#### ** **

#### **UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

----

 

**FORM 10-Q**

** **

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

 

**For the quarterly period ended January 31,2008**

** **

**OR**

 

**o****                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from         to**

** **

**Commission file number: 0-20008**

 

----

 

**FORGENT NETWORKS, INC.**

(Exact Name ofRegistrant as Specified in its Charter)

 

| **Delaware**                                               | ** ** | **74-2415696**       |
|------------------------------------------------------------|------------|----------------------|
| (State of other  jurisdiction of                           |       | (I.R.S. Employer     |
| incorporation or  organization)                            |       | Identification  No.) |
|                                                       |       |                 |
| **108  Wild Basin Road**                                   |       |                 |
| **Austin,  Texas**                                         | ** ** | **78746**            |
| (Address of  Principal Executive Offices)                  |       | (Zip Code)           |
|                                                       |       |                 |
| **(512)  437-2700**                                        |
| (Registrant’s  Telephone Number, including Area Code) |

 

----

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch 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, a non-accelerated filer, or a smallerreporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer  o                                             |   | Accelerated filer o          |
|------------------------------------------------------------------------|--------|------------------------------|
|                                                                   |   |                         |
| Non-accelerated filer o  (Do not check if a smaller reporting company) |   | Smaller reporting  company x |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

Yes  o     No x

 

OnMarch 12, 2008, the registrant had outstanding 30,948,886****shares ofits Common Stock, $0.01 par value.

 

 

----

 

# **INDEXTO FINANCIAL STATEMENTS**

 
| ** **                              | ** **      | ** **                                                                                                                    | ** ** | **Page**   |
|-----------------------------------------|-----------------|-------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **                              | ** **      | ** **                                                                                                                    | ** ** | **Number** |
| **PART I - FINANCIAL INFORMATION** | ** **      | ** **                                                                                                                    |
|                                    |            |                                                                                                                          |       |       |
|                                    | Item  1 -  | Condensed  Consolidated Financial Statements                                                                                  |       |       |
|                                    |            | Condensed Consolidated  Balance Sheets as of January 31, 2008 (unaudited) and July 31, 2007                         |       | 3          |
|                                    |            | Unaudited Condensed  Consolidated Statements of Operations for the Three and Six Months Ended  January 31, 2008 and 2007 |       | 4          |
|                                    |            | Unaudited Condensed Consolidated  Statements of Cash Flows for the Six Months Ended January 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                                                                   |       | 20         |
|                                    | Item 4 -        | Controls and  Procedures                                                                                                      |       | 20         |
|                                    |            |                                                                                                                          |       |       |
| **PART II  - OTHER INFORMATION**   | ** **      | ** **                                                                                                                    |
|                                    |            |                                                                                                                          |       |       |
|                                    | Item 1 -        | Legal Proceedings                                                                                                             |       | 20         |
|                                    | Item 1A -       | Risk Factors                                                                                                                  |       | 21         |
|                                    | Item 2 -        | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                  |       | 27         |
|                                    | Item 3 -        | Defaults upon  Senior Securities                                                                                              |       | 27         |
|                                    | Item 4 -        | Submission of  Matters to a Vote of Security Holders                                                                          |       | 27         |
|                                    | Item 5 -        | Other Information                                                                                                             |       | 27         |
|                                    | Item 6 -        | Exhibits                                                                                                                      |       | 27         |
|                                    |            |                                                                                                                          |       |       |
| **Signatures**                          |            | 29                                                                                                                            |
|                                    |            |                                                                                                                          |       |       |
| **Index to  Exhibits**                  |            | 30                                                                                                                            |
|                                         |                 |                                                                                                                               |            |            |  |  |

 

2

----

 

**FORGENT NETWORKS, INC.**

**CONDENSED CONSOLIDATED BALANCESHEETS**

(Amounts in thousands, except per share data)

 
| ** **                                                                                                                                                                             | ** ** | **JANUARY 31,  2008** | ** ** | **JULY 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                             | ** ** | **(UNAUDITED)**            | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                             |       |                       |       |                    |       |
| Current Assets:                                                                                                                                                                        |       |                       |       |                    |       |
| *Cash and cash equivalents*                                                                                                                                                            |       | $                          | 13,939     |                    | $          | 33,524 |   |
| Short-term investments                                                                                                                                                                 |       | 3,862                      |       | 1,538                   |       |
| Accounts receivable, net of allowance for doubtful accounts of $39  and $21 at January 31, 2008 and July 31, 2007, respectively                                              |       | 1,582                      |       | 1,040                   |       |
| Prepaid expenses and other current assets                                                                                                                                              |       | 298                        |       | 211                     |       |
| Total Current Assets                                                                                                                                                                   | ** ** | **19,681**                 | ** ** | **36,313**              | ** ** |
|                                                                                                                                                                                   |       |                       |       |                    |       |
| Property and equipment, net                                                                                                                                                            |       | 1,005                      |       | 767                     |       |
| Goodwill                                                                                                                                                                               |       | 7,138                      |       | —                  |       |
| Intangible assets, net of  amortization of $250 and $0 at January 31, 2008 and July 31, 2007, respectively                                                                             |       | 4,959                      |       | —                  |       |
| Other assets                                                                                                                                                                           |       | 115                        |       | 212                     |       |
| ** **                                                                                                                                                                             | ** ** | **$**                      | **32,898** | ** **              | **$**      | **37,292** | ** ** |
| ** **                                                                                                                                                                             | ** ** | ** **                 | ** ** | ** **              | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                          |       |                       |       |                    |       |
| Current Liabilities:                                                                                                                                                                   |       |                       |       |                    |       |
| Accounts payable                                                                                                                                                                       |       | $                          | 3,975      |                    | $          | 10,970 |   |
| Accrued compensation and benefits                                                                                                                                                      |       | 499                        |       | 557                     |       |
| Other accrued liabilities                                                                                                                                                              |       | 828                        |       | 855                     |       |
| Deferred revenue                                                                                                                                                                       |       | 1,311                      |       | 1,076                   |       |
| Total Current Liabilities                                                                                                                                                              | ** ** | **6,613**                  | ** ** | **13,458**              | ** ** |
|                                                                                                                                                                                   |       |                       |       |                    |       |
| Long-Term Liabilities:                                                                                                                                                                 |       |                       |       |                    |       |
| Deferred revenue                                                                                                                                                                       |       | 29                         |       | 28                      |       |
| Other long-term obligations                                                                                                                                                            |       | 943                        |       | 1,186                   |       |
| Total Long-Term Liabilities                                                                                                                                                            | ** ** | **972**                    | ** ** | **1,214**               | ** ** |
| ** **                                                                                                                                                                             | ** ** | ** **                 | ** ** | ** **              | ** ** |
| Stockholders’ Equity:                                                                                                                                                             |       |                       |       |                    |       |
| Preferred stock, $.01 par value; 10,000 authorized; none issued or  outstanding                                                                                                        |       | —                     |       | —                  |       |
| Common stock, $.01 par value; 40,000 authorized; 32,739 and 27,388  shares issued; 30,949 and 25,598 shares outstanding at January 31, 2008  and July 31, 2007, respectively |       | 325                        |       | 274                     |       |
| Treasury stock at cost, 1,790 issued at January 31, 2008 and  July 31, 2007                                                                                                  |       | (4,815                     | )          | (4,815                  | )          |
| Additional paid-in capital                                                                                                                                                             |       | 270,666                    |       | 265,647                 |       |
| Accumulated deficit                                                                                                                                                                    |       | (240,908                   | )          | (238,506                | )          |
| Accumulated other comprehensive income                                                                                                                                                 |       | 45                         |       | 20                      |       |
| Total Stockholders’ Equity                                                                                                                                                        | ** ** | **25,313**                 | ** ** | **22,620**              | ** ** |
| ** **                                                                                                                                                                             | ** ** | **$**                      | **32,898** | ** **              | **$**      | **37,292** | ** ** |

 

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

 

3

----

 

**FORGENT NETWORKS, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

(Amounts in thousands, except per share data)

 
| ** **                                                          | ** ** | **FOR THE****THREE MONTHS ENDED  JANUARY 31,** | ** ** | **FOR THE****SIX MONTHS ENDED  JANUARY 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2008**                                                           | ** ** | **2007**                                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                          | ** ** | **(UNAUDITED)**                                                    | ** ** | **(UNAUDITED)**                                                  | ** ** |
|                                                                |       |                                                               |       |                                                             |       |   |   |   |   |
| **REVENUES**                                                        |       |                                                               |       |                                                             |       |   |   |   |   |
| Software & Professional Services                           |       | $                                                                  | 2,734      |                                                             | $          | 1,017 |   | $ | 4,608 |   | $ | 1,979 |   |
| Intellectual Property Licensing                                     |       | —                                                             |       | 28                                                               |       | — |   | 8,162 |   |
| Total Revenue                                                       |       | 2,734                                                              |       | 1,045                                                            |       | 4,608 |   | 10,141 |   |
| **COST OF SALES**                                                   |       |                                                               |       |                                                             |       |   |   |   |   |
| Software & Professional Services                           |       | 629                                                                |       | 192                                                              |       | 958 |   | 502 |   |
| Intellectual Property Licensing                                     |       | —                                                             |       | 3                                                                |       | — |   | 3,543 |   |
| Total Cost of Sales                                                 |       | 629                                                                |       | 195                                                              |       | 958 |   | 4,045 |   |
|                                                                |       |                                                               |       |                                                             |       |   |   |   |   |
| **GROSS MARGIN**                                                    | ** ** | **2,105**                                                          | ** ** | **850**                                                          | ** ** | **3,650** | ** ** | **6,096** | ** ** |
|                                                                |       |                                                               |       |                                                             |       |   |   |   |   |
| **OPERATING EXPENSES:**                                             |       |                                                               |       |                                                             |       |   |   |   |   |
| Selling, general and administrative                                 |       | 2,962                                                              |       | 2,539                                                            |       | 5,402 |   | 5,039 |   |
| Research and development                                            |       | 640                                                                |       | 132                                                              |       | 931 |   | 248 |   |
| Amortization of intangible assets                                   |       | 155                                                                |       | —                                                           |       | 191 |   | 4 |   |
| Total operating expenses                                            | ** ** | **3,757**                                                          | ** ** | **2,671**                                                        | ** ** | **6,524** | ** ** | **5,291** | ** ** |
| ** **                                                          | ** ** | ** **                                                         | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **LOSS FROM OPERATIONS**                                            | ** ** | **(1,652**                                                         | **)**      | **(1,821**                                                       | **)**      | **(2,874** | **)** | **805** | ** ** |
|                                                                |       |                                                               |       |                                                             |       |   |   |   |   |
| **OTHER INCOME AND (EXPENSES):**                                    |       |                                                               |       |                                                             |       |   |   |   |   |
| Interest income                                                     |       | 195                                                                |       | 234                                                              |       | 533 |   | 390 |   |
| Gain on sale of assets                                              |       | —                                                             |       | 2,896                                                            |       | — |   | 2,896 |   |
| Interest expense and other                                          |       | (20                                                                | )          | (11                                                              | )          | (40 | ) | (44 | ) |
| Total other income and (expenses)                                   | ** ** | **175**                                                            | ** ** | **3,119**                                                        | ** ** | **493** | ** ** | **3,242** | ** ** |
|                                                                |       |                                                               |       |                                                             |       |   |   |   |   |
| **(LOSS) INCOME FROM OPERATIONS, BEFORE**** ****INCOME TAXES** | ** ** | **(1,477**                                                         | **)**      | **1,298**                                                        | ** ** | **(2,381** | **)** | **4,047** | ** ** |
| Provision for income taxes                                          |       | (7                                                                 | )          | —                                                           |       | (21 | ) | — |   |
| **NET (LOSS) INCOME**                                               | ** ** | **$**                                                              | **(1,484** | **)**                                                            | **$**      | **1,298** | ** ** | **$** | **(2,402** | **)** | **$** | **4,047** | ** ** |
|                                                                |       |                                                               |       |                                                             |       |   |   |   |   |
| **BASIC AND DILUTED (LOSS) INCOME  PER SHARE:**                     | ** ** | **$**                                                              | **(0.05**  | **)**                                                            | **$**      | **0.05** | ** ** | **$** | **(0.08** | **)** | **$** | **0.16** | ** ** |
| **WEIGHTED AVERAGE SHARES  OUTSTANDING:**                           |       |                                                               |       |                                                             |       |   |   |   |   |
| Basic                                                               |       | 30,940                                                             |       | 25,489                                                           |       | 29,017 |   | 25,435 |   |
| Diluted                                                             |       | 30,940                                                             |       | 26,086                                                           |       | 29,017 |   | 25,867 |   |

