, 2007 in
order to properly match the expenses to the related licensing
revenues.  The $2,100 accrual remained as part of Forgent’s current
liabilities through fiscal year 2009.





On July
20, 2009, the trial with Jenkens commenced.  As the result of the jury
verdict in July 2009 to award Jenkens approximately $4,600 in damages,
attorney’s fees and interest, Forgent entered into a settlement agreement with
Jenkens, effective August 20, 2009.  Under the settlement agreement,
Forgent agreed to pay Jenkens $4,300 and the parties agreed to release all
claims against each other.  Based on the settlement amount, the
Company accrued an additional $2,200 as of July 31, 2009. Since the Company was
no longer licensing its intellectual property and had no related licensing
revenues in fiscal year 2009, this additional $2,200 expense was recorded as
part of operating expenses on the Consolidated Statement of Operations for the
year ended July 31, 2009.  Forgent paid Jenkens $4,300 on August 25,
2009 and the Company considers this litigation to be concluded.





Litigation
with Wild Basin





On
September 6, 2007, Forgent filed a petition against Wild Basin One & Two,
Ltd. (“Wild Basin”) in the District Court of Travis County,
Texas.  The petition claimed Wild Basin was in breach of contract
relating to Forgent’s lease agreement by unreasonably withholding and delaying
its consent to Forgent’s lease assignment to a third party.  On
October 19, 2007, Forgent amended its petition to include claims of fraud and
breach of fiduciary duty against Wild Basin.  On June 5, 2008, Forgent
amended its petition to request the Court make declaratory judgments on several
issues in the case and to include as a breach of contract claim its claim for
withholding amounts that should have been distributed by Wild Basin in the past
pursuant to the lease.  Forgent sought to recover all damages as a
result of the delay in closing its pending assignment and amounts not
distributed in the past, among other damages.





The trial
for this litigation commenced on September 22, 2008.  Prior to the
conclusion of the trial, Forgent and Wild Basin reached a settlement agreement,
effective September 25, 2008.  This settlement agreement requires,
among other terms, that Wild Basin consents to Forgent’s lease
assignment.  In return, Forgent paid Wild Basin $75 in November
2008.  Both parties agreed to mutually release claims against each
other.





While
Forgent was significantly delayed in obtaining Wild Basin’s consent to its lease
assignment, the identified third party encountered difficulties obtaining the
required financing due to the tightened capital
markets.    Additionally, Forgent continues to work with
Wild Basin regarding its breach of contract claim that Wild Basin withheld
amounts that should have been distributed to Forgent. Forgent will renew its
litigation against Wild Basin regarding this matter, only if
necessary.





NOTE
8 – SUBSEQUENT EVENTS





The
Company has evaluated subsequent events for recognition and disclosure through
December 15, 2009, the date these financial statements on this Form 10-Q were
filed with the Securities and Exchange Commission.  Through that date,
there were no events requiring adjustment to or disclosure in these financial
statements.


10





ITEM 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS







The
following review of Forgent’s financial position as of October 31, 2009 and
July 31, 2009 and for the three months ended October 31, 2009 and 2008
should be read in conjunction with the Company’s 2009 Annual Report on
Form 10-K filed with the Securities and Exchange Commission. 
Forgent’s internet website address is http://www.asuresoftware.com.  The
Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 are available through the investor relations page of the
Company’s internet website free of charge as soon as reasonably practicable
after they are electronically filed, or furnished to, the Securities and
Exchange Commission.  Forgent’s internet website and the information
contained therein or connected thereto are not intended to be incorporated into
this Quarterly Report on Form 10-Q.





