Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

----

 

**FORM 10-Q**

 

**x****         ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedOctober 31, 2008**

 

**OR**

 

**o****          ****TRANSITION REPORT****PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from         to         **

 

**Commission file number: 0-20008**

 

----

 

**FORGENTNETWORKS, 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’sTelephone Number, including Area Code)

 

----

 

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

Yes  x     No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act).
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
|---------------------------|---------------------|-------------------------|-----------------------------|

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o     No  x

 

At December 11, 2008, theregistrant had outstanding 31,108,839 sharesof its Common Stock, $0.01 par value.

 

 

 

----

Table of Contents

 

**INDEX TO FINANCIAL STATEMENTS**

 
| ** **                                                                                                           | **Page**   |
|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                           | **Number** |
| **PART I - FINANCIAL INFORMATION**                                                                              | ** ** |
|                                                                                                                 |       |
| Item 1 – Condensed Consolidated Financial  Statements                                                           |       |
| Condensed Consolidated Balance Sheets as of  October 31, 2008 (unaudited) and July 31, 2008                | 3          |
| Unaudited Condensed Consolidated Statements  of Operations for the Three Months Ended October 31, 2008 and 2007 | 4          |
| Unaudited Condensed Consolidated Statements  of Cash Flows for the Three Months Ended October 31, 2008 and 2007 | 5          |
| Notes to the  Unaudited Condensed Consolidated Financial Statements                                                  | 6          |
| Item 2 -  Management’s  Discussion and Analysis of Financial Condition and Results of Operations           | 12         |
| Item 3 -  Quantitative  and Qualitative Disclosures About Market Risk                                           | 18         |
| Item 4 -  Controls  and Procedures                                                                              | 18         |
|                                                                                                                 |       |
| **PART II - OTHER INFORMATION**                                                                                 | ** ** |
|                                                                                                                 |       |
| Item 1 -   Legal Proceedings                                                                                    | 18         |
| Item 1A - Risk Factors                                                                                               | 19         |
| Item 2 - Unregistered Sales of Equity Securities and  Use of Proceeds                                           | 19         |
| Item 3 - Defaults upon Senior Securities                                                                        | 19         |
| Item 4 - Submission of Matters to a Vote of Security Holders                                                    | 19         |
| Item 5 - Other Information                                                                                           | 19         |
| Item 6 - Exhibits                                                                                                    | 20         |
|                                                                                                                 |       |
| **Signatures**                                                                                                       | 21         |
|                                                                                                                 |       |
| **Index to Exhibits**                                                                                                | 22         |

 

2

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(Amounts in thousands, except per share data)

 
| ** **                                                                                                                                                                                    | ** ** | **OCTOBER 31,  2008** | ** ** | **JULY 31,  2008** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                    | ** ** | **(UNAUDITED)**            | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                                    |       |                       |       |                    |       |
| Current Assets:                                                                                                                                                                               |       |                       |       |                    |       |
| Cash and equivalents                                                                                                                                                                          |       | $                          | 10,554     |                    | $          | 12,062 |   |
| Short-term investments                                                                                                                                                                        |       | 3,289                      |       | 2,627                   |       |
| Accounts receivable, net of allowance for  doubtful accounts of $47 and  $41 at October 31, 2008 and July 31, 2008, respectively                                                    |       | 1,333                      |       | 1,718                   |       |
| Inventory                                                                                                                                                                                     |       | 58                         |       | 74                      |       |
| Prepaid expenses and other current assets                                                                                                                                                     |       | 217                        |       | 191                     |       |
| Total Current Assets                                                                                                                                                                          | ** ** | **15,451**                 | ** ** | **16,672**              | ** ** |
|                                                                                                                                                                                          |       |                       |       |                    |       |
| Property and equipment, net                                                                                                                                                                   |       | 775                        |       | 907                     |       |
| Intangible assets, net                                                                                                                                                                        |       | 4,534                      |       | 4,729                   |       |
| ** **                                                                                                                                                                                    | ** ** | **$**                      | **20,760** | ** **              | **$**      | **22,308** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                 |       |                       |       |                    |       |
| Current Liabilities:                                                                                                                                                                          |       |                       |       |                    |       |
| Accounts payable                                                                                                                                                                              |       | $                          | 4,054      |                    | $          | 3,778 |   |
| Accrued compensation and benefits                                                                                                                                                             |       | 192                        |       | 203                     |       |
| Lease impairment and advance                                                                                                                                                                  |       | 355                        |       | 373                     |       |
| Other accrued liabilities                                                                                                                                                                     |       | 335                        |       | 384                     |       |
| Deferred revenue                                                                                                                                                                              |       | 1,874                      |       | 1,844                   |       |
| Total Current Liabilities                                                                                                                                                                     | ** ** | **6,810**                  | ** ** | **6,582**               | ** ** |
|                                                                                                                                                                                          |       |                       |       |                    |       |
| Long-Term Liabilities:                                                                                                                                                                        |       |                       |       |                    |       |
| Deferred revenue                                                                                                                                                                              |       | 27                         |       | 25                      |       |
| Lease impairment and advance                                                                                                                                                                  |       | 455                        |       | 564                     |       |
| Other long-term obligations                                                                                                                                                                   |       | 207                        |       | 217                     |       |
| Total Long-Term Liabilities                                                                                                                                                                   | ** ** | **689**                    | ** ** | **806**                 | ** ** |
| ** **                                                                                                                                                                                    | ** ** | ** **                 | ** ** | ** **              | ** ** |
| Stockholders’ Equity:                                                                                                                                                                    |       |                       |       |                    |       |
| Preferred stock, $.01 par value; 10,000  shares authorized; none issued or outstanding                                                                                                        |       | —                     |       | —                  |       |
| Common stock, $.01 par value; 40,000 shares  authorized; 32,899 and 32,892 shares issued; 31,109 and 31,102 shares  outstanding at October 31, 2008 and July 31, 2008, respectively |       | 329                        |       | 329                     |       |
| Treasury stock at cost, 1,790 shares at  October 31, 2008 and July 31, 2008                                                                                                         |       | (4,815                     | )          | (4,815                  | )          |
| Additional paid-in capital                                                                                                                                                                    |       | 270,695                    |       | 270,657                 |       |
| Accumulated deficit                                                                                                                                                                           |       | (252,753                   | )          | (251,214                | )          |
| Accumulated other comprehensive income                                                                                                                                                        |       | (195                       | )          | (37                     | )          |
| Total Stockholders’ Equity                                                                                                                                                               | ** ** | **13,261**                 | ** ** | **14,920**              | ** ** |
| ** **                                                                                                                                                                                    | ** ** | **$**                      | **20,760** | ** **              | **$**      | **22,308** | ** ** |

 

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

 