 

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

 

4

----

 

**FORGENT NETWORKS, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

(Amounts in thousands)

 
| ** **                                                                                | ** ** | **FOR THE SIX MONTHS  ENDED JANUARY 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
| ** **                                                                                | ** ** | **(UNAUDITED)**                                                    | ** ** |
| ** **                                                                                | ** ** | ** **                                                         | ** ** | ** ** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                 |       |                                                               |       |   |   |
| Net (loss) income from continuing operations                                              |       | $                                                                  | (2,402     | ) | $ | 4,047 |   |
| Adjustments to reconcile net (loss) income to net cash (used in)  provided by operations: |       |                                                               |       |   |   |
|                                                                                      |       |                                                               |       |   |   |
| Depreciation and amortization                                                             |       | 474                                                                |       | 336 |   |
| Amortization of leasehold advance and lease impairment                                    |       | (192                                                               | )          | (211 | ) |
| Provision for doubtful accounts                                                           |       | 2                                                                  |       | 1 |   |
| Share-based compensation                                                                  |       | 72                                                                 |       | 131 |   |
| Foreign currency translation loss                                                         |       | 3                                                                  |       | — |   |
| Gain on disposal of fixed assets                                                          |       | —                                                             |       | — |   |
| Changes in operating assets and liabilities:                                              |       |                                                               |       |   |   |
| Accounts receivable                                                                       |       | 144                                                                |       | 7 |   |
| Prepaid expenses and other current assets                                                 |       | 9                                                                  |       | 61 |   |
| Accounts payable                                                                          |       | (8,142                                                             | )          | (2,307 | ) |
| Accrued expenses and other long-term obligations                                          |       | (284                                                               | )          | 227 |   |
| Deferred revenues                                                                         |       | (277                                                               | )          | 153 |   |
| Net cash (used in) provided by operating activities                                       | ** ** | **(10,593**                                                        | **)**      | **2,444** | ** ** |
|                                                                                      |       |                                                               |       |   |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                 |       |                                                               |       |   |   |
| Net (purchases) sales of short-term investments                                           |       | (1,784                                                             | )          | (1,527 | ) |
| Net purchases of property and equipment                                                   |       | (123                                                               | )          | (163 | ) |
| Change in other assets                                                                    |       | 164                                                                | ** ** | **—** | ** ** |
| Acquisition of iSarla, Inc., net of cash acquired                                    |       | (7,267                                                             | **)**      | **—** | ** ** |
| Net cash used in investing activities                                                     | ** ** | **(9,010**                                                         | **)**      | **(1,690** | **)** |
|                                                                                      |       |                                                               |       |   |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                 |       |                                                               |       |   |   |
| Net proceeds from issuance of stock                                                       |       | 11                                                                 |       | 84 |   |
| Payments on notes payable and capital leases                                              |       | (1                                                                 | )          | (543 | ) |
| Net cash provided by (used in) financing activities                                       | ** ** | **10**                                                             | ** ** | **(459** | **)** |
|                                                                                      |       |                                                               |       |   |   |
| Effect of exchange rate changes on cash and cash equivalents                              |       | 9                                                                  |       | (12 | ) |
|                                                                                      |       |                                                               |       |   |   |
| Net change in cash and cash equivalents                                                   |       | (19,584                                                            | )          | 283 |   |
| Cash and cash equivalents at beginning of period                                          |       | 33,524                                                             |       | 16,206 |   |
| Cash and cash equivalents at end of period                                                | ** ** | **$**                                                              | **13,939** | ** ** | **$** | **16,489** | ** ** |
|                                                                                      |       |                                                               |       |   |   |
| **SUPPLEMENTAL CASH FLOW  INFORMATION:**                                                  |       |                                                               |       |   |   |
| Issuance of stock for acquisition of  iSarla, Inc.                                   |       | $                                                                  | 4,987      |   | $ | — |   |

 

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

 

5

----

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

(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 forcomplete financial statements. In the opinion of management, these interimfinancial statements 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 January 31,2008 and July 31, 2007, the results of operations for the three and sixmonths ended January 31, 2008 and January 31,2007, and the cash flows for the six months ended January 31, 2008 and January 31,2007. These condensed consolidated financial statements should be readin conjunction with the Company’s audited consolidated financial statements andnotes thereto filed with the Securities and Exchange Commission in the Company’sannual report on Form 10-K/A for the fiscal year ended July 31,2007.   The results for the interimperiods are not necessarily 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 workforce managementsolutions that help simplify the Human Resource process and improve employeeproductivity by managing and communicating human resources, employee benefits andpayroll information. iSarla Inc. conducts its business under the trade name “iEmployee”and provides hosted application services, including Time & Attendance,Timesheets, Human Resource Benefits, Expenses and other solutions.  iEmployee is a profitable business with ahigh percentage of recurring revenues and delivers its software as a serviceunder the “SaaS” model.  The acquisitionexpanded Forgent’s current target markets, significantly augmented the Company’sproduct and service offerings to customers, and increased revenues from itsoperations considerably.  Due to thesefactors, the Company purchased the iEmployee business at a premium (i.e.goodwill) over the fair value of the net assets acquired.

 

In consideration for the acquisition, Forgent paid approximately$12,661, including $6,602****in cash,5,095 shares of its Common Stock, valued at approximately $4,987 andtransaction cost of approximately $1,072. The shares of Common Stock issued were valued based upon the price of$0.98 when the number of shares to be issued became fixed.  Upon closing, $990 in cash and 764 sharestotaling $748 of the purchase price were held in escrow for representations andwarranties.  The purchase agreement didnot include provisions for any other contingent payments, options orcommitments.  As a result of theacquisition, iEmployee’s results of operations since October 5, 2007 havebeen included in the Company’s Consolidated Statement of Operations for thethree and six months ended January 31, 2008.

 

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.  The Companyis currently in the process of assessing and finalizing the fair value of theassets acquired and the liabilities assumed. The following table summarizes the estimated preliminary and adjustedfair values of the iEmployee assets acquired and liabilities assumed:

 
| ** **                | ** ** | **Initial**    | ** ** | ** **      | ** ** | **Updated**    | ** ** |
|---------------------------|------------|----------------|------------|-----------------|------------|----------------|------------|
| ** **                | ** ** | **Allocation** | ** ** | **Adjustments** | ** ** | **Allocation** | ** ** |
| **Assets Acquired**       |       |           |       |            |       |           |       |
| Cash                      |       | $              | 460        |            |       |           | $          | 460 |   |
| Short-term investments    |       | 526            |       |            |       | 526            |       |
| Accounts receivable, net  |       | 577            |       | (19)            |       | 558            |       |
| Prepaid assets            |       | 96             |       |            |       | 96             |       |
| Fixed assets              |       | 416            |       | (77)            |       | 339            |       |
| Goodwill                  |       | 6,993          |       | 145             |       | 7,138          |       |
| Intangible assets         |       | 5,209          |       |            |       | 5,209          |       |
| Other assets              |       | 22             |       | (38)            |       | (16)           |       |
| **Total assets acquired** | ** ** | **14,299**     | ** ** | **11**          | ** ** | **14,310**     | ** ** |
|                           |            |                |            |                 |            |                |            |  |  |

 

6

----

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Amountsin thousands, except per share data unless otherwise noted)

 
| **Liabilities assumed**           |       |       |       |       |        |       |       |
|-----------------------------------|------------|------------|------------|------------|-------------|------------|------------|
| Accounts payable                  |       | (1,099     | )          | (11)       |        | (1,110     | )          |
| Accrued compensation and benefits |       | (110       | )          |       |        | (110       | )          |
| Accrued other liabilities         |       | (33        | )          |       |        | (33        | )          |
| Deferred revenue                  |       | (396       | )          |       |        | (396       | )          |
| **Total liabilities assumed**     | ** ** | **(1,638** | **)**      | **(11**    | **) ** | **(1,649** | **)**      |
|                              |       |       |       |       |        |       |       |
| **Net assets acquired**           | ** ** | **$**      | **12,661** | ** ** | **$**       | **—** | ** ** | **$** | **12,661** | ** ** |
|                                   |            |            |            |            |             |            |            |  |  |  |

 

 

Through the acquisition of the iEmployee business, Forgent’s workforcegrew by 142 employees, 121 of whom are located in Mumbai, India.  The co-founders of iEmployeecurrently serve as senior advisors to the Company.