In
September 2007, the Company announced its name change to “Asure Software” to
reflect the Company’s focus on its software business for its future
growth.  As a software and services provider, in October 2007, Forgent
purchased iSarla Inc., a Delaware corporation and application service provider
that offers on-demand software solutions.  As a result of the
iEmployee acquisition, the Company currently offers two main product lines in
its software and services business: NetSimplicity and iEmployee. Forgent’s
NetSimplicity product line provides simple and affordable solutions to common
office administration problems.  NetSimplicity’s flagship product,
Meeting Room Manager (“MRM”), automates the entire facility scheduling process:
reserving rooms, requesting equipment, ordering food, sending invitations,
reporting on the meeting environment and more.  Forgent’s iEmployee
product line helps simplify the HR process and improves employee productivity by
managing and communicating human resources, employee benefits and payroll
information.  iEmployee's web-based solutions include Time &
Attendance, Timesheets, Human Resource Benefits, Expenses and others. Additional
business information is contained elsewhere in this Report, including under Item
7 of Part II (Management’s
Discussion and Analysis of Financial Condition and Results of Operations
).





Effective
September 19, 2008, the Company transferred the listing of its common stock from
the Nasdaq Global Market Exchange to the Nasdaq Capital Market
Exchange.  The Company’s trading symbol continued to be “ASUR” and the
trading of the Company’s stock was unaffected by this change.  As a
result of this transfer, Forgent was provided an additional 180 calendar days,
or until February 2, 2009, to regain compliance with the minimum $1.00 share bid
price requirement pursuant to Nasdaq Marketplace Rule 4450(a)(5).





Due to
the continued unprecedented market conditions, Nasdaq, on several occasions,
further suspended the enforcement of its rules requiring a minimum $1.00 share
bid price for all Nasdaq-listed companies.  Consequently, Forgent’s
compliance deadline was extended until November 17, 2009.  On November
18, 2009, the Company was notified by Nasdaq that due to its failure to
satisfying the minimum $1.00 bid price per share requirement, its stock would be
delisted from Nasdaq’s Capital Markets on November 30, 2009 unless an appeal was
requested.  On November 18, 2009 Forgent requested and was granted a
hearing request to appeal the Nasdaq staff’s decision.On December 10,
2009, Nasdaq held a telephonic panel hearing regarding the Company’s notice of
delisting due to its deficiency in its minimum bid price requirement. 
Nasdaq informed the Company that its decision will be issued in several
weeks.  Forgent believes that by then it will know whether shareholders
have approved a 10-for-1 reverse stock split.  Based on current and
preliminary results which could change, the Company believes that there is a
reasonable likelihood that the reverse split may be approved and that, if so,
Nasdaq may either grant the Company sufficient time to satisfy the minimum bid
price requirement or the bid price requirement may be satisfied in advance of
receipt of Nasdaq’s letter.


On
December 17, 2009, the Company’s shareholders will be asked to vote on a
proposal to effect a 10-for-1 reverse stock split.  If approved,
Forgent believes that the stock split will allow the Company to satisfy the
minimum bid price per share requirement.  Asure intends to present this
information to Nasdaq’s Hearings Panel in December in an effort to pursue
continued listing on Nasdaq’s Capital Markets.





On
January 29, 2009, Forgent’s Board announced its plan to take the Company
private.  Due to concerns including the loss of liquidity and reduced
requirements for regular financial reporting and disclosure, a group of
shareholders led by Red Oak Fund, LP (“Red Oak”) opposed the Go-Private
effort.  As shareholder vote counts indicated a majority of
shareholders also opposed the Go-Private effort, the Board canceled the special
meeting and withdrew its proposal to go private.  Subsequently, Red
Oak nominated a slate of board directors, who were elected to replace Forgent’s
prior Board during the Company’s annual shareholders meeting on August 28,
2009.  In addition to a new board of directors, the Company is
currently managed by a new Chief Executive Officer, Pat Goepel, who the new
board of directors believes will be able to implement its strategy for growing
the software business and achieving profitability and positive cash
flows.  However, uncertainties and challenges remain and there can be
no assurances that Forgent's current strategy will be
successful.





CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS





Certain
statements in this Report represent forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results of operations, levels of activity, economic performance,
financial condition or achievements to be materially different from future
results of operations, levels of activity, economic performance, financial
condition or achievements as expressed or implied by such forward-looking
statements.