3

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

(Amounts in thousands, except per share data)

 
| ** **                                    | ** ** | **FOR THE THREE  MONTHS ENDED  OCTOBER 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                                         | ** ** | **2007** | ** ** |
| ** **                                    | ** ** | **(UNAUDITED)**                                                  | ** ** |
|                                          |       |                                                             |       |   |   |
| Revenues                                      |       | $                                                                | 2,792      |   | $ | 1,875 |   |
| Cost of Sales                                 |       | (564                                                             | )          | (330 | ) |
| **Gross Margin**                              | ** ** | **2,228**                                                        | ** ** | **1,545** | ** ** |
|                                          |       |                                                             |       |   |   |
| **OPERATING EXPENSES:**                       |       |                                                             |       |   |   |
| Selling, general and administrative           |       | 3,197                                                            |       | 2,440 |   |
| Research and development                      |       | 561                                                              |       | 291 |   |
| Amortization of intangible assets             |       | 149                                                              |       | 36 |   |
| Total Operating Expenses                      | ** ** | **3,907**                                                        | ** ** | **2,767** | ** ** |
|                                          |       |                                                             |       |   |   |
| **LOSS FROM OPERATIONS**                      | ** ** | **(1,679**                                                       | **)**      | **(1,222** | **)** |
|                                          |       |                                                             |       |   |   |
| **OTHER INCOME AND (EXPENSES):**              |       |                                                             |       |   |   |
| Interest income                               |       | 55                                                               |       | 338 |   |
| Foreign currency translation                  |       | 120                                                              |       | (7 | ) |
| Interest expense and other                    |       | (10                                                              | )          | (13 | ) |
| Total Other Income                            | ** ** | **165**                                                          | ** ** | **318** | ** ** |
|                                          |       |                                                             |       |   |   |
| **LOSS FROM OPERATIONS, BEFORE INCOME TAXES** | ** ** | **(1,514**                                                       | **)**      | **(904** | **)** |
| Provision for income taxes                    |       | (25                                                              | )          | (14 | ) |
| **NET LOSS**                                  | ** ** | **$**                                                            | **(1,539** | **)** | **$** | **(918** | **)** |
|                                          |       |                                                             |       |   |   |
| **BASIC AND DILUTED LOSS PER SHARE:**         |       |                                                             |       |   |   |
| Net loss per share - basic and diluted        |       | $                                                                | (0.05      | ) | $ | (0.03 | ) |
| **WEIGHTED AVERAGE SHARES OUTSTANDING:**      |       |                                                             |       |   |   |
| Basic                                         |       | 31,104                                                           |       | 27,094 |   |
| Diluted                                       |       | 31,104                                                           |       | 27,094 |   |

 

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

 

4

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

(Amounts in thousands)

 
| ** **                                                         | ** ** | **FOR THE THREE  MONTHS ENDED  OCTOBER 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2008**                                                         | ** ** | **2007** | ** ** |
| ** **                                                         | ** ** | **(UNAUDITED)**                                                  | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                          |       |                                                             |       |   |   |
| Loss from operations                                               |       | $                                                                | (1,539     | ) | $ | (918 | ) |
| Adjustments to reconcile net loss to net  cash used in operations: |       |                                                             |       |   |   |
| Depreciation and amortization                                      |       | 327                                                              |       | 141 |   |
| Amortization of leasehold advance and lease  impairment            |       | (96                                                              | )          | (97 | ) |
| Provision for doubtful accounts                                    |       | 8                                                                |       | (2 | ) |
| Share-based compensation                                           |       | 36                                                               |       | 5 |   |
| Foreign currency translation (gain) loss                           |       | (120                                                             | )          | 7 |   |
| Gain on sale of assets                                             |       | (5                                                               | )          | — |   |
| Changes in operating assets and  liabilities:                      |       |                                                             |       |   |   |
| Accounts receivable                                                |       | 335                                                              |       | 137 |   |
| Inventory                                                          |       | 16                                                               |       | — |   |
| Prepaid expenses and other current assets                          |       | (25                                                              | )          | 22 |   |
| Accounts payable                                                   |       | 243                                                              |       | (8,041 | ) |
| Accrued expenses and other long-term  obligations                  |       | (62                                                              | )          | (248 | ) |
| Deferred revenue                                                   |       | 74                                                               |       | (70 | ) |
| Net cash used in operating activities                              | ** ** | **(808**                                                         | **)**      | **(9,064** | **)** |
| ** **                                                         | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                          |       |                                                             |       |   |   |
| Net purchases of short-term investments                            |       | (658                                                             | )          | (1,483 | ) |
| Net purchases of property and equipment                            |       | (25                                                              | )          | (18 | ) |
| Change in other assets                                             |       | —                                                           |       | 164 |   |
| Acquisition of iSarla, Inc., net of  cash acquired            |       | —                                                           |       | (7,213 | ) |
| Net cash used in by investing activities                           | ** ** | **(683**                                                         | **)**      | **(8,550** | **)** |
| ** **                                                         | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                          |       |                                                             |       |   |   |
| Net proceeds from issuance of stock                                |       | 2                                                                |       | 2 |   |
| Payments on capital leases                                         |       | (7                                                               | )          | (1 | ) |
| Net cash (used in) provided by financing  activities               | ** ** | **(5**                                                           | **)**      | **1** | ** ** |
|                                                               |       |                                                             |       |   |   |
| Effect of translation exchange rates                               |       | (12                                                              | )          | 14 |   |
|                                                               |       |                                                             |       |   |   |
| Net decrease in cash and equivalents                               |       | (1,508                                                           | )          | (17,599 | ) |
| Cash and equivalents at beginning of period                        |       | 12,062                                                           |       | 33,524 |   |
| Cash and equivalents at end of period                              | ** ** | **$**                                                            | **10,554** | ** ** | **$** | **15,925** | ** ** |
|                                                               |       |                                                             |       |   |   |
| **SUPPLEMENTAL CASH FLOW  INFORMATION:**                           |       |                                                             |       |   |   |
| Issuance of stock for  acquisition of iSarla, Inc.            |       | $                                                                | —     |   | $ | 4,987 |   |

 

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

 

5

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

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

 

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

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with the rules and regulations of the Securitiesand Exchange Commission and accordingly, do not include all information andfootnotes required 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 October 31,2008 and July 31, 2008, and the results of operations and cash flows forthe three months ended October 31, 2008 and 2007. These condensedconsolidated financial statements should be read in conjunction with theCompany’s audited consolidated financial statements and notes thereto filedwith the Securities and Exchange Commission in the Company’s annual report onForm 10-K for the fiscal year ended July 31, 2008.  The results for the interim periods are notnecessarily indicative of results for a full fiscal year.

 

**NOTE 2 - ACQUISITION**

 

On October 5, 2007, Forgent acquired all ofthe outstanding capital stock of iSarla Inc., a Delaware corporation andapplication service provider that offers on-demand software solutions that helpsimplify the human resource process and improve employee productivity bymanaging and communicating human resources, employee benefits and payroll information.iSarla Inc. conducted its business under the trade name “iEmployee” andprovided hosted application services, including Time & Attendance,Timesheets, Human Resource Benefits, Expenses and other solutions.  iEmployee was a profitable business with ahigh percentage of recurring revenues and delivered its software as a serviceunder the “SaaS” model.  The acquisitionexpanded Forgent’s current target markets, significantly augmented theCompany’s product and service offerings to customers, and increased revenuesfrom its operations considerably.  Due tothese factors, the Company purchased the iEmployee business at a premium (i.e.goodwill) over the fair value of the net assets acquired.

 

In consideration for theacquisition, Forgent paid approximately $12,661, including $6,602****in cash, 5,095 shares of its Common Stock,valued at approximately $4,987 and transaction cost of approximately$1,072.  The shares of Common Stockissued were valued based upon the price of $0.98 when the number of shares tobe issued became fixed.  Upon closing,$990 in cash and 764 shares totaling $748 of the purchase price were held inescrow for 12 and 18 months for representations and warranties.  The purchase agreement did not includeprovisions for any other contingent payments, options or commitments.  As a result of the acquisition,iEmployee’s results of operations since October 5, 2007 have been includedin the Company’s Consolidated Statement of Operations.

