#### **UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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

**For the quarterly period ended January 31, 2007**

**OR**

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

 **For the transition period from            to           **

**Commission file number: 0-20008**

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**FORGENTNETWORKS, INC.**

(Exact Name of Registrant as Specified in its Charter)

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

**(512)437-2700**

(Registrant’s TelephoneNumber, including Area Code)

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

Yes  x     No o

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

| Large accelerated filer o | Accelerated  filer o | Non-accelerated  filer x |
|---------------------------|----------------------|--------------------------|

 

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

Yes o     No x

On March 8, 2007, theregistrant had outstanding 25,595,596 shares of its Common Stock, $0.01 parvalue.

 

 

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# **INDEX TOFINANCIAL STATEMENTS**

 
|                                    | ** ** | ** **                                                                                                              | ** ** | ** ** | ** ** | ** ** | ** ** | **Page  Number** |
|------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------------|
|                               | ** ** | ** **                                                                                                              |
| **PART I - FINANCIAL INFORMATION** |       |                                                                                                                    |
|                               |       |                                                                                                                    |
| Item 1 —                      |       | Condensed Consolidated  Financial Statements                                                                            |       |       |
|                               |       | Condensed Consolidated Balance Sheets as of January  31, 2007 (unaudited) and July 31, 2006                             |       | 3          |
|                               |       | Unaudited Condensed Consolidated Statements of  Operations for the Three and Six Months Ended January 31, 2007 and 2006 |       | 4          |
|                               |       | Unaudited Condensed Consolidated Statements of Cash  Flows for the Six Months Ended January 31, 2007 and 2006           |       | 5          |
|                               |       | Notes to the Unaudited Condensed Consolidated  Financial Statements                                                     |       | 6          |
| Item 2 —                      |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             |       | 10         |
| Item 3 —                      |       | Quantitative  and Qualitative Disclosures About Market Risk                                                             |       | 18         |
| Item 4 —                      |       | Controls and  Procedures                                                                                                |       | 18         |
|                               |       |                                                                                                                    |       |       |
| **PART II - OTHER  INFORMATION**   |       |                                                                                                                    |
|                               |       |                                                                                                                    |       |       |
| Item  1 —                     |       | Legal  Proceedings                                                                                                      |       | 18         |
| Item  1A —                    |       | Risk  Factors                                                                                                           |       | 19         |
| Item 2 —                      |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                            |       | 24         |
| Item 3 —                      |       | Defaults upon  Senior Securities                                                                                        |       | 25         |
| Item 4 —                      |       | Submission of  Matters to a Vote of Security Holders                                                                    |       | 25         |
| Item  5 —                     |       | Other  Information                                                                                                      |       | 25         |
| Item 6  —                     |       | Exhibits                                                                                                                |       | 25         |
|                               |       |                                                                                                                    |       |       |
| **Signatures**                     |       |                                                                                                                    |       | 26         |
| ** **                         |       |                                                                                                                    |       |       |
| **Index  to Exhibits**             |       | 27                                                                                                                      |

 

 