11




Forgent has attempted to
identify these forward-looking statements with the words “believes,”
“estimates,” “plans,” “expects,” “anticipates,” “may,” “could” and other similar
expressions. Although these forward-looking statements reflect management’s
current plans and expectations, which are believed to be reasonable as of the
filing date of this report, they inherently are subject to certain risks and
uncertainties.  Additionally, Forgent is under no obligation to update any
of the forward-looking statements after the date of this Form 10-Q to
conform such statements to actual results.




RESULTS OF
OPERATIONS





The
following table sets forth for the fiscal periods indicated the percentage of
total revenues represented by certain items in Forgent’s Consolidated Statements
of Operations:





FOR THE THREE
              MONTHS ENDED
              OCTOBER 31,2009
            
            
            2008Software
      and services revenues
            
            
            100.0
            %
            
            
            100.0
            %Gross
      margin
            
            
            79.4
            
            
            
            79.8Selling,
      general and administrative
            
            
            118.0
            
            
            
            114.5Research
      and development
            
            
            17.7
            
            
            
            20.1Amortization
      of intangible assets
            
            
            6.4
            
            
            
            5.3Total
      operating expenses
            
            
            142.2
            
            
            
            139.9Other
      income, net
            
            
            (1.6
            )
            
            
            5.9Net
      loss
            
            
            (64.9
            )%
            
            
            (55.1
            )%





THREE
MONTHS ENDED OCTOBER 31, 2009 AND 2008





Revenues





Revenues
for the three months ended October 31, 2009 were $2.3 million, a decrease
of $0.5 million, or 16.9%, from the $2.8 million reported for the three months
ended October 31, 2008.  Consolidated revenues represent the combined
revenues of the Company and its subsidiaries, including sales of the Company’s
scheduling software, asset management software, human resource and time and
attendance software, complementary hardware devices to enhances its software
products, software maintenance and support services, installation and training
services and other professional services.





During
the three months ended October 31, 2009, a decrease in software license revenue
and related service revenue accounted for approximately 92% of the $0.5 million
decrease in revenue.   The decrease in software license revenue
was primarily due to the protracted economic recession resulting in customers
and prospects reducing or freezing their capital budgets and deferring their
projects and the Company’s sale of its Visual Asset Manager (“VAM”) software
product to E-Innovative Services Group (“EISG”), LLC in the fiscal quarter
ending April 30, 2009 in order to focus its NetSimplicity investment on
MRM.  The Company believes MRM has greater potential for future growth
and profitability.





Forgent
will continue to target small and medium businesses and divisions of
enterprises.  In addition to continuing to develop its workforce
management solutions and release new software updates and enhancements, the
Company is actively exploring other opportunities to acquire additional products
or technologies to complement its current software and
services.  Forgent also is implementing marketing initiatives,
including tailoring its solutions to provide increased value and a simplified
purchasing model to targeted customers.  As the overall workforce
management solutions market continues to experience significant growth related
to SaaS products, Forgent will continue to focus on sales of its MRM On Demand
and iEmployee SaaS products.  Management believes that as the economy
starts to recover, Forgent will grow its revenues in calendar year
2010.





Gross
Margin





Gross
margins for the three months ended October 31, 2009 were $1.8 million, a
decrease of $0.4 million, or 17.3%, from the $2.2 million reported for the three
months ended October 31, 2008. Gross margins as a percentage of revenues
were 79.4% and 79.8% for the three months ended October 31, 2009 and 2008,
respectively.The
17.3% decrease in gross margin was mainly attributable to the 16.9% decrease in
revenues over the same period.





12




Forgent’s
cost of sales relates primarily to compensation expenses, hardware expenses and
the amortization of the Company’s purchased software costs.  These expenses
represented approximately 78.4% and 60.7% of the total cost of sales for the
three months ended October 31, 2009 and 2008, respectively.  Forgent
expects gross margins to remain relatively consistent with the gross margins for
the three months ended October 31, 2009, in terms of percentage of revenues
for future periods.
 
 Selling,
General and Administrative
 
 Selling,
general and administrative expenses for the three months ended October 31,
2009 were $2.7 million, a decrease of $0.5 million or 14.3%, from the $3.2
million reported for the three months ended October 31, 2008. Selling,
general and administrative (“SG&A”) expenses as a percentage of revenues
were 118.0% and 114.5% for the three months ended October 31, 2009 and
2008, respectively.
 