 

The business combination wasaccounted for under Financial Accounting Standard Board (“FASB”) Statement No. 141, *“Business Combinations.” *The application of purchaseaccounting under Statement No. 141 requires the total purchase price to beallocated to the fair value of assets acquired and liabilities assumed based ontheir fair values at the acquisition date, with amounts exceeding fair valuebeing recorded as goodwill.  Thefollowing table summarizes the final adjusted fair values of the iEmployeeassets acquired and liabilities assumed:

 
| ** **                        | ** ** | **Final**      | ** ** |
|-----------------------------------|------------|----------------|------------|
| ** **                        | ** ** | **Allocation** | ** ** |
| **Assets Acquired**               |       |           |       |
| Cash                              |       | $              | 460        |   |
| Short-term investments            |       | 526            |       |
| Accounts receivable, net          |       | 452            |       |
| Prepaid assets                    |       | 90             |       |
| Fixed assets                      |       | 340            |       |
| Goodwill                          |       | 7,391          |       |
| Intangible assets                 |       | 5,368          |       |
| Other assets                      |       | 11             |       |
| **Total assets acquired**         | ** ** | **14,638**     | ** ** |
| ** **                        | ** ** | ** **     | ** ** |
| **Liabilities assumed**           | ** ** | ** **     | ** ** |
| Accounts payable                  |       | (1,279         | )          |
| Accrued compensation and benefits |       | (134           | )          |
| Accrued other liabilities         |       | (189           | )          |
| Deferred revenue                  |       | (375           | )          |
| **Total liabilities assumed**     | ** ** | **(1,977**     | **)**      |
|                              |       |           |       |
| **Net  assets acquired**          | ** ** | **$**          | **12,661** | ** ** |

 

6

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

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

 

Due to its continueddepressed stock price and the current market conditions during the fourthfiscal quarter of 2008, Forgent determined that the decline in its marketcapitalization may not be temporary.  Dueto the decline in its market capitalization, the Company was required to perform an impairment analysis onits goodwill.  As a result of theimpairment analysis, Forgent recorded a non-cash $7,391 goodwill impairmentrelated to its acquisition of iEmployee to its Consolidated Statement ofOperations during the fourth quarter of fiscal 2008.  This impairment had no impact to theCompany’s tangible net book value or liquidity.

 

The followingsummary presents unaudited pro forma consolidated financial information for thethree months ended October 31, 2007, as if the iEmployee acquisition hadoccurred as of August 1, 2007.  Thepro forma information does not purport to be indicative of the actual resultswhich would have occurred had the acquisition been completed as ofAugust 1, 2007, nor is it necessarily indicative of the results ofoperations which may occur in the future.

 
| ** **                           | ** ** | **OCTOBER 31, 2007** | ** ** |
|--------------------------------------|------------|--------------------------------|------------|
| ** **                           | ** ** | **AS**                         | ** ** | **PRO** | ** ** |
| ** **                           | ** ** | **REPORTED**                   | ** ** | **FORMA** | ** ** |
|                                 |       |                           |       |   |   |
| Revenues                             |       | $                              | 1,875      |   | $ | 2,888 |   |
| Net (loss) income                    |       | (918                           | )          | (773 | ) |
|                                 |       |                           |       |   |   |
| Net (loss) income per common share:  |       |                           |       |   |   |
| Basic                                |       | $                              | (0.03      | ) | $ | (0.03 | ) |
| Diluted                              |       | (0.03                          | )          | (0.03 | ) |
|                                 |       |                           |       |   |   |
| Weighted average shares outstanding: |       |                           |       |   |   |
| Basic                                |       | 27,094                         |       | 30,749 |   |
| Diluted                              |       | 27,094                         |       | 30,749 |   |

 

**3.****                                     ****INTANGIBLE ASSETS**

 

Forgent accounts for itsacquisitions in accordance with FASB Statement No. 141, *“BusinessCombinations.” *The Company records intangible assets apartfrom goodwill if the assets have contractual or other legal rights or if theassets can be separated and sold, transferred, licensed, rented orexchanged.  Forgent’s intangible assetsrelate to its acquisition of iSarla Inc. and the iEmployee operations.

 

In accordance with FASBStatement No. 144, *“Accounting for theImpairment or Disposal of Long-Lived Assets,”* Forgent reviews andevaluates its long-lived assets, including intangible assets with finite lives,for impairment whenever events or changes in circumstances indicate that theirnet book value may not be recoverable. The gross carrying amount and accumulated amortization of the Company’sintangible assets as of October 31, 2008 and July 31, 2008 are asfollows:

 

7

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

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

 
| ** **                | ** ** | ** **                      | ** ** | **October 31, 2008** | ** ** |
|---------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| ** **                | ** ** | **Amortization**                | ** ** | ** **                     | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| **Intangible Asset** | ** ** | **Period (in Years)** | ** ** | **Gross**                      | ** ** | **Amortization** | ** ** | **Net** | ** ** |
|                      |       |                            |       |                           |       |   |   |   |   |
| Developed Technology      |       | 5                               |       | $                              | 915        |   | $ | (196 | ) | $ | 719 |   |
| Customer Relationships    |       | 8                               |       | 2,470                          |       | (330 | ) | 2,140 |   |
| Ceridian Contract         |       | 8                               |       | 1,545                          |       | (206 | ) | 1,339 |   |
| Trade Names               |       | 5                               |       | 288                            |       | (62 | ) | 226 |   |
| Covenant not-to-compete   |       | 4                               |       | 150                            |       | (40 | ) | 110 |   |
| ** **                | ** ** | ** **                      | ** ** | **$**                          | **5,368**  | ** ** | **$** | **(834** | **)** | **$** | **4,534** | ** ** |

 
| ** **                | ** ** | ** **                      | ** ** | **July 31, 2008** | ** ** |
|---------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                | ** ** | **Amortization**                | ** ** | ** **                  | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| **Intangible Asset** | ** ** | **Period (in Years)** | ** ** | **Gross**                   | ** ** | **Amortization** | ** ** | **Net** | ** ** |
|                      |       |                            |       |                        |       |   |   |   |   |
| Developed Technology      |       | 5                               |       | $                           | 915        |   | $ | (150 | ) | $ | 765 |   |
| Customer Relationships    |       | 8                               |       | 2,470                       |       | (253 | ) | 2,217 |   |
| Ceridian Contract         |       | 8                               |       | 1,545                       |       | (158 | ) | 1,387 |   |
| Trade Names               |       | 5                               |       | 288                         |       | (47 | ) | 241 |   |
| Covenant not-to-compete   |       | 4                               |       | 150                         |       | (31 | ) | 119 |   |
| ** **                | ** ** | ** **                      | ** ** | **$**                       | **5,368**  | ** ** | **$** | **(639** | **)** | **$** | **4,729** | ** ** |

 

Amortization expense isrecorded using the straight-line method over the estimated economic usefullives of the intangible assets, as noted above. Amortization expense for the three months ended October 31, 2008and 2007 was $149 and $36, respectively.  The following table summarizes the estimated amortization expenserelating to the Company’s intangible assets for the next five fiscal years andthereafter as of October 31, 2008:

 
| **Fiscal Years** | ** ** | ** ** | ** ** |
|-----------------------|------------|------------|------------|
| Remaining 2009        |       | $          | 586        |   |
| 2010                  |       | 780        |       |
| 2011                  |       | 780        |       |
| 2012                  |       | 749        |       |
| 2013                  |       | 545        |       |
| Thereafter            |       | 1,094      |       |
| ** **            | ** ** | **$**      | **4,534**  | ** ** |

 

**NOTE 4 – FAIR VALUE MEASUREMENTS**

 

EffectiveAugust 1, 2008, Forgent adopted Statement No. 157, *“Fair Value Measurements.”  *StatementNo. 157 defines fair value, establishes a framework for measuring fairvalue in U.S. generally accepted accounting principles and expands disclosuresabout fair value measurements.  The adoption of Statement No. 157 didnot have a material impact to the Company’s consolidated financial statements.

 

Statement No. 157establishes a three-tier fair value hierarchy, which are based on thereliability of the inputs used in measuring fair values. These tiers include:

 

Level1: Quoted prices in active markets for *identical*assets or liabilities;

 

8

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

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

 

Level 2: Quoted prices in active markets for *similar*assets or liabilities; quoted prices in markets that are not active foridentical or similar assets or liabilities; and model-driven valuations whosesignificant inputs are observable; and

 

Level 3: Unobservable inputs that are supported by little or no marketactivity and that are significant to the fair value of the assets orliabilities.