2

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**FORGENT NETWORKS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Amounts inthousands, except per share data)**
| ** **                                                                                                                                                                    | ** ** | **JANUARY 31,   2007** | ** ** | **JULY 31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **(UNAUDITED)**                  | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                    |       |                             |       |                    |       |
| Current Assets:                                                                                                                                                               |       |                             |       |                    |       |
| Cash and cash  equivalents, including restricted cash of $0 and $543 at January 31, 2007 and July 31, 2006                                                                    |       | $                                | 16,489     |                    | $          | 16,206 |   |
| Short-term  investments                                                                                                                                                       |       | 1,527                            |       | —                  |       |
| Accounts  receivable, net of allowance for doubtful accounts of $6 and $13 at January  31, 2007 and July 31, 2006, respectively                                               |       | 710                              |       | 714                     |       |
| Prepaid expenses  and other current assets                                                                                                                                    |       | 278                              |       | 274                     |       |
| Total Current  Assets                                                                                                                                                         | ** ** | **19,004**                       | ** ** | **17,194**              | ** ** |
|                                                                                                                                                                          |       |                             |       |                    |       |
| Property and equipment,  net                                                                                                                                                  |       | 619                              |       | 788                     |       |
| Intangible assets, net                                                                                                                                                        |       | —                           |       | 4                       |       |
| Other assets                                                                                                                                                                  |       | 3                                |       | 3                       |       |
|                                                                                                                                                                          | ** ** | **$**                            | **19,626** | ** **              | **$**      | **17,989** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                |       |                             |       |                    |       |
| Current Liabilities:                                                                                                                                                          |       |                             |       |                    |       |
| Accounts payable                                                                                                                                                              |       | $                                | 1,390      |                    | $          | 3,631 |   |
| Accrued  compensation and benefits                                                                                                                                            |       | 563                              |       | 547                     |       |
| Other accrued  liabilities                                                                                                                                                    |       | 1,104                            |       | 907                     |       |
| Notes payable,  current position                                                                                                                                              |       | —                           |       | 313                     |       |
| Deferred revenue                                                                                                                                                              |       | 842                              |       | 683                     |       |
| Total Current  Liabilities                                                                                                                                                    | ** ** | **3,899**                        | ** ** | **6,081**               | ** ** |
|                                                                                                                                                                          |       |                             |       |                    |       |
| Long-Term Liabilities:                                                                                                                                                        |       |                             |       |                    |       |
| Deferred revenue                                                                                                                                                              |       | 7                                |       | 11                      |       |
| Other long-term  obligations                                                                                                                                                  |       | 1,349                            |       | 1,777                   |       |
| Total Long-Term  Liabilities                                                                                                                                                  | ** ** | **1,356**                        | ** ** | **1,788**               | ** ** |
|                                                                                                                                                                          | ** ** | ** **                       | ** ** | ** **              | ** ** |
| Stockholders’ Equity:                                                                                                                                                    |       |                             |       |                    |       |
| Preferred stock,  $.01 par value; 10,000 authorized; none issued or outstanding                                                                                               |       | —                           |       | —                  |       |
| Common stock,  $.01 par value; 40,000 authorized; 27,386 and 27,163 shares issued; 25,596  and 25,373 shares outstanding at January 31, 2007 and July 31, 2006,  respectively |       | 274                              |       | 271                     |       |
| Treasury stock  at cost, 1,790 issued at January 31, 2007 and July 31, 2006                                                                                                   |       | (4,815                           | )          | (4,815                  | )          |
| Additional  paid-in capital                                                                                                                                                   |       | 265,619                          |       | 265,406                 |       |
| Accumulated  deficit                                                                                                                                                          |       | (246,707                         | )          | (250,754                | )          |
| Accumulated  other comprehensive income                                                                                                                                       |       | —                           |       | 12                      |       |
| Total  Stockholders’ Equity                                                                                                                                              | ** ** | **14,371**                       | ** ** | **10,120**              | ** ** |
|                                                                                                                                                                          | ** ** | **$**                            | **19,626** | ** **              | **$**      | **17,989** | ** ** |

 