 

Thefollowing summary presents unaudited pro forma consolidated financialinformation for the three months ended January 31, 2007 and the six monthsended January 31, 2008 and 2007, as if the iEmployee acquisition hadoccurred as of August 1, 2006.  Thepro forma consolidated financial information for the second fiscal quarter of2008 is not presented since the iEmployee acquisition occurred prior to thestart of this fiscal quarter and the combined financial results are reported onthe Company’s condensed consolidated statement of operations for the threemonths ended January 31, 2008.  Thepro forma information does not purport to be indicative of the actual resultswhich would have occurred had the acquisition been completed as of August 1,2006, nor is it necessarily indicative of the results of operations which mayoccur in the future.

 
| ** **                            | ** ** | **For the Three Months**   | ** ** | **For the Six Months**     | ** ** | **For the Six Months**     | ** ** |
|---------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                            | ** ** | **Ended January 31, 2007** | ** ** | **Ended January 31, 2008** | ** ** | **Ended January 31, 2007** | ** ** |
| ** **                            | ** ** | **As Reported**                      | ** ** | **Pro Forma**                        | ** ** | **As Reported**                      | ** ** | **Pro Forma** | ** ** | **As Reported** | ** ** | **Pro Forma** | ** ** |
|                                  |       |                                      |       |                                      |       |                                      |       |   |   |   |   |   |   |
| Revenues                              |       | $                                         | 1,017      |                                      | $          | 2,466                                     |       | $ | 4,608 |   | $ | 5,622 |   | $ | 1,979 |   | $ | 4,786 |   |
| Net (loss) income                     |       | 1,298                                     |       | 1,508                                     |       | (2,402                                    | )          | (2,255 | ) | 4,047 |   | 4,454 |   |
|                                  |       |                                      |       |                                      |       |                                      |       |   |   |   |   |   |   |
| Net (loss) income per common share:   |       |                                      |       |                                      |       |                                      |       |   |   |   |   |
| Basic                                 |       | $                                         | 0.05       |                                      | $          | 0.05                                      |       | $ | (0.08 | ) | $ | (0.07 | ) | $ | 0.16 |   | $ | 0.15 |   |
| Diluted                               |       | 0.05                                      |       | 0.05                                      |       | (0.08                                     | )          | (0.07 | ) | 0.16 |   | 0.14 |   |
|                                  |       |                                      |       |                                      |       |                                      |       |   |   |   |   |   |   |
| Weighted average shares  outstanding: |       |                                      |       |                                      |       |                                      |       |   |   |   |   |
| Basic                                 |       | 25,489                                    |       | 30,584                                    |       | 29,017                                    |       | 30,817 |   | 25,435 |   | 30,530 |   |
| Diluted                               |       | 26,086                                    |       | 31,181                                    |       | 29,017                                    |       | 30,817 |   | 25,867 |   | 30,962 |   |

 

**NOTE 3 – SALE OF ASSETS**

 

In November 2006, Forgent sold certain patentsand applications associated with videoconferencing and related fields andtechnology, together with related goodwill, rights and documentation, toTandberg Telecom AS for $3,150.  Upon closing, Forgent received $2,900 ofthe purchase price, all of which was recorded as a gain on sale of assets.  The remaining balance of $250 will be held inescrow for two years for indemnity claims.

 

7

----

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Amountsin thousands, except per share data unless otherwise noted)

 

**NOTE 4 - COMPREHENSIVE INCOME (LOSS)**

 

In accordance with thedisclosure requirements of Statement of Financial Accounting Standard No. 130,*“Reporting Comprehensive Income,”*the Company’s comprehensive income (loss) is comprised of net income (loss),foreign currency translation adjustments and unrealized gains and losses onshort-term investments held as available-for-sale securities. Comprehensive loss for the three and six monthsended January 31, 2008 was $1,554 and $2,447, respectively. Comprehensiveincome for the three and six months ended January 31, 2007 was $1,284 and$4,035, respectively.

 

##### **NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS**

##### ** **

In February 2007,the Financial Accounting Standard Board (“FASB”) issued Statement No. 159,*“The Fair Value Option for Financial Assetsand Financial Liabilities.”*Statement No. 159 providescompanies with an option to report selected financial assets and liabilities atfair value. The standard’s objective is to reduce both complexity in accountingfor financial 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 new statement does not eliminate disclosurerequirements included in other accounting standards, including requirements fordisclosures about fair value measurements included in Statement No. 157, *“Fair Value Measurements,”*and Statement No. 107,*“Disclosures about Fair Value of FinancialInstruments.”*Statement No. 159 is effective as of thebeginning of fiscal years beginning after November 15, 2007. Forgent iscurrently evaluating the effect that the adoption of Statement No. 159will have on its financial position and results of operations.

 

In September 2006,the FASB issued Statement No. 157, *“FairValue Measurements.”  *Statement No. 157 defines fairvalue, establishes a framework for measuring fair value in U.S. generallyaccepted accounting principles and expands disclosures about fair valuemeasurements.  Statement No. 157 is effective for fiscal yearsbeginning after November 15, 2007 and interim periods within those fiscalyears. Forgent is currently evaluating the effect that the adoption ofStatement No. 157 will have on its financial position and results ofoperations.

 

## **NOTE6 – SHARE BASED COMPENSATION**

## ** **

Share based compensation for the Company’sstock option, restricted stock and stock purchase plans for the three and sixmonths ended January 31, 2008 was $67and $72, respectively.  Sharebased compensation for the Company’s stock option, restricted stock and stockpurchase plans for the three and six months ended January 31, 2007 was $19 and $131, respectively.  TheCompany issued 252 and 256 sharesof common stock related to its Stock Option, Restricted Stock, and StockPurchase Plans for the three and six months ended January 31, 2008,respectively.  The Company issued 177 and 223 shares of common stockrelated to its Stock Option, Restricted Stock, and Stock Purchase Plans for thethree and six months ended January 31, 2007, respectively.

 

**NOTE 7 – INCOME TAXES**

 

In June 2006, theFASB issued 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.”*

 

We adopted FIN 48 as of August 1,2007. FIN 48 applies to all “tax positions” accounted for under SFAS No. 109.FIN 48 refers to “tax positions” as positions taken in a previously filed taxreturn or positions expected to be taken in a future tax return which arereflected in measuring current or deferred income tax assets and liabilitiesreported in the financial statements. FIN 48 further clarifies a tax positionto include, but not be limited to, the following:

 

·    An allocation or a shift of income betweentaxing jurisdictions;

 

8

----

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

 

·    The characterization of income or a decisionto 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 atax benefit may be reflected in the financial statements only if it is “morelikely than not” that a company will be able to sustain the tax returnposition, based on its technical merits. If a tax benefit meets this criterion,it should be measured and recognized based on the largest amount of benefitthat is cumulatively greater than 50% likely to be realized. This approach is achange from previous practice under which a tax benefit could be recognizedonly if it was probable a tax position could be sustained.

 

FIN 48 requires we makequalitative and quantitative disclosures, including a discussion of reasonablypossible changes that might occur in unrecognized tax benefits over the nexttwelve months, a description of open tax years by major jurisdictions and aroll-forward of all unrecognized tax benefits, presented as a reconciliation ofthe beginning and ending balances of the unrecognized tax benefits on anaggregated basis.

 

We and certain of oursubsidiaries file income tax returns in the U.S. federal jurisdiction, variousstate jurisdictions, and certain foreign jurisdictions. Generally, we are nolonger subject to examinations for U.S. federal income taxes for years prior to2003 and for state income taxes for years prior to 2002. Examinations forforeign income taxes for previous years remain open, but tax considerations inthose jurisdictions are not material to us.

 

The adoption of FIN 48did not have a material impact on our financial statements or disclosures. Asof August 1, 2007 and October 31, 2007, we did not recognize anyassets or liabilities for unrecognized tax benefits relative to uncertain taxpositions. We anticipate no significant increase or decrease to grossunrecognized tax benefits will be recorded during the next twelve months. Anyinterest or penalties resulting from examinations will be recognize as acomponent of the income tax provision. However, since there are no unrecognizedtax benefits as a result of tax positions taken, we have no accrued interestand penalties.

 

**NOTE 8 – RELATED PARTY TRANSACTIONS**

 

As a result of the iEmployee acquisition, theCompany leases approximately 9,000 square feet of office space inMumbai, India for sales, marketing, development and support efforts.  The property is leased from a foreign companythat is controlled by stockholders of the Company.  Under the lease agreement, the Company paysmonthly rent of approximately $13 until December 2007 and approximately$10 thereafter.  During the three and sixmonths ended January 31, 2008, the Company incurred $36 and $50 in rent expenses relatedto this lease, respectively.

 

### **NOTE9 - SEGMENT INFORMATION**

### ** **

Currently,the Company operates in two distinct segments: software and services andintellectual property licensing.  Forgent’ssoftware and services business provides customers with scheduling software,asset management software, workforce management software as well as softwaremaintenance and support, installation and training services and hardwaredevices.  Under Forgent’s intellectualproperty licensing segment, the Company settled with the remaining defendantsin the litigations related to its technologies embodied in U.S. Patent No. 4,698,672and its foreign counterparts, as well as in U.S. Patent No. 6,285,746during fiscal year 2007.  Going forward,Forgent does not anticipate generating additional licensing revenues related tothese patents.  However, the Company’sintellectual property licensing segment continues to explore its patentportfolio for additional opportunities. In order to evaluate the software and services segment and theintellectual property licensing segment as stand-alone businesses, the Companyrecords all unallocated corporate operating expenses in the Corporate segment.

 

TheCompany evaluates the performance as well as the financial results of itssegments. Included in the segment operating income (loss) is an allocation ofcertain corporate operating expenses. The Company does not identify assets orcapital expenditures by reportable segments, and the Company’s Chief ExecutiveOfficer and Chief Financial Officer do not evaluate the segments based on thesecriteria.

 

The table below presents segment information aboutrevenue from unaffiliated customers, gross margins

and operating income (loss) for the three  and six months ended January 31, 2008and 2007:

 

9

----

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Amounts in thousands, except per share dataunless otherwise noted)

 
| ** **                                                   | ** ** | ** **              | ** ** | **Intellectual** | ** ** | ** **    | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|-------------------------|------------|------------------|------------|---------------|------------|------------|------------|
| ** **                                                   | ** ** | **Software &** | ** ** | **Property**     | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **Services**            | ** ** | **Licensing**    | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
| ** **                                                   | ** ** | ** **              | ** ** | ** **       | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the Three Month Period Ending  January 31, 2008** | ** ** | ** **              | ** ** | ** **       | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues from unaffiliated customers                         |       | $                       | 2,734      |             | $          | —        |       | $          | —     |   | $ | 2,734 |   |
| Gross margin                                                 |       | 2,105                   |       | —           |       | —        |       | 2,105      |       |
|                                                         |       |                    |       |             |       |          |       |       |       |
| Operating income (loss)                                      |       | (473                    | )          | (59              | )          | (1,120        | )          | (1,652     | )          |
| ** **                                                   | ** ** | ** **              | ** ** | ** **       | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the Three Month Period Ending  January 31, 2007** |       |                    |       |             |       |          |       |       |       |
| Revenues from unaffiliated customers                         |       | $                       | 1,017      |             | $          | 28            |       | $          | —     |   | $ | 1,045 |   |
| Gross margin                                                 |       | 825                     |       | 25               |       | —        |       | 850        |       |
|                                                         |       |                    |       |             |       |          |       |       |       |
| Operating income (loss)                                      |       | (152                    | )          | (912             | )          | (757          | )          | (1,821     | )          |
|                                                         |       |                    |       |             |       |          |       |       |       |
| **For the Six Month Period Ending January 31,  2008**   |       |                    |       |             |       |          |       |       |       |
| Revenues from unaffiliated customers                         |       | $                       | 4,608      |             | $          | —        |       | $          | —     |   | $ | 4,608 |   |
| Gross margin                                                 |       | 3,650                   |       | —           |       | —        |       | 3,650      |       |
|                                                         |       |                    |       |             |       |          |       |       |       |
| Operating income (loss)                                      |       | (501                    | )          | (140             | )          | (2,233        | )          | (2,874     | )          |
|                                                         |       |                    |       |             |       |          |       |       |       |
| **For the Six Month Period Ending January 31,  2007**   |       |                    |       |             |       |          |       |       |       |
| Revenues from unaffiliated customers                         |       | $                       | 1,979      |             | $          | 8,162         |       | $          | —     |   | $ | 10,141 |   |
| Gross margin                                                 |       | 1,477                   |       | 4,619            |       | —        |       | 6,096      |       |
| Operating income (loss)                                      |       | (441                    | )          | 2,889            |       | (1,643        | )          | 805        |       |