 

The followingtable presents the fair value hierarchy for the Company’s financial assets(cash equivalents and short-term investments) measured at fair value on arecurring basis as of October 31, 2008:

 
| ** **                                | ** ** | ** **           | ** ** | **Fair Value Measure at October 31, 2008** | ** ** |
|-------------------------------------------|------------|----------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **Total**            | ** ** | **Quoted**                                                               | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Carrying**         | ** ** | **Prices**                                                               | ** ** | **Other** | ** ** | **Significant** | ** ** |
| ** **                                | ** ** | **Value at**    | ** ** | **in Active**                                                       | ** ** | **Observable** | ** ** | **Unobservable** | ** ** |
| ** **                                | ** ** | **October 31,** | ** ** | **Market**                                                               | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| **Description**                           | ** ** | **2008**             | ** ** | **(Level 1)**                                                            | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Cash Equivalents                          |       | $                    | 10,554     |                                                                     | $          | 10,554 |   | $ | — |   | $ | — |   |
| Short-term investments available for sale |       | 3,289                |       | 3,289                                                                    |       | — |   | — |   |
| **Total**                                 | ** ** | **$**                | **13,843** | ** **                                                               | **$**      | **13,843** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |

 

InFebruary 2007, the FASB issued Statement No. 159, *“The Fair Value Option for Financial Assets andFinancial Liabilities.”*Statement No. 159 provides companieswith an option to report selected financial assets and liabilities at fairvalue. The standard’s objective is to reduce both complexity in accounting forfinancial instruments and the volatility in earnings caused by measuringrelated assets and liabilities differently. The standard requires companies to provide additional information thatwill help investors and other users of financial statements to more easilyunderstand the effect of the company’s choice to use fair value on itsearnings. It also requires companies to display the fair value of those assetsand liabilities for which the company has chosen to use fair value on the faceof the balance sheet. This statement does not eliminate disclosure requirementsincluded in other accounting standards, including requirements for disclosuresabout fair value measurements included in Statement No. 157, *“Fair Value Measurements,”*and StatementNo. 107, *“Disclosures about Fair Valueof Financial Instruments.”* Forgent adopted Statement No. 159, effective August 1, 2008,and elected not to measure any additional financial instruments at fairvalue.  Therefore, the adoption ofStatement No. 159 did not have a material impact to the Company’sconsolidated financial statements.

 

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

 

In accordancewith the disclosure requirements of FASB Statement No. 130, *“Reporting Comprehensive Income,”*theCompany’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.  The following table presents the Company’scomprehensive loss and its components for the three months endedOctober 31, 2008 and 2007:

 
| ** **                   | ** ** | **For the Three Months** | ** ** |
|------------------------------|------------|-----------------------------------------|------------|
| ** **                   | ** ** | **Ended October 31,**         | ** ** |
| ** **                   | ** ** | **2008**                                | ** ** | **2007** | ** ** |
|                         |       |                                    |       |   |   |
| Net Loss                     |       | $                                       | (1,539     | ) | $ | (918 | ) |
| Foreign currency (loss) gain |       | (162                                    | )          | 22 |   |
| Unrealized gain              |       | 4                                       |       | 3 |   |
| **Comprehensive Loss**       | ** ** | **$**                                   | **(1,697** | **)** | **$** | **(893** | **)** |

 

9

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

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

 

**NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS**

 

InDecember 2007, the FASB issued Statement No. 141(R), *“Business Combinations.”* StatementNo. 141(R) establishes principles and requirements for how anacquirer recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, any non-controlling interest in theacquiree and the goodwill acquired in the business combination.  The statement also establishes disclosurerequirements which will enable users to evaluate the nature and financialeffects of the business combination. Statement No. 141(R) iseffective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008. As such, the Company will adoptthese provisions for any business combination after August 1, 2009.  The adoption of StatementNo. 141(R) may have an impact on Forgent’s accounting for futurebusiness combinations once adopted.

 

**NOTE 7 –SHARE BASED COMPENSATION**

 

Share basedcompensation for the Company’s stock option, restricted stock and stockpurchase plans for the three months ended October 31, 2008 and 2007 was$36 and $5, respectively.  TheCompany issued 7****and 4 shares ofcommon stock related to exercises of stock options granted from its StockOption, Restricted Stock, and Stock Purchase Plans for the three months endedOctober 31, 2008 and 2007, respectively.

 

**NOTE 8 – INCOME TAXES**

 

In June 2006, the FASBissued Interpretation No. 48, “*Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”*(“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in incometaxes recognized in an entity’s financial statements in accordance withStatement No. 109, *“Accounting forIncome Taxes.”*

 

Forgent adopted FIN 48 as ofAugust 1, 2007. FIN 48 applies to all “tax positions” accounted for underSFAS No. 109. FIN 48 refers to “tax positions” as positions taken in apreviously filed tax return or positions expected to be taken in a future taxreturn which are reflected in measuring current or deferred income tax assetsand liabilities reported in the financial statements. FIN 48 further clarifiesa tax position to include, but not be limited to, the following:

 
| · | An allocation or a shift  of income between taxing jurisdictions;                                  |
|--------|----------------------------------------------------------------------------------------------------|
|   |                                                                                               |
| · | The characterization of  income or a decision to exclude reporting taxable income in a tax return; |
|   |                                                                                               |
| · | A decision to classify a  transaction, entity, or other position in a tax return as tax exempt.    |

 

FIN 48 provides that a taxbenefit may be reflected in the financial statements only if it is “more likelythan not” that a company will be able to sustain the tax return position, basedon its technical merits. If a tax benefit meets this criterion, it should bemeasured and recognized based on the largest amount of benefit that iscumulatively greater than 50% likely to be realized. This approach is a changefrom previous practice under which a tax benefit could be recognized only if itwas probable a tax position could be sustained.

 

FIN 48 requires the Companyto make qualitative and quantitative disclosures, including a discussion ofreasonably possible changes that might occur in unrecognized tax benefits overthe next twelve months, a description of open tax years by major jurisdictionsand a roll-forward of all unrecognized tax benefits, presented as areconciliation of the beginning and ending balances of the unrecognized taxbenefits on an aggregated basis.

 

Forgent and certain of itssubsidiaries file income tax returns in the U.S. federal jurisdiction, variousstate jurisdictions, and certain foreign jurisdictions. Generally, the Companyis no longer subject to examinations for U.S. federal income taxes for yearsprior to 2003 and for state income taxes for years prior to 2002. Examinationsfor foreign income taxes for previous years remain open, but tax considerationsin those jurisdictions are not material to the Company.

 

The adoption of FIN 48 didnot have a material impact on the Company’s financial statements ordisclosures. As of October 31, 2008 and 2007, Forgent did not recognizeany assets or liabilities for unrecognized tax benefits relative to uncertaintax positions. Management does not anticipate that a significant increase or 

 

10

----

Table of Contents

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

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

 

decrease to gross unrecognized tax benefitswill be recorded during the next twelve months. Any interest or penaltiesresulting from examinations will be recognized as a component of the income taxprovision. However, since there are no unrecognized tax benefits as a result oftax positions taken, Forgent has no accrued interest and penalties.

 

**NOTE 9 –CONTINGENCIES**

 

Forgent is thedefendant or plaintiff in various actions that arose in the normal course ofbusiness. With theexception of the proceedings described below, none of the pending legalproceedings 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 complaintagainst Forgent and Compressions Labs, Inc., in the District Court ofDallas County, Texas.  In its complaint,Jenkens alleges a breach of contract and is seeking a declaratoryjudgment.  Forgent disputes Jenkens’claims and is seeking relief through the court system.