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

3

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**FORGENTNETWORKS, 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,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                                         | ** ** | **2006**                                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                              | ** ** | **(UNAUDITED)**                                                  | ** ** | **(UNAUDITED)**                                                | ** ** |
| **REVENUES:**                                           |       |                                                             |       |                                                           |       |   |   |   |   |
| Intellectual property licensing                         |       | $                                                                | 28         |                                                           | $          | 3,805 |   | $ | 8,162 |   | $ | 6,722 |   |
| Software and services                                   |       | 1,017                                                            |       | 546                                                            |       | 1,979 |   | 1,277 |   |
| Total revenues                                          | ** ** | **1,045**                                                        | ** ** | **4,351**                                                      | ** ** | **10,141** | ** ** | **7,999** | ** ** |
|                                                    |       |                                                             |       |                                                           |       |   |   |   |   |
| **COST OF  SALES:**                                     |       |                                                             |       |                                                           |       |   |   |   |   |
| Intellectual property licensing                         |       | 3                                                                |       | 2,080                                                          |       | 3,543 |   | 4,167 |   |
| Software and services                                   |       | 192                                                              |       | 198                                                            |       | 502 |   | 392 |   |
| Total cost of sales                                     | ** ** | **195**                                                          | ** ** | **2,278**                                                      | ** ** | **4,045** | ** ** | **4,559** | ** ** |
|                                                    |       |                                                             |       |                                                           |       |   |   |   |   |
| **GROSS MARGIN**                                        | ** ** | **850**                                                          | ** ** | **2,073**                                                      | ** ** | **6,096** | ** ** | **3,440** | ** ** |
|                                                    |       |                                                             |       |                                                           |       |   |   |   |   |
| **OPERATING  EXPENSES:**                                |       |                                                             |       |                                                           |       |   |   |   |   |
| Selling, general and administrative                     |       | 2,539                                                            |       | 2,477                                                          |       | 5,039 |   | 5,159 |   |
| Research and development                                |       | 132                                                              |       | 170                                                            |       | 248 |   | 301 |   |
| Amortization of  intangible assets                      |       | —                                                           |       | 6                                                              |       | 4 |   | 17 |   |
| Total operating expenses                                | ** ** | **2,671**                                                        | ** ** | **2,653**                                                      | ** ** | **5,291** | ** ** | **5,477** | ** ** |
|                                                    | ** ** | ** **                                                       | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(LOSS) INCOME FROM OPERATIONS**                       | ** ** | **(1,821**                                                       | **)**      | **(580**                                                       | **)**      | **805** | ** ** | **(2,037** | **)** |
|                                                    |       |                                                             |       |                                                           |       |   |   |   |   |
| **OTHER INCOME  AND (EXPENSES):**                       |       |                                                             |       |                                                           |       |   |   |   |   |
| Interest income                                         |       | 234                                                              |       | 134                                                            |       | 390 |   | 232 |   |
| Gain on sale of assets                                  |       | 2,896                                                            |       | —                                                         |       | 2,896 |   | — |   |
| Interest expense and other                              |       | (11                                                              | )          | (29                                                            | )          | (44 | ) | (46 | ) |
| Total other income and (expenses)                       | ** ** | **3,119**                                                        | ** ** | **105**                                                        | ** ** | **3,242** | ** ** | **186** | ** ** |
|                                                    |       |                                                             |       |                                                           |       |   |   |   |   |
| **INCOME (LOSS) FROM OPERATIONS, BEFORE INCOME  TAXES** | ** ** | **1,298**                                                        | ** ** | **(475**                                                       | **)**      | **4,047** | ** ** | **(1,851** | **)** |
| Provision for income taxes                              |       | —                                                           |       | (5                                                             | )          | — |   | (10 | ) |
| ** **                                              | ** ** | ** **                                                       | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET  INCOME (LOSS)**                                  | ** ** | **$**                                                            | **1,298**  | ** **                                                     | **$**      | **(480** | **)** | **$** | **4,047** | ** ** | **$** | **(1,861** | **)** |
|                                                    |       |                                                             |       |                                                           |       |   |   |   |   |
| **BASIC AND DILUTED INCOME (LOSS)  PER SHARE:**         |       |                                                             |       |                                                           |       |   |   |   |   |
| Net income (loss)                                       |       | $                                                                | 0.05       |                                                           | $          | (0.02 | ) | $ | 0.16 |   | $ | (0.07 | ) |
| **WEIGHTED AVERAGE SHARES  OUTSTANDING:**               |       |                                                             |       |                                                           |       |   |   |   |   |
| Basic                                                   |       | 25,489                                                           |       | 25,238                                                         |       | 25,435 |   | 25,208 |   |
| Diluted                                                 |       | 26,086                                                           |       | 25,238                                                         |       | 25,867 |   | 25,208 |   |