 During
the three months ended October 31, 2009, SG&A expenses decreased $0.5
million, primarily due to decreases in compensation and marketing
expenses.  Effective March 1, 2009, Forgent implemented a mandatory
10% pay reduction for its personnel and also terminated headcount at the
beginning of the fiscal quarter ended October 31, 2009, which led to decreased
compensation expenses by approximately $0.3 million during the current fiscal
quarter.  Additionally, in efforts to further trim overhead costs,
Forgent’s reduced its marketing budget, decreasing marketing expenses by $0.3
million during the three months ended October 31, 2009.  Finally,
across the board cost reduction efforts resulted in a total reduction of
expenses of $0.4 million in the quarter ended October 31, 2009.  These
cost reductions of $1.0 million were partially offset by an increase of $0.5
million in one time legal expenses during the three months ended
October 31, 2009.
 
 Throughout
its operations, Forgent continues to evaluate any unnecessary SG&A expenses
and plans to further reduce expenses as appropriate.
 
 
 Research
and Development
 
 Research
and development expenses for the three months ended October 31, 2009 were
$0.4 million, a decrease of $0.2 million, or 26.7%, from the $0.6 million
reported for the three months ended October 31, 2008. Research and
development (“R&D”) expenses as a percentage of revenues were 17.7% and
20.1% for the three months ended October 31, 2009 and 2008,
respectively.


During
the three months ended October 31, 2009, R&D expenses decreased $0.2
million, primarily due to decreases in compensation.





Forgent
continues to improve and enhance its workforce management solutions –
particularly its Time & Attendance software from the iEmployee product line
and its Meeting Room Manager (“MRM”) software from its NetSimplicity product
line.   Time & Attendance included an additional application
programming interface for time collection, which expands the software’s
interoperability with various time clocks in addition to Forgent’s Easy Touch
Time Clock.  Additionally, the Company implemented a new line of
clocks that contains several forms of data collection including magnetic stripe,
barcode, proximity and biometric readers. The expanded interoperability and new
line of clocks expanded Time & Attendance’s capabilities to meet various
customers’ requirements by increasing the customers’ choices when selecting
hardware devices.  Forgent also added functionality to its Time &
Attendance software by developing an automated calculation of the time off
accruals and a new flexible pay schedule that allows customers to specify start
and end dates and times for multiple different pay periods.





Forgent
has continued to develop MRM and enhanced the Microsoft Outlook Plug-in, Web and
Interactive LCD interfaces, allowed assigned delegates the ability to schedule
meetings on behalf of others, and provided more sophisticated conflict
resolution options for scheduling recurring meetings via Microsoft Outlook®.
Forgent’s R&D efforts related to its NetSimplicity product line culminated
in August 2009 when the Company released MRM, Version 8.0.  Under this
next generation of the Company’s room and resource scheduling solution,
customers have the benefit of a bi-directional Outlook
Plug-in.  Meetings and resources scheduled through Microsoft Outlook
are synchronized to the Web client, thus allowing users to create, manage and
update information from the Web client, given the appropriate
privileges.  Customers can now delegate scheduling responsibilities to
individuals without requiring access to Microsoft Outlook.





Forgent’s
development efforts for future releases and enhancements are driven by feedback
received from its existing and potential  customers and by gauging
marketing trends.  Management believes it has the appropriate
development team to design and further improve its workforce management
solutions.






Amortization
of intangible assets





Amortization
expenses for the three months ended October 31, 2009 were $0.1 million,
which is the same amount reported for the three months ended October 31,
2008. Amortization expenses as a percentage of revenues were 6.4% and 5.3% for
the three months ended October 31, 2009 and 2008, respectively.  Upon
acquiring the iEmployee business in October 2007, Forgent recorded several
intangible assets, which are being amortized over their estimated useful
lives.  The amortization expenses during the three months ended
October 31, 2009 and 2008 relate entirely to these acquired intangible
assets.