 

After Forgentterminated Jenkens, the Company entered into a Resolution Agreement withJenkens in December 2004.  Under theResolution Agreement, the Company believes Jenkens is entitled to $1,400 forcontingency fees and expenses related to the settlements from the litigationregarding the Company’s DVR patents. Jenkens interprets the Resolution Agreement on broader terms and nowbelieves it is entitled to $3,400, including attorneys’ fees and interest.

 

OnMarch 3, 2008, Forgent and Jenkens appeared before the Court regarding ahearing on the motion for summary judgment filed by Jenkens.  On May 20, 2008, the Court grantedJenkens’ motion and ordered Forgent to pay Jenkens $2,800 for recoveriesrelated to the ‘746 patent and other amounts including attorney’s fees andinterest.  Forgent appealed this Courtorder and, on September 3, 2008, the Court granted Forgent’s Motion toReconsider Order.  Thetrial date for this litigation is currently scheduled for April 27, 2009.

 

Managementcurrently cannot predict how long it ultimately will take to resolve theJenkens lawsuit.  Until the Jenkenslitigation is finalized, the related contingency fees and expenses may beadjusted in a future period and could have a material impact to the Company’sconsolidated financial statements.

 

**Litigation with Wild Basin**

 

On September 6, 2007, Forgent filed apetition against Wild Basin One & Two, Ltd. (“Wild Basin”) in theDistrict Court of Travis County, Texas. The petition claimed Wild Basin was in breach of contract relating toForgent’s lease agreement by unreasonably withholding and delaying its consentto Forgent’s lease assignment to a third party. On October 19, 2007, Forgent amended its petition to include claimsof fraud and breach of fiduciary duty against Wild Basin.

 

On June 2, 2008, Wild Basin filed acounterclaim seeking a declaratory judgment that it had complied with itsobligations under the lease and was seeking the recovery of attorney’sfees.  On June 5, 2008, Forgentamended its petition to request the Court make declaratory judgments on severalissues in the case and to include as a breach of contract claim its claim forwithholding amounts that should have been distributed by Wild Basin in the pastpursuant to the lease.  Forgent sought torecover all damages as a result of the delay in closing its pending assignmentand amounts not distributed in the past, among other damages.

 

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

 

After Forgentand Wild Basin participated in mediation on November 11, 2008 to finalizethe terms of the settlement agreement, Wild Basin consented to Forgent’s leaseassignment and the documents were submitted to Wild Basin’s lender for finalapproval.  As required by the settlementagreement, Forgent expects to finalize the lease assignment by December 31,2008.  However, there is no assurancethat Forgent will finalize the lease assignment, or if finalized, that it willoccur by the December 31, 2008 deadline.

 

11

----

Table of Contents

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

 

The followingreview of Forgent’s financial position as of October 31, 2008 andJuly 31, 2008 and for the three months ended October 31, 2008 and 2007should be read in conjunction with the Company’s 2008 Annual Report onForm 10-K filed with the Securities and Exchange Commission.  Forgent’s internet website address ishttp://www.asuresoftware.com.  The Company’s annual reports onForm 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K and amendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934are available through the investor relations page of the Company’s internetwebsite free of charge as soon as reasonably practicable after they areelectronically filed, or furnished to, the Securities and Exchange Commission. Forgent’s internet website and the information contained therein orconnected thereto are not intended to be incorporated into this QuarterlyReport on Form 10-Q.

 

In September 2007, theCompany announced a change in the name under which it does business byre-branding its corporate name to “Asure Software” to reflect the Company’sfocus on its software and services segment for its future growth.  Effective September 13, 2007, theCompany began trading in the Nasdaq Global Market System under the symbol“ASUR”.  On February 4, 2008, Forgent received a Nasdaq deficiency letterindicating that, for 30 consecutive business days, the bid price per share ofthe Company’s common stock closed below the minimum $1.00 per sharerequirement.  Therefore, the Company’scommon stock was subject to potential delisting from the Nasdaq Global MarketExchange pursuant to Nasdaq Marketplace Rule 4450(a)(5). The Company wasprovided 180 calendar days, or until August 4, 2008,****to regain compliance by maintaining ashare bid price in excess of $1.00 for ten consecutive business days. Forgentworked to regain compliance through improving its operating results, but it wasunable to regain compliance with the minimum bid requirement.  Consequently, Forgent applied for a transferlisting on the Nasdaq Capital Market. Nasdaq approved the application and transferred the Company’s securitiesto the Nasdaq Capital Market, effective September 19, 2008.  As a result of this transfer, Forgent wasprovided an additional 180 calendar days, beginning from the originalAugust 4, 2008 deadline, or until February 2, 2009, to regaincompliance with the minimum $1.00 share bid price requirement.  The Company’s trading symbol continues to be“ASUR” and the trading of the Company’s stock is unaffected by this change.

 

Due to current unprecedentedmarket conditions, on October 16, 2008, Nasdaq suspended the enforcementof its rules requiring a minimum $1.00 share bid price for all Nasdaq-listedcompanies.  The rules will bereinstated on January 19, 2009. Consequently, on October 22, 2008, Forgent received a Nasdaq letterextending the revised compliance deadline from February 2, 2009 toMay 5, 2009.  If the Company cannotachieve compliance with the minimum share price requirement by May 5,2009, Nasdaq will provide written notification that the Company’s securitieswill be de-listed from the Capital Market Exchange.

 

**CAUTIONARYSTATEMENT REGARDING FORWARD-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 toidentify these forward-looking statements with the words “believes,”“estimates,” “plans,” “expects,” “anticipates,” “may,” “could” and othersimilar expressions. Although these forward-looking statements reflectmanagement’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. Additionally, Forgent is under no obligation to update any of theforward-looking statements after the date of this Form 10-Q to conformsuch statements to actual results.

 

12

----

Table of Contents

 

**RESULTS OF OPERATIONS**

 

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

 
| ** **                          | ** ** | **FOR THE THREE  MONTHS ENDED  OCTOBER 31,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2008**                                                         | ** ** | **2007** | ** ** |
|                                |       |                                                             |       |   |   |
| Software and services revenues      |       | 100.0                                                            | %          | 100.0 | % |
| Gross margin                        |       | 79.8                                                             |       | 82.4 |   |
| Selling, general and administrative |       | 114.5                                                            |       | 130.2 |   |
| Research and development            |       | 20.1                                                             |       | 15.5 |   |
| Amortization of intangible  assets  |       | 5.3                                                              |       | 1.9 |   |
| Total operating expenses            |       | 139.9                                                            |       | 147.6 |   |
| Other income, net                   |       | 5.9                                                              |       | 17.0 |   |
| Net loss                            |       | (55.1                                                            | )%         | (49.0 | )% |

 

**THREEMONTHS ENDED OCTOBER 31, 2008 AND 2007**

 

**Revenues**

 

Revenues forthe three months ended October 31, 2008 were $2.8 million, an increase of$0.9 million, or 48.9%, from the $1.9 million reported for the three monthsended October 31, 2007.  Consolidated revenuesrepresent the combined revenues of the Company and its subsidiaries, includingsales of the Company’s schedulingsoftware, asset management software, human resource and time and attendancesoftware,complementary hardware devices to enhances its software products, softwaremaintenance and support services, installation and training services and otherprofessional services.

 

Duringthe first fiscal quarter of 2009, an increase in software subscription revenuesaccounted for approximately 97.4% of the $0.9 million increase inrevenues.  In October 2007, theCompany acquired iEmployee’s human resource and time and attendance softwarealong with its operations.  This software, as well as the Company’sMeeting Room Manager (“MRM”) On Demand software, are delivered tocustomers under the “SaaS” model, which is software as a service.  The SaaS model, which is a subscription-basedoffering, allows customers to use Forgent’s software without installingor maintaining the software on their own servers.  Since the iEmployee acquisition occurred inOctober 2007, the Company did not benefit from having a full quarter’sworth of revenues from the iEmployee operations during the three months endedOctober 31, 2007.  The increase insoftware subscription revenues during the three months ended October 31,2008 is due primarily to the Company generating revenues from the iEmployeeoperations the entire quarter.