 

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

4

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**FORGENT NETWORKS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Amountsin thousands)**
| ** **                                                                                   | ** ** | **FOR THE SIX MONTHS  ENDED JANUARY 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2007**                                                           | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | **(UNAUDITED)**                                                    | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                   |       |                                                               |       |   |   |
| Net income  (loss)                                                                           |       | $                                                                  | 4,047      |   | $ | (1,861 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by 

(used in)  operations: |       | 335                                                                |       | 642 |   |
| Depreciation and  amortization                                                               |       |                                                               |       |   |   |
| Amortization of  leasehold advance and lease impairment                                      |       | (211                                                               | )          | (279 | ) |
| Provision for  doubtful accounts                                                             |       | 1                                                                  |       | 28 |   |
| Share-based  compensation                                                                    |       | 131                                                                |       | 101 |   |
| Foreign currency  translation loss                                                           |       | —                                                             |       | 4 |   |
| Gain on disposal  of fixed assets                                                            |       | —                                                             |       | (6 | ) |
| Changes in  operating assets and liabilities:                                                |       |                                                               |       |   |   |
| Accounts  receivable                                                                         |       | 7                                                                  |       | (620 | ) |
| Prepaid expenses  and other current assets                                                   |       | 61                                                                 |       | (272 | ) |
| Accounts payable                                                                             |       | (2,307                                                             | )          | 592 |   |
| Accrued expenses  and other long-term obligations                                            |       | 227                                                                |       | (399 | ) |
| Deferred  revenues                                                                           |       | 153                                                                |       | 117 |   |
| Net cash  provided by (used in) operating activities                                         | ** ** | **2,444**                                                          | ** ** | **(1,953** | **)** |
|                                                                                         |       |                                                               |       |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                   |       |                                                               |       |   |   |
| Net (purchases) sales  of short-term investments                                             |       | (1,527                                                             | )          | 1,491 |   |
| Net purchases of  property and equipment                                                     |       | (163                                                               | )          | (37 | ) |
| Net cash (used  in) provided by investing activities                                         | ** ** | **(1,690**                                                         | **)**      | **1,454** | ** ** |
|                                                                                         |       |                                                               |       |   |   |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                                   |       |                                                               |       |   |   |
| Net proceeds  from issuance of stock                                                         |       | 84                                                                 |       | 237 |   |
| Proceeds from  notes payable                                                                 |       | —                                                             |       | 194 |   |
| Payments on  notes payable                                                                   |       | (543                                                               | )          | (194 | ) |
| Net cash (used  in) provided by financing activities                                         | ** ** | **(459**                                                           | **)**      | **237** | ** ** |
|                                                                                         |       |                                                               |       |   |   |
| Effect of exchange rate changes on cash and cash equivalents                                 |       | (12                                                                | )          | — |   |
|                                                                                         |       |                                                               |       |   |   |
| Net change in cash and  cash equivalents                                                     |       | 283                                                                |       | (262 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 16,206                                                             |       | 15,861 |   |
| Cash and cash equivalents at end of period                                                   | ** ** | **$**                                                              | **16,489** | ** ** | **$** | **15,599** | ** ** |

 

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

5

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**FORGENT NETWORKS, INC.**

**NOTES TOTHE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

** **

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

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

**NOTE2 — SALE OF ASSETS**

In November 2006, Forgent sold certain patents andapplications associated with videoconferencing and related fields andtechnology, together with related goodwill, rights and documentation, toTandberg Telecom AS (“Tandberg”) for $3,150.  Upon closing, Forgentreceived $2,900 of the purchase price, all of which was recorded as a gain onsale of assets.  The remaining balance of$250 will be held in escrow for two years for indemnity claims.  Followingthis sale, Forgent maintained several active patents and patent applications,including U.S. Patent No.6,285,746 (the “ ‘746 patent”), which Forgent is asserting in theU.S. District Court for the Eastern District of Texas, Tyler Division.