13




Net
Loss





Forgent
generated a net loss of $1.5 million, or $0.05 per share, during the three
months ended October 31, 2009, which is the same amount reported for the
three months ended October 31, 2008.  Net loss as a percentage of
total revenues were 64.9% and 55.1% for the three months ended October 31,
2009 and 2008, respectively.  Forgent will continue to implement its
corporate strategy for growing its software and services business by modestly
investing in areas that directly generate revenue and positive cash flows for
the Company.  However, uncertainties and challenges remain, especially
during this macroeconomic environment downturn, and there can be no assurance
that the Company can successfully grow its revenues or achieve profitability
during the remainder of fiscal year 2010.








LIQUIDITY AND CAPITAL
RESOURCES





FOR THE THREE
              MONTHS ENDED
              OCTOBER 31,2009
            
            
            2008(in thousands)Working
      capital
            
            $
            72
            
            
            $
            8,641Cash,
      cash equivalents and short-term investments
            
            
            2,954
            
            
            
            13,844Cash
      used in operating activities
            
            
            (6,873
            )
            
            
            (808
            )Cash
      used in investing activities
            
            
            4,001
            
            
            
            (683
            )Cash
      provided by (used in) financing activities
            
            
            159
            
            
            
            (5
            )





Cash used
in operating activities was $6.9 million for the three months ended
October 31, 2009 due primarily to $1.5 million in net loss and a $4.7
million reduction in accounts payable primarily due to the one time payment of
the Jenkens litigation settlement of $4.3 during the first fiscal
quarter.  Cash used in operating activities was $0.8 million for the
three months ended October 31, 2008 due primarily to $1.5 million in net
loss, offset by a $0.3 million decrease in accounts receivable and a $0.2
million increase in accounts payable. Management continues to evaluate and
reduce any unnecessary expenditure, while continuing to closely monitor all of
its cash sources and uses as it manages its operations through the current
recession





Cash
provided by investing activities was $4.0 million for the three months ended
October 31, 2009 due net sales of short-term investments. Cash used in
investing activities was $0.7 million for the three months ended
October 31, 2008 due to net purchases of short-term investments. Forgent
manages its investments portfolio in order to fulfill corporate liquidity
requirements and maximize investment returns while preserving the quality of the
portfolio. Forgent does not invest in any mortgage-backed securities or
other high-risk investments.Forgent’s current
operations are not capital intensive and management does not anticipate any
significant capital expenditures during the remainder of fiscal year
2010.





The
Company leases office space and equipment under non-cancelable operating leases
that expire at various dates through 2013. Certain leases obligate Forgent to
pay property taxes, maintenance and insurance and include escalation clauses.
The total amount of base rentals over the term of the Company’s leases is
charged to expense on a straight-line basis, with the amount of the rental
expense in excess of the lease payments recorded as a deferred rent
liability.  Approximately $11.9 million, or 96.5% of the Company’s
total operating lease obligations, relate to its corporate office facility at
Wild Basin in Austin, Texas.  As of October 31, 2009, Forgent had $4.1
million in future minimum lease payments receivable under non-cancelable
sublease arrangements.


Cash
provided by financing activities was $0.2 million for the three months ended
October 31, 2009 related to the Stock Purchase Agreement between Forgent
and its CEO.  Cash used in financing activities was $5 thousand for
the three months ended October 31, 2008.  Management believes it
currently has sufficient cash and short-term investments on hand to fund its
operations during the next twelve months and beyond without needing to obtain
long-term financing.  Therefore, the Company does not anticipate that it
will be affected by any credit shortage in the current economic business
environment.  Forgent’s stock repurchase program allows the Company to
purchase up to three million shares of the Company’s common stock. No shares
were repurchased during the three months ended October 31, 2009 or
2008.  As of October 31, 2009, Forgent had repurchased 1,790,401
shares for approximately $4.8 million and had the authority to repurchase
approximately 1.2 million additional shares. Management will periodically assess
repurchasing additional shares, depending on the Company’s cash position, market
conditions and other factors.