 

The Company continues to develop itsiEmployee sales force and web-based marketing model to increase salesperformance and will release new software updates and enhancements for certainof its software products during the next twelve months.  Forgent will continue to target small andmedium businesses and divisions of enterprises and will employ targetedvertical marketing programs, as appropriate. Although the Company’s sales, particularly of MRM, have beenconcentrated in certain verticals, including corporate, education,governmental, healthcare, legal and non-profit entities, the Company’scustomers are widely spread across industries as well as geographies.  Forgent has recently experienced somesoftness in the market due to the current depressed macroeconomic environment.  However, the Company has not experienced asignificant reduction in sales from any particular industry or geographiclocation that would indicate that Forgent is currently at risk of a materialdecrease in revenues resulting from a concentrated customer base.

 

**GrossMargin**

 

Gross marginsfor the three months ended October 31, 2008 were $2.2 million, an increaseof $0.7 million, or 44.2%, from the $1.5 million reported for the three monthsended October 31, 2007. Gross margins as a percentage of revenues were79.8% and 82.4% for the three months ended October 31, 2008 and 2007,respectively.

 

The $0.7 million increase ingross margin is driven by the increase in revenues resulting from the Companygenerating a full quarter’s worth of revenues related to the iEmployeeoperations during the three months ended October 31, 2008.  Additionally, cost of sales increased by $0.2 million during the first fiscalquarter of 2009, 81.8% of which is due tothe Company incurring costof sales related to the iEmployee operations for the entire quarter, ascompared to the 26 days during the first fiscal quarter of 2008.  Forgent’s cost of sales relatesprimarily to 

 

13

----

Table of Contents

 

compensation expenses, hardware expenses andthe amortization of the Company’s purchased software costs.  These expenses represented approximately60.7% and 63.4% of the total cost of sales for the three months endedOctober 31, 2008 and 2007, respectively. Changes in the product mix duringthe first fiscal quarter of 2009 explain the decrease in the gross marginpercentage from 82.4% for the three months ended October 31, 2007 to 79.8%for the three months ended October 31, 2008.  Forgent expects gross margins to remainrelatively consistent with the gross margins for the three months endedOctober 31, 2008, in terms of percentage of revenues for future periods.

 

**Selling,General and Administrative**

 

Selling,general and administrative expenses for the three months ended October 31,2008 were $3.2 million, an increase of $0.8 million or 31.0%, from the $2.4million reported for the three months ended October 31, 2007. Selling,general and administrative (“SG&A”) expenses as a percentage of revenueswere 114.5% and 130.2% for the three months ended October 31, 2008 and2007, respectively.

 

Approximately80.9% of the $0.8 million increase in SG&A expenses during the three monthsended October 31, 2008 is due to increases in iEmployee SG&A expensesand legal expenses.  During the first fiscal quarter of 2009, the Company incurred SG&A expenses related to theiEmployee operations for the entire quarter, as compared to the 26 days duringthe first fiscal quarter of 2008, thus increasing total SG&A expenses by$0.4 million.  Additionally, Forgent’s corporate legalexpenses increased by $0.3 million due primarily to the litigation with WildBasin One & Two, Ltd. (“Wild Basin”) during the three months ended October 31, 2008.  Priorto the conclusion of the trial with Wild Basin, Forgent and Wild Basin reacheda settlement agreement, effective September 25, 2008.  This agreement was finalized during mediation on November 11, 2008.  With the conclusion of the Wild Basinlitigation, management anticipates significant savings in rent expense afterthe Wild Basin lease is assigned, which assignment should be finalized byDecember 31, 2008.  However, thereis no assurance that Forgent will finalize the lease assignment, or iffinalized, that it will occur by the December 31, 2008 deadline.  Although the Wild Basin litigation iscompleted, management does not expect corporate legal fees to decreasesignificantly due to the escalating activity related to the lawsuit withJenkens & Gilchrist, P.C. (“Jenkens”). The trial date for the Jenkens litigation is currently scheduled forApril 27, 2009.

 

Forgent will continue tomake modest investments in its sales team, as necessary, in order to grow itsoperations and increase sales.  Forgent will also continue to evaluate andreduce any unnecessary SG&A expenses.

 

**Researchand Development**

 

Research anddevelopment expenses for the three months ended October 31, 2008 were $0.6million, an increase of $0.3 million, or 92.6%, from the $0.3 million reportedfor the three months ended October 31, 2007. Research and development(“R&D”) expenses as a percentage of revenues were 20.1% and 15.5% for thethree months ended October 31, 2008 and 2007, respectively.

 

Approximately 75.8% of the$0.3 million increase in R&D expenses during the three months endedOctober 31, 2008 resulted from theCompany incurring R&D expenses related to the iEmployee operationsfor the entire quarter, as compared to the 26 days during the three monthsended October 31, 2007.  During the first fiscal quarter of 2009,Forgent concentrated its R&D efforts on improving its Time &Attendance and MRM products.  TheTime & Attendance’s enhancements ease the implementation and enforcementof Paid Time-Off (“PTO”) policies by providing users more control overadministering their PTO programs.  Theseenhancements include an automated calculation of the time off accruals, greatervisibility to PTO details through new reporting, and improved calendaring optionsfor managers to easily track their employees’ time off requests in theirMicrosoft Outlook® calendars.  Forgentcontinued developing MRM and released MRM 7.9 in November 2008.  MRM 7.9 includes an enhanced MRM Outlookinterface that allows assigned delegates the ability to schedule meetings onbehalf of others, privacy features that hide meeting details as needed and moresophisticated conflict resolution options for scheduling recurring meetings viaMicrosoft Outlook®.

 

Forgentcontinues to solicit and receive feedback regarding its products and servicesfrom its existing and potential customers. During the remainder of fiscal year 2009, the Company plans to continue investing modestly in its R&Defforts as necessary, in order to enhance the functionality of itssoftware products through new releases and new feature developments and toevaluate opportunities for developing new software.  As the Company designs and furtherimproves its workforce management solutions, management will attempt to maintain R&D expenses at reasonable levelsin terms of percentage of revenue.

 

14

----

Table of Contents

 

**Amortizationof intangible assets**

 

Amortizationexpenses for the three months ended October 31,2008 were $0.1 million, an increase of $0.1 million, or 315.5%, from the $36thousand reported for the three months ended October 31, 2007. Amortizationexpenses as a percentage of revenues were 5.3% and1.9% for the three months ended October 31, 2008 and 2007,respectively.  Upon acquiring the iEmployee business in October 2007, Forgentrecorded several intangible assets, which are being amortized over theirappropriate useful lives.  Theamortization expenses during the three months ended October 31, 2008 and2007 relate entirely to these acquired intangible assets.