 

**NOTE 10 - CONTINGENCIES**

 

Forgentis the defendant or plaintiff in various actions that arose in the normalcourse of business.  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.**

 

OnJuly 16, 2007, Jenkens & Gilchrist, P.C. (“Jenkens”), Forgent’sformer legal counsel, filed a complaint against Forgent and Compressions Labs, Inc.,in the District Court of Dallas County, Texas. In its complaint, Jenkens alleges a breach of contract and is seeking adeclaratory judgment.  Forgent disputesJenkens’ claims and is seeking relief through the court system.

 

AfterForgent terminated Jenkens, the Company entered into a Resolution Agreementwith Jenkens in December 2004. Under the Resolution Agreement, the Company believes Jenkens is entitledto $1.4 million for contingency fees and expenses related to the settlementsfrom the litigation regarding the Company’s DVR patents.  Jenkens interprets the Resolution Agreementon broader terms and believes it is entitled to $3.4 million, includingattorneys’ fees and interest.

 

OnMarch 3, 2008, Forgent and Jenkens appeared before the Court regarding ahearing on the motion for summary judgment filed by Jenkens.  If the Court grants the motion, the Companymay lose its case.  The parties arecurrently awaiting the results of this hearing and the results are not yetknown.  Thetrial date for this litigation is currently scheduled for October 6, 2008.  However, managementcurrently cannot predict how long it ultimately will take to resolve theJenkens lawsuit.  Until the Jenkenslitigation is finalized, the related contingency fees and 

 

10

----

 

**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Amounts in thousands, except per sharedata unless otherwise noted)

 

expensesmay be adjusted in a future period and could have a material impact to theCompany’s consolidated 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 claims Wild Basin is in breach of contract relating toForgent’s lease agreement by unreasonably withholding and delaying its consentto a pending lease assignment.  On October 19,2007, Forgent amended its petition to include claims of fraud and breach offiduciary duty against Wild Basin. Forgent is seeking to recover all damages as a result of the delay inclosing its pending assignment, among other damages.  The trial date for this litigation iscurrently scheduled for May 19, 2008.

 

11

----

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

 

The followingreview of Forgent’s financial position as of January 31, 2008 and July 31,2007, and for the three and six months ended January 31, 2008 and 2007,should be read in conjunction with the Company’s 2007 Annual Report on Form 10-K/Afiled with the Securities and Exchange Commission.  Forgent’s internet website address ishttp://www.asuresoftware.com.  The Company’s annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934 are available through theinvestor relations page of the Company’s internet website free of chargeas soon as reasonably practicable after they are electronically filed, orfurnished to, the Securities and Exchange Commission.  Forgent’s internetwebsite and the information contained therein or connected thereto are notintended to be incorporated into this Quarterly Report on Form 10-Q.

 

In September 2007, the Company announced a change in the name underwhich it does business by adopting the dba “Asure Software” to reflect theCompany’s focus on its software and services segment for its futuregrowth.  Effective September 13,2007, the Company now trades in the NASDAQ Global Market System under thesymbol “ASUR”.

 

**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

 

Certain statements inthis Report represent forward-looking statements. These statements involveknown and unknown risks, uncertainties and other factors that may cause actualresults of operations, levels of activity, economic performance, financialcondition or achievements to be materially different from future results ofoperations, levels of activity, economic performance, financial condition orachievements as expressed or implied by such forward-looking statements.

 

Forgenthas attempted to identify 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.  Suchrisks and uncertainties include, but are not limited to, those described under “RiskFactors” in this Report and other risks indicated in Forgent’s filings with theSecurities and Exchange Commission from time to time.  Additionally, Forgent is under no obligationto update any of the forward-looking statements after the date of this Form 10-Qto conform such statements to actual results.

 

**RESULTS OF OPERATIONS**

 

The following table sets forth for the periods indicated the percentageof total revenues represented by certain items in Forgent’s ConsolidatedStatements of Operations:

 
| ** **                               | ** ** | **FOR THE THREE  MONTHS ENDED  JANUARY 31,** | ** ** | **FOR THE SIX****MONTHS ENDED  JANUARY 31,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                                         | ** ** | **2007**                                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                     |       |                                                             |       |                                                             |       |   |   |   |   |
| Intellectual property licensing revenues |       | 0                                                                | %          | 3                                                                | %          | 0 | % | 80 | % |
| Software & services revenues    |       | 100                                                              |       | 97                                                               |       | 100 |   | 20 |   |
|                                     |       |                                                             |       |                                                             |       |   |   |   |   |
| Gross margin                             |       | 77                                                               |       | 81                                                               |       | 79 |   | 60 |   |
| Selling, general and  administrative     |       | 108                                                              |       | 243                                                              |       | 117 |   | 50 |   |
| Research and development                 |       | 23                                                               |       | 13                                                               |       | 20 |   | 2 |   |
| Amortization of intangible  assets       |       | 6                                                                |       | —                                                           |       | 4 |   | — |   |
| Total operating expenses                 |       | 137                                                              |       | 256                                                              |       | 142 |   | 52 |   |
| Other income, net                        |       | 6                                                                |       | 298                                                              |       | 11 |   | 32 |   |
| Net income (loss)                        |       | (54                                                              | )%         | 124                                                              | %          | (52 | )% | 40 | % |

 

12

----

 

**THREE AND SIX MONTHS ENDED JANUARY 31, 2008AND 2007**

 

### **Revenues**

### ** **

*Software and Services Business*

 

Revenues for the three months ended January 31,2008 were $2.7 million, an increase of $1.7 million, or 169%, from the $1.0million reported for the three months ended January 31, 2007. Revenues forthe six months ended January 31, 2008 were $4.6 million, an increase of$2.6 million, or 133%, from the $2.0 million reported for the six months ended January 31,2007. Consolidated revenues represent the combined revenues of the Company andits subsidiaries, including sales of the Company’s scheduling software, asset management software,workforce management software, software maintenance and support services,professional services, installation and training services and hardware devices.

 

During the three and six monthsended January 31, 2008, increases in software subscription revenues,software license revenues and maintenance revenues accounted for approximately86% and 83%, of the $1.7 million and $2.6 million increases in revenues,respectively.  In October 2007, theCompany acquired the iEmployee workforce management software.  The workforce management software, as well asthe Company’s Meeting Room Manager (“MRM”) On Demand software, are deliveredto customers under the “SaaS” model, which is software as a service on asubscription basis.  The SaaS model allowscustomers to use Forgent’s software without installing or maintaining it ontheir own servers.  The acquisition ofiEmployee and the continued growth of MRM On Demand led to a $1.2 million and$1.5 million increase in service revenues for the three and six months ended January 31,2008, respectively.

 

Software license revenuesincreased by $0.1 million and $0.4 million, for the three and six months ended January 31,2008, respectively.  Duringthe fourth fiscal quarter of 2007, Forgent released MRM 7.5.1 and 7.5.2, whichprovide additional enhancements to the MRM Outlook Scheduling interface and MRMActive Directory synchronization in order to support larger enterprisecustomers with thousands of Microsoft Outlook© users and multiple ActiveDirectory domains.  These enhancedfeatures continue to attract enterprise companies and Forgent continues to generateincreased sales to this market segment, which is driving sales with higheraverage sales prices during the three and six months ended January 31,2008, as compared to the three and six months ended January 31, 2007.  Additionally, Forgent increased its salesforce during fiscal 2008.  These factorshave generated the increases in software license revenues.  Theincreased sales in software license, as well as the continued pursuit ofmaintenance renewals, led to additional sales of maintenance and supportcontracts, which increased maintenance revenues by $0.1 million and $0.2million for the three and six months ended January 31, 2008, respectively.

 

Forgent’s software and servicescontinue to appeal to domestic and international companies in theeducation, governmental, healthcare and legal segments.  Forgent will continue to target small andmedium businesses and divisions of enterprises and utilize marketing programsin certain vertical markets as appropriate. As the Company continues to fully integrate the iEmployee operations,develop its sales force to increase sales performance, and release new softwareupdates and enhancements, management believes its revenues will continue toincrease.

 

***Intellectual Property Licensing Business***

*** ***

The Company did not haveany intellectual property licensing revenues for the three and six months endedJanuary 31, 2008, which led to a decrease of $0.028 million, or 100%,reported for the three months ended Jan 31, 2007 and $8.1 million for the sixmonths ended January 31, 2007 respectively.

 

In prior fiscal years, the Company’s intellectual property licensingrevenues have been derived from licensing U.S. Patent No. 4,698,672(the “ ‘672 patent”) and U.S. Patent No 6,285,746 (the “ ‘746 patent”). However, the ‘672 patent has expired and the ‘746 patent will be expiringin May 2011.  Additionally, thelitigations related to these two patents were concluded in fiscal year 2007.Therefore, management does not anticipate any additional licensing revenuesfrom these patents.  Although Forgentcontinues to explore its patent portfolio for additional opportunities, therecan be no assurance that the Company will be able to continue to license 

 

13

----

 

its technology to others. Additionally, management believes any revenues to be generated from theCompany’s remaining patent portfolio may be less than those generatedhistorically.

 

### **Gross Margin**

### ** **

*Software and Services Business*

 

Gross margin for the three months ended January 31, 2008 was $2.1million, an increase of $1.3 million, or 155%, from the $0.8 million reportedfor the three months ended January 31, 2007. Gross margin for the sixmonths ended January 31, 2008 was $3.7 million, an increase of $2.2million, or 147%, from the $1.5 million reported for the six months ended January 31,2007. Gross margin as a percentage of totalrevenues were 77% and 81% for the three months ended January 31, 2008 and2007, respectively.  Gross margin as a percentage of total revenues were 79% and75% for the six months ended January 31, 2008 and 2007, respectively.