14




As of
October 31, 2009, Forgent’s principal sources of liquidity consisted of
$3.0 million of cash, cash equivalents and short-term investments. 
Management is focused on growing its existing software operations and thus plans
to utilize its cash balances to expand its operations by making additional
prudent investments as necessary and may repurchase outstanding shares. 
Although Forgent is currently not actively exploring prospects in acquiring a
public or privately held technology business or product line, the Company may
consider a potential opportunity if the right opportunity presents
itself.
 
 There is
no assurance that the Company will be able to limit its cash consumption and
preserve its cash balances, and it is possible that the Company’s future
business demands may lead to cash utilization at levels greater than recently
experienced. Management believes that the Company has sufficient capital and
liquidity to fund and cultivate the growth of its current and future operations
for the next 12 months and thereafter.  However, due to uncertainties
related to the timing and costs of these efforts, Forgent may need to raise
additional capital in the future.  Yet, there is no assurance that the
Company will be able to raise additional capital if and when it is
needed.
 
 
 CRITICAL ACCOUNTING
POLICY
 
 
 The
Company’s consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and include the accounts of
Forgent's wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in the consolidation. Preparation of the
consolidated financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of the assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. These
estimates are subjective in nature and involve judgments that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at fiscal year end and the reported amounts of revenues and
expenses during the fiscal year.  The more significant estimates made
by management include the valuation allowance for the gross deferred tax asset,
contingency legal reserves, lease impairment, useful lives of fixed assets, the
determination of the fair value of its long-lived assets, and the fair value of
assets acquired and liabilities assumed during the iEmployee acquisition. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the given
circumstances.  These estimates could be materially different under
different conditions and assumptions.  Additionally, the actual
amounts could differ from the estimates made. Management periodically evaluates
estimates used in the preparation of the financial statements for continued
reasonableness. Appropriate adjustments, if any, to the estimates used are made
prospectively based upon such periodic evaluation.
 
 Management
believes the following represent Forgent’s critical accounting
policies:
 
 Revenue
Recognition
 
 The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collectability is
probable.   The Company recognizes software revenue in accordance
with FASB ASC 985-605, Revenue Recognition – Multiple Element Arrangements (FASB
ASC 985-605).  The Company’s revenues consists of software license,
software subscription and service fees.  Revenue from the software
element is earned through the licensing or right to use the Company’s software
and from the sale of specific software products.  Service fee income
is earned through the sale of maintenance and technical support, training and
installation. Revenue from the sale of hardware devices is recognized upon
shipment of the hardware.  Forgent also sells multiple elements within
a single sale.
 
 When the
Company sells software licenses in a multiple element arrangement and
vendor-specific objective evidence (“VSOE”) of fair value is available for the
undelivered element, sales revenue is generally recognized on the date the
product is shipped, using the residual method, with a portion of revenue
recorded as deferred (unearned) due to the applicable undelivered elements. VSOE
of fair value for the maintenance, training and installation services are based
on the prices charged for the maintenance and services when sold separately.
Undelivered elements for our multiple element arrangements with a customer are
generally restricted to post contract support, training and install. The amount
of revenue allocated to these undelivered elements is based on the VSOE of fair
value for those undelivered elements. Deferred revenue due to undelivered
elements is recognized ratably on a straight-line basis over the service period
(typically one year) or when the service is completed. When VSOE of fair value
is not available for the undelivered element of a multiple element arrangement,
sales revenue is generally recognized ratably, on a straight-line basis over the
service period of the undelivered element.  The Company’s training and
installation services are not essential to the functionality of the Company’s
products as such services can be provided by a third party or the customers
themselves.
 
 For
software subscription arrangements, the Company recognizes the total contract
value ratably as a single unit of accounting over the contract term, beginning
when the customer is able to utilize the software.
 
 The
Company does not recognize revenue for agreements with rights of return,
refundable fees, cancellation rights or acceptance clauses until such rights of
return, refund or cancellation have expired or acceptance has
occurred.  The Company's arrangements with resellers do not allow for
any rights of return.
 