 

**Net Loss**

 

Forgentgenerated a net loss of $1.5 million, or $0.05 per share, during the threemonths ended October 31, 2008, compared to a net loss of $0.9 million, or$0.03 per share, during the three months ended October 31, 2007.  Net loss as a percentage of total revenueswere 55.1% and 49.0% for the three months ended October 31, 2008 and 2007,respectively. The $0.6 million increase in the Company’s net loss during thethree months ended October 31, 2008 is primarily attributable to the $1.1million increase in operating expenses, offset by the $0.7 million increase ingross margin.  Forgent will continue to implement itscorporate strategy for growing its software and services business by modestlyinvesting in areas that directly generate revenue and positive cash flows forthe Company.  However, uncertainties andchallenges remain, especially during this macroeconomic environment downturn,and there can be no assurance that the Company can successfully grow its revenuesor achieve profitability during the remainder of fiscal year 2009.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 
| ** **                                         | ** ** | **FOR THE THREE  MONTHS ENDED****OCTOBER 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                         | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
| ** **                                         | ** ** | **(in thousands)**                                            | ** ** |
|                                               |       |                                                               |       |   |   |
| Working capital                                    |       | $                                                                  | 8,641      |   | $ | 14,423 |   |
| Cash, cash equivalents and short-term  investments |       | 13,844                                                             |       | 19,476 |   |
| Cash used in operating activities                  |       | (808                                                               | )          | (9,064 | ) |
| Cash used in investing activities                  |       | (683                                                               | )          | (8,550 | ) |
| Cash provided by (used in) financing  activities   |       | (5                                                                 | )          | 1 |   |
|                                                    |            |                                                                    |            |  |  |  |  |

 

Cash used in operatingactivities was $0.8 million for the three months ended October 31, 2008due primarily to $1.5 million in net loss, offset by a $0.3 million decrease inaccounts receivable and a $0.2 million increase in accounts payable.  Cash used in operating activities was $9.1million for the three months ended October 31, 2007 due primarily to an$8.0 million decrease in accounts payable and $0.9 million in net loss.  Management continues to closely monitor allof its cash sources and uses from its operations.  During the three months ended October 31,2008, Forgent increased its collection efforts related to its tradereceivables.  As a result, Forgent’saverage days sales outstanding was 35 days for the first fiscal quarter of2009, down from 49 days for the first fiscal quarter of 2008.  As management continues to evaluate and reduceany unnecessary expenditure, including specifically Forgent’s efforts to reduceits rent expense by assigning its Wild Basin lease, management anticipatessignificant cash savings which will decrease the cash used in the Company’soperating activities in future periods.

 

Cash used ininvesting activities was $0.7 million for the three months ended October 31,2008 due primarily to $0.7 million in net purchases of short-term investments.Cash used in investing activities was $8.6 million for the three months ended October 31,2007 due primarily to $7.2 million paid in cash related to the iEmployeeacquisition and $1.5 million in purchases of short-term investments. Forgentmanages its investments portfolio in order to fulfill corporate liquidityrequirements and maximize investment returns while preserving the quality ofthe portfolio.  Although the interestrates have been decreasing, the Company continues to purchase investments withslightly longer maturities in order to maximize its interest income.  Forgent does not invest in anymortgage-backed securities or other high-risk investments.  Forgent’s current operations are not capitalintensive and management does not anticipate any significant capitalexpenditures during the remainder of fiscal year 2009.

 

15

----

Table of Contents

 

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. Thetotal amount of base rentals over the term of the Company’s leases is chargedto expense on a straight-line basis, with the amount of the rental expense inexcess of the lease payments recorded as a deferred rent liability.  Despite the additional lease obligations acquiredwith the iEmployee operations, approximately $14.9 million, or 97.1% of theCompany’s total operating lease obligations, relate to its corporate officefacility at Wild Basin in Austin, Texas. As of October 31, 2008, Forgent had $5.1 million in future minimumlease payments receivable under non-cancelable sublease arrangements.  Additionally, Forgent had a $0.4 millionliability related to impairment charges for the economic value of the lostsublease rental income at its Austin property. Once Forgent successfully assigns its Wild Basin lease, theCompany’s operating lease obligations will significantly decrease. However,there is no assurance that Forgent will finalize the lease assignment, or iffinalized, that it will occur by the December 31, 2008 deadline.  Forgent may periodically make othercommitments and thus become subject to other contractual obligations.

 

Cashused in financing activities was $5 thousand for the three months endedOctober 31, 2008. Cash provided by financing activities was $1 thousandfor the three months ended October 31, 2007.  Management believes it currently has sufficientcash and short-term investments on hand to fund its operations during the nexttwelve months and beyond without needing to obtain long-term financing.  Therefore, the Company does not anticipatethat it will be affected by any credit shortage in the current economicbusiness environment.  Forgent’s stockrepurchase program allows the Company to purchase up to three million shares ofthe Company’s common stock. No shares were repurchased during the three monthsended October 31, 2008 or 2007.  Asof October 31, 2008, Forgent had repurchased 1,790,401 shares forapproximately $4.8 million and had the authority to repurchase approximately1.2 million additional shares. Management will periodically assess repurchasingadditional shares during fiscal year 2009, depending on the Company’s cashposition, market conditions and other factors.

 

As of October 31, 2008, Forgent’sprincipal sources of liquidity consisted of $13.8 million of cash, cashequivalents and short-term investments. Management is focused on growing its existing software operations andthus plans to utilize its cash balances to expand its operations by makingadditional prudent investments as necessary and may repurchase outstandingshares.  Although Forgent is currentlynot actively exploring prospects in acquiring a public or privately heldtechnology business or product line, the Company will consider a potentialopportunity if the right opportunity presents itself.

 

There is no assurance that the Company will be able to limit its cash consumptionand preserve its cash balances, and it is possible that the Company’s futurebusiness demands may lead to cash utilization at levels greater than recentlyexperienced. Management believes that the Company has sufficient capital andliquidity to fund and cultivate the growth of its current and future operationsfor the next 12 months and thereafter. However, due to uncertainties related to the timing and costs of theseefforts, Forgent may need to raise additional capital in the future.  Yet, there is no assurance that the Companywill be able to raise additional capital if and when it is needed.

 

**CRITICALACCOUNTING POLICY**

 

The Company’scondensed consolidated financial statements have been prepared in accordancewith U.S. generally accepted accounting principles and include the accounts ofForgent’s wholly owned subsidiaries. All significant intercompany transactionsand balances have been eliminated in the consolidation. Preparation of thecondensed consolidated financial statements in conformity with U.S. generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of the assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. These estimates are subjective in nature and involvejudgments that affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities at fiscal quarter end and thereported amounts of revenues and expenses during the fiscal quarter.  The more significant estimates made bymanagement include the valuation allowance for the gross deferred tax asset,contingency legal reserves, lease impairment, useful lives of fixed assets, thedetermination of the fair value of its long-lived assets and the fair value ofassets acquired and liabilities assumed during the iEmployee acquisition. The Company bases its estimates onhistorical experience and on various other assumptions that are believed to bereasonable under the given circumstances. These estimates could be materially different under differentconditions 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.

 

16

----

Table of Contents

 

Managementbelieves the following represent Forgent’s critical accounting policies:

 

**RevenueRecognition**

 

The Company recognizesrevenue when persuasive evidence of an arrangement exists, delivery hasoccurred, the fee is fixed or determinable and collectibility is probable.  The Company recognizes software licenserevenue in accordance with Statement of Position (“SOP”) 97-2, *“Software Revenue Recognition,”*as amendedby SOP 98-4, “*Deferral of the Effective Date of aProvision of SOP 97-2,”* and SOP 98-9, “*Modificationof SOP 97-2 With Respect to Certain Transactions,”*Securities and Exchange Commission Staff Accounting Bulletin 104, *“Revenue Recognition,”*and Emerging IssuesTask Force Issue No. 00-21, *“RevenueArrangements with Multiple Deliverables.”*  The Company recognizes software subscriptionrevenue in accordance with EITF Issue No. 00-3, *“Application of AICPA Statement of Position 97-2 to Arrangements ThatInclude the Right to Use Software Stored on Another Entity’s Hardware”*andEITF Issue No. 00-21.

 

Revenueconsists of software license, software subscription 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. Revenue from the sale of hardware devices isrecognized upon shipment of the hardware. Forgent sells multiple elements within a single sale.  For software license arrangements, theCompany allocates the total fee to the various elements based on the relativefair values of the elements specific to the Company.  For software subscription arrangements, theCompany recognizes the total contract value ratably over the contract term,beginning when the customer is able to utilize the software.