 

The cost of sales for theCompany is relatively fixed and results primarily from compensation expensesand related overhead expenses.  Theseexpenses represent approximately 67% and 81% of the total cost of sales duringthe three and six months ended January 31, 2008, respectively.  In October 2007, the Company acquiredthe iEmployee software services.  As aresult of this acquisition, compensation and related overhead expensesassociated with the iEmployee operations increased by $0.3 million and $0.3million, which accounts for 60% and 73% of the total increase in cost of salesfor the three and six months ended January 31, 2008, respectively.  As part of the iEmployee integration process,management continues to investigate ways to maximize efficiencies within itscompany-wide operations in order to minimize these fixed costs withoutnegatively affecting customer services and support.

 

Despite the overallincrease in cost of sales, the increase in revenues caused the gross margin asa percentage of revenues to increase from 75% for the six months ended January 31,2007 to 79% for the six months ended January 31, 2008.  Although total gross margin increased for thethree months ended January 31, 2008, gross margin as a percentage ofrevenues decreased from 81% for the three months ended January 31, 2007 to77% for the three months ended January 31, 2008.  During the first fiscal quarter of 2007, theCompany fully amortized its purchased software costs related to the acquisitionof its NetSimplicity software products; therefore, no cost of sales wererecorded for the three months ended January 31, 2007 or 2008.  As a result of the iEmployee acquisition in October 2007,cost of sales for the three months ended January 31, 2008 includeamortization expenses related to this acquisition.  Therefore, the decrease in gross margin as apercentage of revenue for the three months ended January 31, 2008 isprimarily due to the change in amortization expenses related to the Company’sacquisitions.  Since Forgent expects to generate more sales, management expects gross marginsto improve during the next fiscal quarter, in terms of total dollars, and toremain relatively consistent in terms of percentage of revenues.

 

*IntellectualProperty Licensing Business*

 

TheCompany did not have any intellectual property licensing revenues for the threeand six months ended January 31, 2008, which also led to no generation ofcost of sales for the same period. The related decrease in gross margin was100% when compared to $0.025 million reported for the three months ended Jan31, 2007 or $4.6 million for the six months ended January 31, 2007respectively

 

**Selling, General and Administrative**

 

*Software and Services Business*

 

Selling, general and administrative (“SG&A”) expenses for the threemonths ended January 31, 2008 were $2.9 million, an increase of $1.3million, or 80%, from the $1.6 million reported for the three months ended January 31,2007. SG&A expenses for the six months ended January 31, 2008 were $5.2million, an increase of $1.9 million, or 58%, from the $3.3 million reportedfor the six months ended January 31, 2007. SG&A expenses as a percentage of total revenues were 106% and158% for the three months ended January 31, 2008 and 2007, respectively.  SG&A expenses as a percentage of total revenues were 114% and167% for the six months ended January 31, 2008 and 2007, respectively.

 

14

----

 

Approximately 74% of the$1.3 million increase in SG&A expenses during the three months ended January 31,2008 and approximately 84% of the $1.9 million increase in SG&A expensesduring the six months ended January 31, 2008 are attributable to increasesin corporate expenses, sales and marketing compensation expenses and marketingprogram expenses.  Forgent allocatescertain corporate operating expenses to itssegments.  Since the Company shifted thefocus and strategy for its long-term operating business away from theintellectual property licensing business and did not record any revenuesrelated to the intellectual property licensing business, Forgent did notallocate any corporate expenses to the intellectual property licensing segmentduring the fiscal periods in 2008.  As aresult, SG&A expenses increased by $0.4 million and $0.7 millionduring the three and six months ended January 31, 2008, respectively.

 

In order to increaserevenues from its software business, the Company hired additional sales andmarketing personnel in fiscal 2008 and will hire additional sales personnelduring the remainder of fiscal 2008.  Inaddition to the appealing features of its software products and services,management believes the additional personnel have contributed to the increasein revenues during the three and six months ended January 31, 2008.  Management anticipates further increases inrevenues as the Company’s expanded sales and marketing workforce achieves itsfull productivity potential in building greater market awareness and generating increased sales.  As a result of these new hires and theacquisition of the iEmployee sales and marketing workforce in October 2007,SG&A expenses increased by $0.4 million and $0.6 million during the threeand six months ended January 31, 2008, respectively.

 

Tofurther increase market awareness of its software products and services,Forgent increased its marketing program expenses to reach more potentialcustomers.  Additionally, the iEmployeemarketing operations acquired in October 2007 account for approximately59% and 43% of the increases in marketing expenses for the three and six monthsended January 31, 2008, respectively. As a result of Forgent’s expanded marketing program, SG&Aexpenses increased by $0.2 million and $0.3 million during the three and sixmonths ended January 31, 2008, respectively.

 

Forgent will also continue to evaluate and reduce any unnecessarySG&A expenses that do not directly support the generation of revenues forthe Company.

 

*IntellectualProperty Licensing Business*

 

The Company did notpursue any intellectual property licensing revenues for the three and sixmonths ended January 31, 2008, which led to a decrease of $0.9 million, or94%, reported for the three months ended January 31, 2007 and a decrease of$1.6 million or 92% for the six months ended January 31, 2007.

 

### **Research and Development**

### ** **

Research and development (“R&D”) expenses for the three monthsended January 31, 2008 were $0.6 million, an increase of $0.5 million, or385%, from the $0.1 million reported for the three months ended January 31,2007. R&D expenses for the six months ended January 31, 2008 were $0.9million, an increase of $0.7 million, or 275%, from the $0.2 million reportedfor the six months ended January 31, 2007. R&D expenses as a percentage of total revenues were 23% and13% for the three months ended January 31, 2008 and 2007,respectively.  R&D expenses as a percentage of total revenues were 20% and13% for the six months ended January 31, 2008 and 2007, respectively.

 

Approximately 80% of the $0.5 million increase in R&D expenses duringthe three months ended January 31, 2008 and approximately 74% of the $0.7million increase in R&D expenses during the six months ended January 31,2008 are due to the acquisition of the iEmployee R&D workforce andoperations in October 2007.  As theCompany further integrates the iEmployee R&D workforce into the existingR&D team, management is continuing to explore opportunities to createsynergies within the group and is investigating all methods for managing itsR&D efforts in the most cost-effective manner.

 

As a result ofForgent’s R&D efforts, the Company has achieved several goals.  In November 2007, the Company introduceda new softwareproduct, Mobile Workforce Manager. This software enables a customer’s mobileemployees to reserve workspaces and resources when traveling betweenfacilities. This concept, often referred to as “office hoteling,” allowscustomers to reduce facility costs by improving the utilization of expensiveworkspace.  In January 2008, Forgentannounced the release of MRM 7.6 to address the needs of its customers in 

 

15

----

 

highereducation.  This new release introducedfeatures to import data from SunGard Higher Education Banner®, a widely usedcollegiate course scheduling solution.  Also in January 2008, theCompany released the next version of its Visual Asset Manager software, whichincluded significant data validation and usability enhancements.  In December 2007, Forgentreleased an improved version ofiEmployee’s Expense product, which included enhancements to the software’s itemizedexpense tracking and receipt capture capabilities.  Forgent also developed an enhanced version ofiEmployee’s HR/Benefits product, which introduced a new feature that allowscustomers to provide pay stub information to their mobile employees via selectAutomated Teller Machines (ATMs).  This enhanced version was released tothe public in February 2008.

 

As Forgent continues to develop and improve its products and services,management will attempt to maintain R&Dexpenses at reasonable levels in terms of percentage of revenue.

 

### **Other Income and Expenses**

### ** **

Other income and expenses for the three months ended January 31,2008 were $0.2 million, a decrease of $2.9 million, or 94%, from the $3.1million reported for the three months ended January 31, 2007. Other incomeand expenses for the six months ended January 31, 2008 were $0.5 million,a decrease of $2.7 million, or 85%, from the $3.2 million reported for the sixmonths ended January 31, 2007. Other income and expenses as a percentage of total revenues were 6% and298% for the three months ended January 31, 2008 and 2007,respectively.  Other income andexpenses as a percentage of total revenueswere 11% and 32% for the six months ended January 31, 2008 and 2007,respectively.

 

The $2.9 million and $2.7 million decreases for thethree and six months ended January 31, 2008 resulted from the sale ofassets during the second fiscal quarter of 2007.  In November 2006, Forgent sold certainpatents and applications associated with videoconferencing and related fieldsand technology, together with related goodwill, rights and documentation, toTandberg Telecom AS for $3.2 million.  Upon closing, Forgent received $2.9million of the purchase price, all of which was recorded as a gain on sale ofassets.  The remaining balance of $0.3million is held in escrow for two years for indemnity claims.

 

**Net (Loss) Income**

 

Forgentincurred a net loss of $1.5 million, or $0.05****per share, during the three months ended January 31, 2008compared to a net income of $1.3 million, or $0.05 per share, during the threemonths ended January 31, 2007. Forgent incurred a net loss of $2.4million, or $0.08****per share,during the six months ended January 31, 2008 compared to a net income of$4.0 million, or $0.16 per share, during the six months ended January 31,2007. Net (loss) income as a percentage of total revenues were (54%) and 124%for the three months ended January 31, 2008 and 2007, respectively. Net(loss) income as a percentage of total revenues were (52%) and 40% for the sixmonths ended January 31, 2008 and 2007, respectively. The $2.8 milliondecrease in the Company’s net income during the three months ended January 31,2008, as compared to the three months ended January 31, 2007, is primarilyattributable to the $2.9 million gain from the sale of assets in fiscal2007.  The $6.4 million decrease in theCompany’s net income during the six months ended January 31, 2008, ascompared to the six months ended January 31, 2007, is primarilyattributable to the $8.1 million reduction in intellectual property licensing revenues and the $2.9 million gain from the sale ofassets in fiscal 2007.