 Deferred
revenue includes amounts received from customers in excess of revenue
recognized, and is comprised of deferred maintenance, service and other
revenue.  Deferred revenues are recognized in the Consolidated
Statements of Operations when the service is completed and over the terms of the
arrangements, primarily ranging from one to three years.





15




Impairment
of Goodwill, Intangible Assets and Long-Lived Assets
 
 Goodwill
and other intangible assets with indefinite lives are not required to be
amortized under FASB ASC 350,Intangibles-Goodwill and Other(FASB ASC 350) and accordingly, the
Company reviews its goodwill for possible impairment on an annual basis, or
whenever specific events warrant. Events that may create an impairment review
include, but are not limited to: significant and sustained decline in the
Company's stock price or market capitalization, significant underperformance of
operating units and significant changes in market conditions and trends. Forgent
uses a two-step process and a discounted cash flow model to evaluate its assets
for impairment. If the carrying amount of the goodwill or asset exceeds its
implied fair value, an impairment loss is recognized in an amount equal to the
excess during that fiscal period.  Intangible assets that are not
deemed to have indefinite lives are amortized over their useful lives and are
tested for impairment in accordance with FASB ASC 350.
 
 In
accordance with FASB ASC 350, Forgent reviews and evaluates its long-lived
assets for impairment whenever events or changes in circumstances indicate that
their net book value may not be recoverable.  When such factors and
circumstances exist, including those noted above, the Company compares the
assets’ carrying amounts against the estimated undiscounted cash flows to be
generated by those assets over their estimated useful lives.  If the
carrying amounts are greater than the undiscounted cash flows, the fair values
of those assets are estimated by discounting the projected cash
flows.  Any excess of the carrying amounts over the fair values are
recorded as impairments in that fiscal period.
 
 
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 The
Company is a smaller reporting company as defined by Rule 12b-2 under the
Exchange Act and is not required to provide the information required under this
item.
 
 ITEM
4. CONTROLS AND PROCEDURES
 
 The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company.  The Company
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports it files under the
Securities and Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission.  Such controls include
those designed to ensure that information for disclosure is communicated to
management, including the Chairman of the Board and the Chief Executive Officer
(“CEO”), as appropriate to allow timely decisions regarding required
disclosure.
 
 The CEO
and Controller, with the participation of management, have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of
October 31, 2009.  Based on their evaluation, they have concluded, to
the best of their knowledge and belief, that the disclosure controls and
procedures are effective.  No changes were made in the Company’s internal
controls over financial reporting during the quarter ended October 31,
2009, that have materially affected, or are reasonably likely to materially
affect, the Company’s internal controls over financial reporting.  In
making this assessment, management used the criteria set forth inInternal
Control-Integrated Framework  issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
 
 PART II
– OTHER INFORMATION
 
 ITEM
1. LEGAL PROCEEDINGS
 
 Forgent
was the defendant or plaintiff in various actions that arose in the normal
course of business. With the exception of the proceedings described below, none
of the pending legal proceedings to which the Company is a party are material to
the Company.
 
 Litigation
with Jenkens & Gilchrist, P.C.
 
 On July
16, 2007, Jenkens & Gilchrist, P.C. (“Jenkens”), Forgent’s former legal
counsel, filed a complaint against Forgent and Compressions Labs, Inc., in the
District Court of Dallas County, Texas.  In its complaint, Jenkens
alleged a breach of contract and sought a declaratory
judgment.  Forgent disputed Jenkens’ claims and also sought relief
through the court system.




16





After
Forgent terminated Jenkens, the Company entered into a Resolution Agreement with
Jenkens in December 2004.  Under the Resolution Agreement, the Company
believed Jenkens was entitled to $1,400 for all fees and expenses related to
certain settlements received from licensing the Company's intellectual
property.  Jenkens interpreted the Resolution Agreement on broader
terms and initially believed it was entitled to $2,800.  As of July
31, 2007, Forgent accrued $2,100 for Jenkens’ contingency fees related to these
settlements. The Company recorded the contingency fees as part of cost of sales
on its Consolidated Statement of Operations for the year ended July 31, 2007 in
order to properly match the expenses to the related licensing
revenues.  The $2,100 accrual remained as part of Forgent’s current
liabilities through fiscal year 2009.