 

The Companydetermines the fair value of each element in the arrangement based onvendor-specific objective evidence (“VSOE”) of fair value. VSOE of fair valuefor the software, maintenance, and training and installation services are basedon the prices charged for the software, maintenance and services when soldseparately.  Revenue allocated tomaintenance and technical support is recognized ratably over the maintenanceterm (typically one year).  Revenueallocated to installation and training is recognized upon completion of theseservices.  The Company’s training andinstallation services are not essential to the functionality of the Company’sproducts as such services can be provided by a third party or the customersthemselves.

 

For instancesin which VSOE cannot be determined for undelivered elements, and theseundelivered elements do not provide significant customization or modificationof its software product, Forgent recognizes the entire contract amount ratablyover the period during which the services are expected to be performed.

 

The Companydoes not recognize revenue for agreements with rights of return, refundablefees, 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 donot allow for any rights of return.

 

Deferredrevenue includes amounts received from customers in excess of revenuerecognized, and is comprised of deferred maintenance, service and otherrevenue.  Deferred revenues arerecognized in the Consolidated Statements of Operations when the service iscompleted and over the terms of the arrangements, primarily ranging from one tothree years.

 

**Impairmentof Goodwill, Intangible Assets and Long-Lived Assets**

 

Goodwill and other intangibleassets with indefinite lives are not required to be amortized under Financial AccountingStandard Board (“FASB”) Statement No. 142, *“Goodwill and Other Intangible Assets,”*and accordingly, theCompany reviews its goodwill forpossible 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 marketcapitalization, significant underperformance of operating units and significantchanges in market conditions and trends. Forgent uses a two-step process and adiscounted cash flow model to evaluateits assets for impairment. If the carrying amount of the goodwill orasset exceeds its implied fair value, an impairment loss is recognized in anamount equal to the excess during that fiscal period.  Intangible assets that are not deemed to haveindefinite lives are amortized over their useful lives and are tested forimpairment in accordance with FASB Statement No. 144, *“Accounting for the Impairment or Disposal ofLong-Lived Assets.”*

 

17

----

Table of Contents

 

In accordancewith Statement No. 144, Forgent reviews and evaluates its long-livedassets for impairment whenever events or changes in circumstances indicate thattheir net book value may not be recoverable.  When such factors andcircumstances exist, including those noted above, the Company compares the assets’carrying amounts against the estimated undiscounted cash flows to be generatedby those assets over their estimated useful lives.  If the carryingamounts are greater than the undiscounted cash flows, the fair values of thoseassets are estimated by discounting the projected cash flows.  Any excess of the carrying amounts over thefair values are recorded as impairments in that fiscal period.

 

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

 

The Company is a smallerreporting company as defined by Rule 12b-2 under the Exchange Act and isnot required to provide the information required under this item.

 

**ITEM4. CONTROLS AND PROCEDURES**

 

TheCompany’s management is responsible for establishing and maintaining adequateinternal control over financial reporting for the Company.  The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the reports it files under the Securities and Exchange Act of1934, as amended, is recorded, processed, summarized and reported within thetime periods specified in the rules and forms of the Securities andExchange Commission.  Such controlsinclude those designed to ensure that information for disclosure iscommunicated to management, including the Chairman of the Board and the ChiefExecutive Officer (“CEO”), as appropriate to allow timely decisions regardingrequired disclosure.

 

TheCEO and Chief Financial Officer, with the participation of management, haveevaluated the effectiveness of the Company’s disclosure controls and proceduresas of October 31, 2008.  Based ontheir evaluation, they have concluded, to the best of their knowledge andbelief, that the disclosure controls and procedures are effective.  No changes were made in the Company’sinternal controls over financial reporting during the quarter ended October 31,2008, that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal controls over financial reporting.  In making this assessment, management usedthe criteria set forth in *InternalControl-Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

**PART II – OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

Forgent is thedefendant or plaintiff in various actions that arose in the normal course ofbusiness. With theexception of the proceedings described below, none of the pending legalproceedings 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 complaintagainst Forgent and Compressions Labs, Inc., in the District Court ofDallas County, Texas.  In its complaint,Jenkens alleges a breach of contract and is seeking a declaratoryjudgment.  Forgent disputes Jenkens’claims and is seeking relief through the court system.

 

After Forgent terminated Jenkens, the Companyentered into a Resolution Agreement with Jenkens in December 2004.  Under the Resolution Agreement, the Companybelieves Jenkens is entitled to $1.4 million for contingency fees and expensesrelated to the settlements from the litigation regarding the Company’s DVRpatents.  Jenkens interprets the ResolutionAgreement on broader terms and now believes it is entitled to $3.4 million,including attorneys’ fees and interest.

 

OnMarch 3, 2008, Forgent and Jenkens appeared before the Court regarding ahearing on the motion for summary judgment filed by Jenkens.  On May 20, 2008, the Court grantedJenkens’ motion and ordered Forgent to pay Jenkens $2.8 million for recoveriesrelated to the ‘746 patent and other amounts including attorney’s fees andinterest.  Forgent appealed this Courtorder, and on September 3, 2008, the Court granted Forgent’s Motion toReconsider Order.  Thetrial date for this litigation is currently scheduled for April 27, 2009.

 

18

----

Table of Contents

 

Management currently cannot predict how long itultimately will take to resolve the Jenkens lawsuit.  Until the Jenkens litigation is finalized,the related contingency fees and expenses may be adjusted in a future periodand could have a material impact to the Company’s consolidated financialstatements.

 

**Litigation with Wild Basin**

 

On September 6, 2007, Forgent filed apetition against Wild Basin One & Two, Ltd. (“Wild Basin”) in theDistrict Court of Travis County, Texas. The petition claimed Wild Basin was in breach of contract relating toForgent’s lease agreement by unreasonably withholding and delaying its consentto Forgent’s lease assignment to a third party. On October 19, 2007, Forgent amended its petition to include claimsof fraud and breach of fiduciary duty against Wild Basin.

 

On June 2, 2008, Wild Basin filed acounterclaim seeking a declaratory judgment that it had complied with itsobligations under the lease and was seeking the recovery of attorney’sfees.  On June 5, 2008, Forgentamended its petition to request the Court make declaratory judgments on severalissues in the case and to include as a breach of contract claim its claim forwithholding amounts that should have been distributed by Wild Basin in the pastpursuant to the lease.  Forgent sought torecover all damages as a result of the delay in closing its pending assignmentand amounts not distributed in the past, among other damages.

 

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

 

After Forgentand Wild Basin participated in mediation on November 11, 2008 to finalizethe terms of the settlement agreement, Wild Basin consented to Forgent’s leaseassignment and the documents were submitted to Wild Basin’s lender for finalapproval.  As required by the settlementagreement, Forgent expects to finalize the lease assignment by December 31,2008.  However, there is no assurancethat Forgent will finalize the lease assignment, or if finalized, that it willoccur by the December 31, 2008 deadline.

 

**ITEM 1A. RISK FACTORS**

 

The Company is a smallerreporting company as defined by Rule 12b-2 of the Exchange Act and is notrequired to provide the information required under this item.

 

**ITEM 2. 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

 

19

----

Table of Contents

 

**ITEM 6.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

 

20

----

Table of Contents

 

**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                   | FORGENT  NETWORKS, INC. |
|------------------------|-------------------------|
|                   |                    |
|                   |                    |
| December 15, 2008 | By:                     | /s/ RICHARD N. SNYDER |
|                   |                    | Richard N. Snyder |
|                   |                    | Chief Executive Officer |
|                   |                    |
|                   |                    |
| December 15, 2008 | By:                     | /s/ JAY C. PETERSON |
|                   |                    | Jay C. Peterson |
|                   |                    | Chief Financial Officer |

 

21

----

Table of Contents

 

**INDEX TO EXHIBITS**

 
| **EXHIBIT** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **NUMBER**  | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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.                                                                                                                                                                                                                                                                                          |

 

22

----