 

16

----

 

**LIQUIDITYAND CAPITAL RESOURCES**

 
| ** **                                         | ** ** | **FOR THE SIX** | ** ** |
|----------------------------------------------------|------------|---------------------------|------------|
| ** **                                         | ** ** | **MONTHS ENDED**     | ** ** |
| ** **                                         | ** ** | **JANUARY 31,**      | ** ** |
| ** **                                         | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                                         | ** ** | **(in thousands)**   | ** ** |
| ** **                                         | ** ** | ** **                | ** ** | ** ** | ** ** |
| Working capital                                    |       | 13,068                    |       | 15,105 |   |
| Cash, cash equivalents and short-term  investments |       | 17,801                    |       | 18,016 |   |
| Cash (used in) provided by operating  activities   |       | (10,584                   | )          | 2,444 |   |
| Cash used in investing activities                  |       | (9,010                    | )          | (1,690 | ) |
| Cash provided by (used in) financing  activities   |       | 1                         |       | (459 | ) |

 

Cash used inoperating activities was $10.6 million for the six months ended January 31,2008 due primarily to the $2.4 million in net loss and the $0.5 milliondecrease in accounts payable. Cash provided by operating activities was $2.4million for the six months ended January 31, 2007 due primarily to the$1.3 million in net income and $0.3 million in non-cash depreciation andamortization expenses. During the six months ended January 31, 2008,Forgent paid its legal counsel $7.4 million in contingency fees related to its ‘746patent’s settlement and license agreements. The Company will pay the related contingency fees to Jenkens &Gilchrist, P.C. (“Jenkens”) in a future period, once the litigation withJenkens is finalized

 

Cash used in investingactivities was $9.0 million for the six months ended January 31, 2008 dueprimarily to $7.3 million paidin cash related to the iEmployee acquisition and $1.8 million purchase ofshort-term investments.  Cash usedin investing activities was $1.7 million for the six months ended January 31,2007 due primarily to $1.5 million in purchases of short-term investments.  Forgent manages its investments portfolio inorder to fulfill corporate liquidity requirements and maximize investmentreturns while preserving the quality of the portfolio.  Duringthe six months ended January 31, 2008, Forgent shifted its investmentportfolio to investments with slightly longer maturities in order to maximizeits interest income.  As a result of thisshift and the increase in the average cash equivalents and short-terminvestment balances during the six months ended January 31, 2008, Forgentachieved a 37% increase in interest income during the six months ended January 31,2008, as compared to the six months ended January 31, 2007.

 

Approximately 42% ofForgent’s purchased fixed assets during the six months ended January 31,2008 related to leasehold improvements for one subtenant.  The acquired iEmployee business has on-going capital requirements.  Management continues to evaluate how best tomanage operations without expending significant additional resources andbelieves the Company will need to spend moderate amounts during the remainderof fiscal 2008 for the iEmployee operations. Additionally, Forgent is maximizing its existing office space tofacilitate the growth of its software business and has invested in leaseholdimprovements at its Wild Basin facility. To address all operational and facility capital requirements, managementanticipates spending approximately $0.2 million during the remainder of fiscalyear 2008 to fulfill these requirements.

 

The Company leases office space and equipmentunder non-cancelable operating leases that expire at various dates through2013. Certain leases obligate Forgent to pay property taxes, maintenance andinsurance and include escalation clauses. The totalamount of base rentals over the term of the Company’s leases is charged toexpense on a straight-line basis, with the amount of the rental expense inexcess of the lease payments recorded as a deferred rent liability.  Forgentmay periodically make other commitments and thus become subject to othercontractual obligations.   Forgent’sfuture minimum lease payments under all operating and capital leases as of January 31, 2008 are as follows:

 

17

----

 

**Payments Due By Period**

(in thousands)

 
| ** **                  | ** ** | **Total** | ** ** | **Less than  1 year** | ** ** | **1 - 3 years** | ** ** | **3- 5 years** | ** ** | **More than  5 years** | ** ** |
|-----------------------------|------------|-----------|------------|---------------------------------|------------|--------------------------------|------------|--------------------------|------------|----------------------------------|------------|
|                        |       |      |       |                            |       |                           |       |                     |       |                             |       |
| Operating lease obligations |       | $         | 17,918     |                            | $          | 3,781                          |       | $                        | 6,948      |                             | $          | 6,836 |   | $ | 353 |   |
| Capital lease obligations   |       | 69        |       | 35                              |       | 34                             |       | —                   |       | —                           |       |
| **Total**                   | ** ** | **$**     | **17,987** | ** **                      | **$**      | **3,816**                      | ** ** | **$**                    | **6,982**  | ** **                       | **$**      | **6,836** | ** ** | **$** | **353** | ** ** |

 

Approximately 97% of the Company’s operating leaseobligations relates to its corporate office location at Wild Basin in Austin,Texas.  As of January 31, 2008,Forgent had approximately $3.6****millionin future minimum lease payments receivable under non-cancelable subleasearrangements.  Additionally, Forgent hada $0.6 million liability related to impairment charges for the economic valueof the lost sublease rental income related to its Austin property.

 

Cashprovided by financing activities was $1 thousand for the six months ended January 31,2008.  Cash used in financing activitieswas $0.5 million for the six months ended January 31, 2007 due primarilyto the repayment of Forgent’s outstanding notes payable.  As of January 31, 2008, Forgent had $1.0million available from acredit line from Silicon Valley Bank, although no debt was outstanding at quarter-end.  Advancesobtained from the Silicon Valley Bank credit line will be notes payables thatbear interest at prime plus 0.75% and require monthly installments over a threeyear term.  The Silicon Valley Bankcredit line expires on May 1, 2008. If Forgent renews this source of financing, the Company may not be ableto obtain similar terms for the future credit line.

 

Forgent’s stock repurchase program allows theCompany to purchase up to three million shares of the Company’s common stock.No shares were repurchased during the six months ended January 31, 2008 or2007.  As of January 31, 2008,Forgent had repurchased 1,790,401 shares for approximately $4.8 million and hadthe authority to repurchase approximately 1.2 million additional shares.  Management will periodically assessrepurchasing additional shares in fiscal year 2008, depending on the Company’scash position, market conditions and other factors.

 

As of January 31,2008, Forgent’s principal source of liquidity consisted of $17.8 million incash, cash equivalents and short-term investments.  Management currently plans to utilize itscash balances to further develop its software operations by making additionalprudent investments to grow organically, continue exploring potentialopportunities in acquiring a growing and profitable public or privately heldtechnology business or product line, and may repurchase outstandingshares.  There is no assurance that the Company will beable to limit its cash consumption and preserve its cash balances, and it ispossible that the Company’s future business demands may lead to cashutilization at levels greater than recently experienced due to the iEmployeeacquisition, potential other acquisitions and other factors. Managementbelieves that the Company has sufficient capital and liquidity to fund andcultivate the growth of its current and future operations for the next 12months and thereafter.  However, due touncertainties related to the timing and costs of these efforts, Forgent mayneed to raise additional capital in the future. Yet, there is no assurance that the Company will be able to raiseadditional capital if and when it is needed.

 

#### **CRITICAL ACCOUNTING POLICIES**

#### ** **

TheCompany’s condensed consolidated financial statements have been prepared inaccordance with U.S. generally accepted accounting principles and include theaccounts of Forgent’s wholly owned subsidiaries. All significant intercompanytransactions and balances have been eliminated in the consolidation.Preparation of the condensed consolidated financial statements in conformitywith U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of the assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. The more significant estimates made by managementinclude the valuation allowance for the gross deferred tax asset, contingencyreserves, useful lives of fixed assets, the determination of the fair value ofits long-lived assets, the fair value of assets acquired and liabilitiesassumed during the recent acquisition. These estimates could be materially different under differentconditions and assumptions. Additionally, the actual amounts could differ from the estimates made.Management periodically evaluates estimates 

 

18

----

 

used in the preparation of the financial statements for continuedreasonableness. Appropriate adjustments, if any, to the estimates used are madeprospectively based upon such periodic evaluation.

 

Managementbelieves the following represent Forgent’s critical accounting policies:

 

**Revenue Recognition**

 

The Company recognizes revenue when persuasive evidence of anarrangement exists, delivery has occurred, the fee is fixed or determinable andcollectibility is probable.   The Companyrecognizes software license revenue in accordance with Statement of Position (“SOP”)97-2, *“Software Revenue Recognition,”*asamended by SOP 98-4, “*Deferral of the Effective Dateof a Provision 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 recognizessoftware subscription revenue in accordance with EITF Issue No. 00-3, *“Application of AICPA Statement of Position 97-2 toArrangements That Include the Right to Use Software Stored on Another Entity’sHardware”*and EITF 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. Revenuefrom the sale of hardware devices is recognized upon shipment of thehardware.  Forgent sells multipleelements within a single sale.  Forsoftware license arrangements, the Company allocates the total fee to thevarious elements based on the relative fair values of the elements specific tothe Company.  For software subscriptionarrangements, the Company recognizes the total contract value ratably over thecontract term.

 

The Company determinesthe fair value of each element in the arrangement based on vendor-specificobjective evidence (“VSOE”) of fair value. VSOE of fair value for the software, maintenance, and training andinstallation services are based on the prices charged for the software,maintenance and services when sold separately. Revenue allocated to maintenance and technical support is recognizedratably over the maintenance term (typically one year).  Revenue allocated to installation andtraining is recognized upon completion of these services.  The Company’s training and installationservices are not essential to the functionality of its products as suchservices can be provided by a third party or the customers themselves.

 

Forinstances in which VSOE cannot be determined for undelivered elements, andthese undelivered elements do not provide significant customization ormodification of its software product, Forgent recognizes the entire contractamount ratably over the period during which the services are expected to beperformed.

 

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

 

Deferred revenue includes amounts received from customers in excess ofrevenue recognized, and is comprised of deferred maintenance, service and otherrevenue.  Deferred revenues arerecognized in the Condensed Consolidated Statements of Operations when theservice is completed and over the terms of the arrangements, primarily rangingfrom one to three years.

 

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

## ** **

Goodwilland other intangible assets with indefinite lives are not required to be amortized underFinancial Accounting Standard Board (“FASB”) Statement No. 142, *“Goodwill and Other Intangible Assets,”*andaccordingly, the Company reviews itsgoodwill for possible impairment on an annual basis, or whenever specificevents warrant. Events that may create an impairment review include, but arenot limited to: significant and sustained decline in the Company’s stock priceor market capitalization, significant underperformance of operating units andsignificant changes in market conditions and trends. Forgent uses a two-stepprocess and a discounted cash flow model to evaluate its assets for impairment. If the carrying amount ofthe goodwill or asset exceeds its implied fair value, an impairment loss isrecognized in an amount 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.”*

 

19

----

 

In accordance with Statement No. 144, Forgent reviews andevaluates its long-lived assets for impairment whenever events or changes incircumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, including those noted above,the Company compares the assets’ carrying amounts against the estimatedundiscounted cash flows to be generated by those assets over their estimateduseful lives.  If the carrying amounts are greater than the undiscountedcash flows, the fair values of those assets are estimated by discounting theprojected cash flows.  Any excess of thecarrying amounts over the fair values are recorded as impairments in thatfiscal period.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The Company’s primary market risk exposure relates tointerest rate risk. Forgent’s interest income is sensitive to changes in U.S.interest rates.  However, due to theshort-term nature of the Company’s investments, Forgent does not consider theserisks to be significant.  Foradditional Quantitative and Qualitative Disclosures about Market Risk,reference is made to Part II, Item 7A, Quantitative and QualitativeDisclosures about Market Risk, in the Company’s Annual Report on Form 10-K/Afor the year ended July 31, 2007.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

The Company’s management is responsible forestablishing and maintaining adequate internal control over financial reportingfor the Company.  The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the reports it files under the Securities andExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the rules and forms of theSecurities and Exchange Commission.  Suchcontrols include 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.