**NOTE 3 —LITIGATION SETTLEMENT**

Forgentwas in legal proceedings with multiple companies in the United States DistrictCourt for the Northern District of California regarding the infringement of itsU.S. Patent No. 4,698,672 (the “ ‘672 Litigation).  On October 25, 2006, Forgent signed a PatentLicense and Settlement Agreement with the remaining defendants in the ‘672Litigation.  Under this agreement, Forgent granted thedefendants a patent license and the defendants paid Forgent $8,000.  Additionally, all parties agreed to releaseall claims against each other and Forgent has no future obligations related tothis settlement.

**NOTE4 - INTELLECTUAL PROPERTY LEGAL CONTRACTS**

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

On December 1,2006, Forgent signed an amendment to the Legal Services Fee Agreement withHagans and Bracewell.  This amendmentincreased the contingency fee payable to Hagans and Bracewell from 30% (15% to eachlaw firm) of all license and litigation proceeds related to the ‘746 patent,net of expenses, to 37.5% (20% to Hagans and 17.5% to Bracewell).  Additionally, effective September 1, 2006,all related expenses, including consultant fees, travel expenses, documentproduction expenses, etc. are allocated as follows: 25% to Forgent, 50% toHagans, and 25% to Bracewell, until total expenses reach $2,500. Prior to theamendment, Forgent was liable for all related expenses.  If the $2,500 threshold is exceeded, Forgentwill be liable for all subsequent expenses. In addition to Hagans and Bracewell, Forgent is also liable forcontingency fees related to the ‘746 patent and litigation to Jenkens &Gilchrist (10% of all gross license and litigation proceeds) and to The RothLaw Firm, P.C. (10% of litigation proceeds, net of expenses).

Legal expenses forcontingency fees and legal counsel’s time incurred are recorded as part of costof sales from Forgent’s intellectual property licensing business on theConsolidated Statements of Operations. Cost of sales for the intellectual property licensing business for thethree and six months ended January 31, 2007 were $3 and $3,543,****respectively.  Cost of sales for the intellectual propertylicensing business for the three and six months ended January 31, 2006 were$2,080 and $4,167, respectively.  Otherlegal expenses incurred related to the Patent Licensing Program are recorded aspart of operating expenses on the Consolidated Statements of Operations.  Other

6

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**FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

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

** **

related legal expensesfor the three and six months ended January 31, 2007 were $610 and $874,respectively.  Other related legalexpenses for the three and six months ended January 31, 2006 were $397 and$816, respectively.

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

In accordance with thedisclosure requirements of Statement of Financial Accounting Standard No. 130, *“Reporting Comprehensive Income,”* theCompany’s comprehensive income (loss) is comprised of net income (loss),foreign currency translation adjustments and unrealized gains and losses onshort-term investments held as available-for-sale securities. Comprehensive income for the three and six monthsended January 31, 2007 was $1,284 and $4,035, respectively. Comprehensive lossfor the three and six months ended January 31, 2006 was $476 and $1,854,respectively.

##### **NOTE6 - RECENT ACCOUNTING PRONOUNCEMENTS**

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

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

InSeptember 2006, the Securities and Exchange Commission (“SEC”) releasedStaff Accounting Bulletin No. 108, *Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements* (“SAB 108”), which providesinterpretive guidance on how registrants should quantify financial statementmisstatements.  SAB No. 108establishes an approach that requires quantification of financial statementmisstatements based on the effects of the misstatement on each of the company’sfinancial statements and the related financial statement disclosures. Thisapproach is a dual approach because it requires quantification of errors underboth the roll-over method, which focuses primarily on the income statementimpact of misstatements, and the iron curtain method, which focuses primarilyon the balance sheet impact of misstatements. SAB 108 is effective for the first fiscal year ending afterNovember 15, 2006.  Adoption of SAB108 during the second fiscal quarter of 2007 had no material effect on theCompany’s consolidated financial statements.