On July
20, 2009, the trial with Jenkens commenced.  As the result of the jury
verdict in July 2009 to award Jenkens approximately $4,600 in damages,
attorney’s fees and interest, Forgent entered into a settlement agreement with
Jenkens, effective August 20, 2009.  Under the settlement agreement,
Forgent agreed to pay Jenkens $4,300 and the parties agreed to release all
claims against each other.  Based on the settlement amount, the
Company accrued an additional $2,200 as of July 31, 2009. Since the Company was
no longer licensing its intellectual property and had no related licensing
revenues in fiscal year 2009, this additional $2,200 expense was recorded as
part of operating expenses on the Consolidated Statement of Operations for the
year ended July 31, 2009.  Forgent paid Jenkens $4,300 on August 25,
2009 and the Company considers this litigation to be concluded.





Litigation
with Wild Basin





On
September 6, 2007, Forgent filed a petition against Wild Basin One & Two,
Ltd. (“Wild Basin”) in the District Court of Travis County,
Texas.  The petition claimed Wild Basin was in breach of contract
relating to Forgent’s lease agreement by unreasonably withholding and delaying
its consent to Forgent’s lease assignment to a third party.  On
October 19, 2007, Forgent amended its petition to include claims of fraud and
breach of fiduciary duty against Wild Basin.  On June 5, 2008, Forgent
amended its petition to request the Court make declaratory judgments on several
issues in the case and to include as a breach of contract claim its claim for
withholding amounts that should have been distributed by Wild Basin in the past
pursuant to the lease.  Forgent sought to recover all damages as a
result of the delay in closing its pending assignment and amounts not
distributed in the past, among other damages.





The trial
for this litigation commenced on September 22, 2008.  Prior to the
conclusion of the trial, Forgent and Wild Basin reached a settlement agreement,
effective September 25, 2008.  This settlement agreement requires,
among other terms, that Wild Basin consents to Forgent’s lease
assignment.  In return, Forgent paid Wild Basin $75 in November
2008.  Both parties agreed to mutually release claims against each
other.




While
Forgent was significantly delayed in obtaining Wild Basin’s consent to its lease
assignment, the identified third party encountered difficulties obtaining the
required financing due to the tightened capital markets. Additionally, Forgent
continues to work with Wild Basin regarding its breach of contract claim that
Wild Basin withheld amounts that should have been distributed to Forgent.
Forgent will renew its litigation against Wild Basin regarding this matter, only
if necessary.





ITEM 1A. RISK FACTORS





The
Company is a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and is not required to provide the information required under this
item.




ITEM2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




None




ITEM3. DEFAULTS UPON
SENIOR SECURITIES




None




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




None





17





ITEM 5. EXHIBITS





Exhibits:2.2
            
            Agreement
      and Plan of Merger, dated as of September 11, 2007 by and among
      Forgent Networks, Inc., Cheetah Acquisition Company, Inc. and
      iSarla Inc. (incorporated by reference to Exhibit 2.2 to the
      Company’s quarterly report on Form 10-Q for the three months ended
      October 31, 2007).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, $.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).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.





*
      Filed herewith





18





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





FORGENT
      NETWORKS, INC.December 15,
      2009
            By:
            /s/
      PATRICK GOEPELPatrick
      GoepelChief
      Executive OfficerDecember 15,
      2009
            By:
            /s/
      PAUL D. TESLUKPaul
      D. TeslukController











19





INDEXTO EXHIBITS





EXHIBITNUMBER
            
            DESCRIPTION2.2
            
            Agreement
      and Plan of Merger, dated as of September 11, 2007 by and among
      Forgent Networks, Inc., Cheetah Acquisition Company, Inc. and
      iSarla Inc. (incorporated by reference to Exhibit 2.2 to the
      Company’s quarterly report on Form 10-Q for the three months ended
      October 31, 2007).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, $.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).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.









20