 

The CEO and Chief Financial Officer, with theparticipation of management, have evaluated the effectiveness of the Company’sdisclosure controls and procedures as of January 31, 2008.  Based on their evaluation, they haveconcluded, to the best of their knowledge and belief, that the disclosurecontrols and procedures are effective. No changes were made in the Company’s internal controls over financialreporting during the quarter ended January 31, 2008, that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrols over financial reporting.  Inmaking this assessment, management used the criteria set forth in *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

 

Due to the acquisition of iEmployee in October 2007, Forgent isrequired to implement internal controls related to those operations. As of January 31,2008, the Company has not tested the operating effectiveness of the internalcontrols related to iEmployee or the integration of iEmployee. In compliancewith the Public Company Accounting Oversight Board’s and the Securities andExchange Commission’s regulations and guidance, Forgent will not report on theeffectiveness of iEmployee’s internal controls over financial reporting underthe Sarbanes-Oxley Act of 2002 until its Annual Report on Form 10-K forfiscal 2008.

 

**PART II – OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

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

 

20

----

 

**Litigation with Jenkens & Gilchrist, P.C.**

 

OnJuly 16, 2007, Jenkens & Gilchrist, P.C. (“Jenkens”), Forgent’sformer legal counsel, filed a complaint against Forgent and Compressions Labs, Inc.,in the District Court of Dallas County, Texas. In its complaint, Jenkens alleges a breach of contract and is seeking adeclaratory judgment.  Forgent disputesJenkens’ claims and is seeking relief through the court system.

 

AfterForgent terminated Jenkens, the Company entered into a Resolution Agreementwith Jenkens in December 2004. Under the Resolution Agreement, the Company believes Jenkens is entitledto $1.4 million for contingency fees and expenses related to the settlementsfrom the litigation regarding the Company’s DVR patents.  Jenkens interprets the Resolution Agreementon broader terms and believes it is entitled to $3.4 million, includingattorneys’ fees and interest.

 

OnMarch 3, 2008, Forgent and Jenkens appeared before the Court regarding ahearing on a motion for summary judgment filed by Jenkens.  If the Court grants the motion, the Companymay lose its case.  The parties arecurrently awaiting the results of this hearing and the results are not yetknown.  Thetrial date for this litigation is currently scheduled for October 6,2008.  However, 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 claims Wild Basin is in breach of contract relating toForgent’s lease agreement by unreasonably withholding and delaying its consentto a pending lease assignment.  On October 19,2007, Forgent amended its petition to include claims of fraud and breach offiduciary duty against Wild Basin. Forgent is seeking to recover all damages as a result of the delay inclosing its pending assignment, among other damages.  The trial date for this litigation iscurrently scheduled for May 19, 2008.

 

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

## ** **

On October 2, 2006, the United States Patent and Trademark Office(the “USPTO”) ordered an **inter partes** re-examination of the ‘746patent and issued its first office action related to this re-examination on October 30,2006.  This first action, which is notthe final conclusion of the re-examination, rejected the five claims in the ‘746patent.  Forgent responded to the USPTO,but the USPTO has not issued any additional office actions related to thisre-examination.

 

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

 

On January 31, 2006, the USPTO granted a petition to re-examinethe Company’s U.S. Patent No. 4,698,672 (the “ ‘672 patent”) andsubsequently issued its first office action on May 25, 2006.  Forgent responded to this first officeaction, which confirmed 27 of the 46 claims in the ‘672 patent.  On March 26, 2007, the USPTO issued itsfinal office action, which affirmed its first office action.  Forgent responded to the USPTO on May 11,2007.  On January 11, 2008, theCompany received the USPTO’s notice of intent to issue an Ex-ParteReexamination Certificate.

 

##### **ITEM 1A. RISK FACTORS**

##### ** **

Manyfactors affect Forgent’s business, prospects, liquidity and the results ofoperations, some of which are beyond the Company’s control. The following is adiscussion of important risk factors that may cause the actual results of theCompany’s operations in future periods to differ materially from thosecurrently expected or desired. Additional risks not presently known tomanagement or risks that are currently believed to be immaterial, but which maybecome material, may also affect the Company’s business, prospects, liquidityand results of operations.

 

21

----

#### ** **

#### **SOFTWAREAND SERVICES BUSINESS**

#### ** **

**The Company may encounter problems related toits acquisition of iEmployee, which could create business difficulties and adverselyaffect operations.**

 

The Company may have difficulties fully integrating the services,technologies, personnel and operations of iEmployee into the Company’s existingsoftware business. These difficulties could disrupt Forgent’s ongoing business,distract management and other personnel, increase expenses and adversely affectoperating results.  If Forgent is unableto fully integrate iEmployee with its existing operations, the Company may notachieve all the intended benefits of the acquisition.

 

**If Forgent is unable to successfully market and sell its softwareproducts and services, future revenues will decline.**

 

The future success of the Company is dependenton its ability to generate demand for its scheduling, asset management, and workforce management softwareproducts and services. To this end, Forgent’s marketing and sales operationsmust increase market awareness of the Company’s products and services togenerate increased revenue. All new hires within the sales and marketingdepartments will require training and may take time to achieve fullproductivity. Forgent cannot be certain that its new hires will become asproductive as necessary.  The Companyalso cannot be certain that it will be able to hire enough qualifiedindividuals or retain existing employees in the future, and therefore, cannotbe certain that it will be successful in its efforts to market and sell itsproducts and services.  If Forgent is notsuccessful in building greater market awareness and generating increased sales,future revenues will decline.

 

**Lack of new customers or additional salesfrom current customers could negatively affect the Company’s ability to growrevenues.**

 

Forgent’sfuture success and business model depends significantly on its ability toexpand the use of its software and services. The Company must execute on its growth objectives by increasing itsmarket share, maintaining and increasing recurring revenues from new andexisting customers, and selling additional products and services to new andexisting customers.  If the Company failsto grow its customer base or generate repeat and expanded business from itscurrent customers, Forgent’s revenues could be adversely affected.

 

Since NetSimplicity’s maintenance and other service fees depend largelyon the size and number of licenses that are sold, any downturn in NetSimplicity’ssoftware license revenue would negatively impact the Company’s deploymentservices revenue and future maintenance revenue. Additionally, if customerselect not to renew their maintenance agreements, NetSimplicity’s maintenancerevenue could be adversely affected.

 

**Increased competition may have an adverse effect on the Company’soperating results.**

 

The Company may encounter new entrants orcompetition from vendors in some or all aspects of its software business. TheCompany currently competes on the basis of price, technology, availability,performance, quality, reliability, service and support. However, there can beno assurance that the Company will be able to maintain a competitive advantagewith respect to any of these factors. Some of Forgent’s competitors, bothcurrent and future, may have greater financial, technical and marketingresources than the Company and, therefore, may be able to respond quicker tonew or emerging technologies and changes in customer requirements.  As a result, they may compete moreeffectively on price and other terms. Additionally, these competitors may devote greater resources indeveloping products or in promoting and selling their products to achievegreater market acceptance.  Suchcompetition could adversely affect the Company’s operating results.

 

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

 

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

 

22

----

 

**A systemsfailure or any other service interruption could result in substantial expensesto the Company, loss of customers and claims by customers for damages caused byany losses they incur.**

 

Forgent’s workforce management software, aswell as the Company’s MRM On Demand software, are delivered to customers underthe “SaaS” model, which is software as a service on a subscription basis.  These hosting services, whichare supported by hardware, infrastructure, ongoing maintenance and back-upservices, must be operated reliably on a 24 hours per day, seven days per weekbasis without interruption or data loss. If Forgent cannot protect its infrastructure, equipment and customerdata files against damage from human error, power loss or telecommunicationfailures, intentional acts of vandalism, or any other catastrophic occurrences,services to its customers may be interrupted. If services are interrupted,

 

·                  Customers maynot be able to retrieve their data;

·                  The Companycould incur significant expenses to replace existing equipment or purchaseservices from an alternative data center;

·                  Customers maynot renew their services or cancel their contracts;

·                  Customers mayseek reimbursement for losses that they incur; and/or

·                  The Company’sreputation may be impaired, making it difficult to attract new customers.

 

Although disaster recovery plans and strategies are in place, Forgentmay not be successful in mitigating the effects of any systems failure or otherservice interruptions. Such failures or interruptions could significantlyimpair the Company’s operations and adversely affect the Company’s financialresults.

 

**If Forgent’s business, systems and/or IT securityis breached, the Company’s businesses may be adversely affected.**

 

Asecurity breach in the Company’s business processes and/or systems has thepotential to impact the Company’s customer information.  Any issues of data privacy as they relate tounauthorized access to or loss of customer information could result in thepotential loss of business, damage to the Company’s reputation andlitigation.  To prevent unauthorizedaccess to confidential information or attempts to breach the Company’ssecurity, Forgent continues to invest in the security of its IT systems andimprove the controls within its IT systems and business processes. However,there is no assurance that the Company’s business and/or systems will not bebreached.  If Forgent’s security is breachedor confidential information is accessed, the Company’s business and operatingresults may be adversely affected.

 

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

 

TheCompany may become subjected to claims ofintellectual property infringement by third parties as the number ofcompetitors and available software products continue to grow and thefunctionality of such products increasingly overlaps. Any infringement claims,with or without merit, could be time-consuming, result in costly litigation,divert management’s attention and financial resources, cause the loss ordeferral of sales or require the Company to enter into royalty or licenseagreements. In the event of a successful claim of intellectual propertyinfringement against Forgent, the Company’s business, operating results andfinancial condition could be materially adversely affected, unless the Companyis able to either license the technology or similar technology or develop analternative technology on a timely basis. Even if Forgent is able to license the technology, such royalty orlicense agreements may not be available on terms acceptable to the Company.

 

**If Forgent cannotprevent piracy of its software products, revenues may decline.**

 

Although the Company is unable to determinethe extent to which piracy of its software products occurs, software piracycould be a problem.  Since Forgent hasinternational resellers and customers, piracy may occur in foreign countrieswhere laws do not protect proprietary rights to the same extent as the laws inthe United States. Piracy may cause the Company’s revenues to decline.  Forgent seeks to protect its assets through acombination of patent and trademark laws as well as confidentiality proceduresand contractual provisions. These legal protections afford only limitedprotection and enforcement of these rights may be time consuming andexpensive.  Furthermore, competitors mayalso independently develop similar, but not infringing, technology or designaround the Company’s products.

 

**TheCompany’s software products’ functionality may be impaired if third-partyhardware devices associated with the software do not operate successfully.**

 

Inaddition to its software products, Forgent currently sells hardware devicesfrom partnered vendors to its customers. The effective implementation of the Company’s software products dependsupon the successful 

 

23

----

 

operation of these third-party hardware products. Any undetecteddefects in these third-party products could prevent the implementation of orimpair the functionality of the Company’s software or blemish Forgent’sreputation.