In June 2006, the FASB issuedInterpretation No. 48, “*Accounting forUncertainty in Income Taxes—an interpretation of FASB Statement No. 109”*(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withStatement No. 109, *“Accounting for IncomeTaxes.” *This interpretation defines the minimum recognitionthreshold a tax position is required to meet before being recognized in thefinancial statements.  Additionally, FIN 48 provides guidance on derecognition,classification, interest and penalties, accounting in interim periods andtransition. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. Forgent believes the adoption of FIN 48 will nothave a material effect on its consolidated financial statements.

7

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## **FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

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

 

## **NOTE7 — SHARE BASED COMPENSATION**

On August 1, 2006 theCompany’s Board of Directors approved the repricing of all employee stockoptions with an exercise price greater than $0.385 (the average of the high andlow for August 1, 2006). The new exercise price is $0.385. The Board ofDirectors determined that the repricing was the most cost effective way to motivateemployees with options that had exercise prices greater than the current fairmarket value.  The repricing resulted ina charge of $88 based on the incremental fair value of the new options versusthe fair value of the old options for the six months ended January 31, 2007.  Previously, on September14, 2005 the Company’s Board of Directors approved the repricing of allemployee stock options with an exercise price greater than $1.42 (the averageof the high and low for September 14, 2005). The new exercise price was $1.42.The repricing resulted in a charge of $65 based on the incremental fair valueof the new options versus the fair value of the old options for the six monthsended January 31, 2006.

The Company issued 177and 167 shares of common stock related to exercises of stock options grantedfrom its Stock Option and Stock Purchase Plans for the three months endedJanuary 31, 2007 and 2006, respectively. The Company issued 222 and 170 shares of common stock related toexercises of stock options granted from its Stock Option and Stock PurchasePlans for the six months ended January 31, 2007 and 2006, respectively.

## **NOTE8 — SEGMENT INFORMATION**

Currently,the Company operates in two distinct segments: intellectual property licensingand software and services.  During thesix months ended January 31, 2007, Forgent’s intellectual property licensingbusiness focused on generating licensing revenues relating to the Company’stechnologies embodied in U.S. Patent No. 4,698,672 (the “ ‘672 patent”) and itsforeign counterparts, as well as in U.S. Patent No. 6,285,746.  In October 2006, the Company settled with theremaining defendants in the ‘672 Litigation and does not anticipate generatingadditional licensing revenues from non-defendants going forward.  Forgent’s software and services businessprovides customers with scheduling and asset management software as well assoftware maintenance and support, installation and training services. In orderto evaluate the intellectual property and software segments as stand-alonebusinesses, the Company records all unallocated corporate operating expenses inthe Corporate segment.

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

The table below presents segment information about revenue fromunaffiliated customers, gross margins, and operating income (loss) for thethree and six months ended January 31, 2007 and 2006:
| ** **                                       | ** ** | **Intellectual  Property  Licensing** | ** ** | **Software &  Services** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|---------------|------------|------------|------------|
| ** **                                       | ** ** | ** **                            | ** ** | ** **                        | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the Three Months Ended  January 31, 2007** | ** ** | ** **                            | ** ** | ** **                        | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues from  unaffiliated customers            |       | $                                     | 28         |                              | $          | 1,017         |       | $          | —     |   | $ | 1,045 |   |
| Gross margin                                     |       | 25                                    |       | 825                               |       | —        |       | 850        |       |
| Operating income (loss)                          |       | (912                                  | )          | (152                              | )          | (757          | )          | (1,821     | )          |
| ** **                                       | ** ** | ** **                            | ** ** | ** **                        | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the Three Months Ended  January 31, 2006** | ** ** | ** **                            | ** ** | ** **                        | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues from  unaffiliated customers            |       | $                                     | 3,805      |                              | $          | 546           |       | $          | —     |   | $ | 4,351 |   |
| Gross margin                                     |       | 1,725                                 |       | 348                               |       | —        |       | 2,073      |       |
| Operating income (loss)                          |       | 951                                   |       | (604                              | )          | (927          | )          | (580       | )          |
| ** **                                       | ** ** | ** **                            | ** ** | ** **                        | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the Six Months Ended  January 31, 2007**   |       |                                  |       |                              |       |          | ** ** | ** ** | ** ** |
| Revenues from  unaffiliated customers            |       | $                                     | 8,162      |                              | $          | 1,979         |       | $          | —     |   | $ | 10,141 |   |
| Gross margin                                     |       | 4,619                                 |       | 1,477                             |       | —        |       | 6,096      |       |
| Operating income (loss)                          |       | 2,889                                 |       | (441                              | )          | (1,643        | )          | 805        |       |
|                                             |       |                                  |       |                              |       |          | ** ** | ** ** | ** ** |
| **For the Six Months Ended  January 31, 2006**   |       |                                  |       |                              |       |          |       |       |       |
| Revenues from unaffiliated  customers            |       | $                                     | 6,722      |                              | $          | 1,277         |       | $          | —     |   | $ | 7,999 |   |
| Gross margin                                     |       | 2,555                                 |       | 885                               |       | —        |       | 3,440      |       |
| Operating income (loss)                          |       | 1,025                                 |       | (968                              | )          | (2,094        | )          | (2,037     | )          |