 

**If customers cease using Microsoft Outlook©or if Microsoft changes its Outlook application significantly, revenues maydecline and/or the Company may incur significant expenses to update its MRMEnterprise software.**

 

TheCompany’s MRM Enterprise software is designed to operate with MicrosoftOutlook©.  Although management believesthat Microsoft Outlook© is currently and widely utilized by businesses in theCompany’s target markets, there are no assurances that businesses will continueto use Microsoft Outlook© as anticipated, will migrate from older versions tonewer versions of Microsoft Outlook©, or will not adopt alternativetechnologies that are incompatible with MRM Enterprise.  Forgent may not be timely in updating its MRMEnterprise software to be compatible with Microsoft Outlook©.  As a result, software revenues maydecline.  Additionally, the Company mayincur significant expenses updating its MRM Enterprise software to becompatible with changes in Microsoft Outlook©.

 

**If Forgent fails to introduce new versionsand releases of functional and scalable software products in a cost-effectiveand timely manner, customers may license competing products and Forgent’srevenues will decline.**

 

The technology industry is characterized bycontinuing improvements in technology, resulting in the frequent introductionof new products, short product life cycles, changes in customer needs andcontinual improvement in product performance characteristics.  Forgent expects that its future financialperformance will depend, in part, on revenue generated from future softwareproducts and enhancements as well as other software related products that theCompany plans to develop and/or acquire. To be successful, Forgent must becost-effective and timely in enhancing its existing software applications,developing new software technology and solutions that address the increasinglysophisticated and varied needs of its existing and prospective clients, andanticipating technological advances and evolving industry standards andpractices.

 

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

 

**Errors or defects in Forgent’s software couldreduce demand for its software and result in decreased revenues, decreasedmarket acceptance and injury to the Company’s reputation.**

 

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

 

**If Forgent is unable to develop or maintainstrategic relationships with its resellers and vendor partners who market andsell the Company’s products, revenues may decline.**

 

Forgent supplements its direct sales force bycontracting with resellers and vendor partners to generate additionalsales.  Forgent’s revenue growth willdepend, in part, on adding new resellers and partners to expand the Company’ssales channels, as well as leveraging the Company’s relationships with existingresellers and partners. If Forgent is unable to enter into successful newstrategic relationships in the future or if the Company’s current relationshipswith its resellers and partners deteriorate or terminate, Forgent may losesales and revenues may decline.

 

24

----

 

#### **OTHER**

#### ** **

****Forgent’sstock may be de-listed from NASDAQ, which may adversely affect its stockholders’ability to sell their shares and the Company’s ability to raise capital.****

 

OnFebruary 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, its common stockis 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 price in excess of $1.00 for ten consecutive business days. If theCompany cannot achieve compliance with the minimum share price requirement by August 4,2008, Nasdaq will provide written notification that the Company’s securitieswill be de-listed.

 

TheCompany may pursue trading on the Nasdaq Capital Market.  If NASDAQ approves, Forgent would be providedan additional 180 calendar days to regain compliance with the minimum $1.00share price requirement while trading on the Nasdaq Capital Market. If NASDAQdoes not approve the Company to trade on the Capital Market and the Companycannot achieve compliance by any other means, Forgent’s common stock will bede-listed from NASDAQ.

 

IfForgent’s common stock is de-listed from NASDAQ, the market liquidity ofCompany’s common stock will be significantly limited, which would reducestockholders’ ability to sell their Company securities in the secondarymarket.   Additionally, any suchde-listing would harm Forgent’s ability to raise capital through alternativefinancing sources on acceptable terms, if at all, and may result in the loss ofconfidence in the Company’s financial stability by suppliers, customers andemployees. Forgent cannot give investors in its common stock any assurance thatthe Company will be able to regain and maintain compliance with the $1.00 pershare minimum price requirement for continued listing on NASDAQ or that itsstock will not be de-listed by NASDAQ in the future.

 

**Forgent may face problems in connection with futureacquisitions, which could create business difficulties and adversely affectoperations.**

 

Aspart of the Company’s business strategy, Forgent may acquire additionalbusinesses, products and technologies that could complement or expand itsongoing business.  However, the Companymay be unable to identify suitable acquisitions or investment candidates. Evenif Forgent identifies suitable candidates, there are no assurances that theCompany will be able to make the acquisitions or investments on favorableterms. Negotiations of potential acquisitions could divert management time andresources and the Company may incorrectly judge the value or worth of anacquired business, product or technology. Additionally, Forgent may incursignificant debt or be required to issue equity securities to pay for suchfuture acquisitions or investments.

 

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

 

AlthoughForgent generated net income for the year ended July 31, 2007, the Companyincurred losses during the prior fiscal years and during the six months ended January 31,2008.  The net income during fiscal year2007 was due to the income generated from the intellectual property licensingsegment, which is no longer part of the Company’s continuing operations.  Additionally as of January 31, 2008,Forgent had an accumulated deficit of $240.9****millionand may incur additional losses in the future. Continued losses may cause existing and new customers to question theCompany’s viability and be reluctant to purchase from the Company.  If Forgent is unable to increase its salesdue to such concerns, revenues will decline, which would further adverselyaffect the Company’s operating results. Therefore, there are no assurances thatthe Company can achieve or generate sufficient revenues to realizeprofitability.

 

**Forgent may not be able toprotect or enforce its intellectual property rights, which could adverselyaffect the Company’s operations.**

 

TheCompany seeks to protect its assets through patent and trademark laws.  Forgent currently has several patents andtrademarks, as well as patent applications and trademark registrations.  However, the Company’s patent applications ortrademark registrations may not be approved. Additionally, even if approved,the resulting patents or trademarks may not provide the Company with anycompetitive advantage or may be challenged by third parties.  If challenged, patents and trademarks mightnot be upheld or claims could be narrowed. Any challenges or litigation surroundingthe Company’s rights could force Forgent to divert important financial andother resources away from business operations.

 

25

----

 

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

 

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

 

**Forgent may experience fluctuations in its quarterly resultsand if the Company’s future results are below expectations, the price for theCompany’s common stock may decline.**

 

Inthe past, the Company’s revenues and operating results have variedsignificantly from quarter to quarter due to the various events experienced bythe intellectual property licensing segment. Although management expects that revenues and operating results mayfluctuate less from quarter to quarter since the intellectual propertylicensing segment is no longer part of continuing operations, any fluctuationfrom Forgent’s continuing operations may lead to reduced prices for the Company’scommon stock.  Several factors may causethe quarterly results to fluctuate, including:

 

·                  market demand for the Company’s software products and services;

·                  timing of customers’ budget cycles;

·                  timing of customer orders and deployment of the Company’s softwareproducts and services;

·                  mix of software license and services revenues;

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

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

·                  seasonal fluctuations in capital spending;

·                  changes in the rapidly evolving market for web-based applications;

·                  management’s ability to manage operating costs, a large portion of whichare relatively fixed in advance of any particular quarter;

·                  timing and costs related to potential additional acquisitions of businesses,products or technologies;

·                  costs of attracting, retaining and training skilled personnel;

·                  management’s ability to manage future growth;

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

·                  general economic climate.

 

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

 

**Theloss of key management and personnel could hinder the development of Forgent’stechnology and otherwise adversely affect the Company’s business.**

 

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

 

26

----

 

**Although Forgent has executed a shareholders rights plan,there are no assurances that a change of control will not occur.**

 

InDecember 2005, the Company’s Board of Directors approved and executed ashareholder rights plan (“Rights Plan”) whereby one preferred share purchaseright was distributed for each outstanding share of the Company’s common stockfor all stockholders of record on December 31, 2005.  The Rights Plan, which was not adopted inresponse to any threat to the Company, was designed to guard against anyproposed takeover, partial tender offers, open market accumulations and othertactics designed to gain control of the Company. Under the Rights Plan, thepreferred share purchase rights become exercisable if a person or groupthereafter acquires 15% or more of the Company’s common stock or announces atender offer for 15% or more of the Company’s common stock. Such events, or ifthe Company is acquired in a merger or other business combination transactionafter a person or group acquires 15% or more of its common stock, would entitlethe right holder to purchase, at an exercise price of $13.00 per share, anumber of shares of common stock having a market value at that time equal totwice the right’s exercise price. The Rights Plan may have the effect ofdiscouraging, delaying or preventing unsolicited acquisition proposals, butthere are no assurances a change of control will not occur.

 

Dueto the risk factors noted above and elsewhere in *“Management’s Discussion and Analysis of Financial Condition andResults of Operations,”*Forgent’s past earnings and stock price havebeen, and future earnings and stock price potentially may be, subject tosignificant volatility, particularly on a quarterly basis. Past financialperformance should not be considered a reliable indicator of future performanceand investors are cautioned in using historical trends to anticipate results ortrends in future periods. Any shortfall in revenue or earnings from the levelsanticipated by market analysts and investors could have an immediate andsignificant effect on the trading price of the Company’s common stock.

 

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE 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

 

### **ITEM6. 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 byreference to Exhibit 2.2 to the Company’s quarterly report on Form 10-Qfor the three months ended October 31, 2007).

 

3.1           Restated Certificate ofIncorporation (incorporated by reference to Exhibit 3.1 to the Company’squarterly report on Form 10-Q for the three months ended October 31,2004).

 

3.2           Restated Bylaws (incorporatedby reference to Exhibit 3.2 to the Company’s quarterly report on Form 10-Qfor the three months ended October 31, 2004).

 

4.1           Specimen Certificate for theCommon Stock (incorporated by reference to Exhibit 4.1 to the Company’sRegistration Statement on Form S-1, File No. 33-45876, as amended).

 

4.2           Rights Agreement, dated as of December 19, 2005,between Forgent Networks, Inc. and American Stock Transfer &Trust Company, which includes the form of Series A Preferred Stock, $0.01par 

 

27

----

 

value, the form ofRights Certificate, and the Summary of Rights (incorporated by reference toExhibit 4.1 to the Company’s Current Report on Form 8-K dated December 19,2005).

 

31.1*       Certificationpursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2*       Certificationpursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1*       Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

32.2*       Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

----

* Filed herewith

 

28

----

#### ** **

#### **SIGNATURES**

#### ** **

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                                        | FORGENT  NETWORKS, INC. |
|---------------------------------------------|-------------------------|
|                                        |                    |
|                                        |                    |   |
|  Date:   March 17, 2008 | By:                     | /s/  RICHARD N. SNYDER |
|                                        |                    | Richard  N. Snyder |
|                                        |                    | Chief  Executive Officer |
|                                        |                    |   |
| Date:    March 17, 2008      | By:                     | /s/  JAY C. PETERSON |
|                                        |                    | Jay  C. Peterson |
|                                        |                    | Chief  Financial Officer |

 

29

----

 

**INDEX TOEXHIBITS**

 
| **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, $0.01 par value, the form of Rights  Certificate, and the Summary of Rights (incorporated by reference  to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated  December 19, 2005). |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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                                                                                                                                                                                                                                                                                             |

 

30

----