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## **FORGENT NETWORKS, INC.**

**NOTES TO THE CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

(Amounts in thousands, exceptper share data unless otherwise noted)

## ** **

## **NOTE9 — CONTINGENCIES**

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

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

On November 16, 2005, thePublic Patent Foundation filed a petition with the United States Patent andTrademark Office (the “USPTO”) to re-examine the ‘672 patent.  In January 2006, the USPTO granted thepetition and subsequently issued its first office action on May 25, 2006.  This first action, which is not the finalconclusion of the re-examination, confirmed 27 of the 46 claims in the ‘672patent.  Forgent responded to this firstoffice action.  The re-examinationprocess is an extended process and Forgent is working directly with the USPTOto defend all of the claims, including those that were not initially upheld inthe first office action.   The USPTO hasnot issued any additional office actions.

###### **Litigationand Re-examination of United States Patent No. 6,285,746**

Forgent is currently inlitigation proceedings with multiple companies in the United States DistrictCourt for the Eastern District of Texas, Tyler Division, for infringement ofits ‘746 patent.  On November 9, 2006,Forgent and the defendants in the ‘746 Litigation appeared before the Court andpresented arguments relating to claims construction, a motion for summary judgmentand a motion to stay the litigation.  OnNovember 20, 2006, the Court denied the motion to stay the litigation.  On February 16, 2007, the Court denied thedefendants’ motion for summary judgment for invalidity and the Court issued itsclaims construction ruling.  On February20, 2007, the Court ordered Forgent and the defendants to mediate by April 15,2007.  The trial date for the ‘746Litigation is set for May 14, 2007.

On October 2, 2006, theUSPTO granted Motorola Inc.’s petition and ordered an **inter partes** re-examinationof the ‘746 patent.  On October 30, 2006,the USPTO issued its first office action related to this re-examination.  This first action, which is not the finalconclusion of the re-examination, rejected the five claims in the ‘746 patent. Forgent responded to the USPTO and anticipates working to vigorouslydefend all of the claims of the ‘746 patent.** **If the Company is unsuccessful indefending its patent’s claims with the USPTO examiner, Forgent could pursue theappeal process within the USPTO and within the federal court system, ifnecessary.  Negative results from there-examination could reduce the Company’s ability to negotiate settlements withdefendants and licenses with potential licensees, which could materially andadversely affect Forgent’s licensing revenues. The ultimate rejection of significant claims would have material andadverse consequences for Forgent.

Forgent continues tomonitor the progress of the ‘746 Litigation and the USPTO’s re-examinations ofits ‘746 and ‘672 patents.  The Companywill vigorously defend the validity of its patents, as well as pursue anyentities that violated its patents. Resolution of some or all of these matterscould materially affect the Company’s business, future results of operations,financial position or cash flows in a particular period.

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

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

**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGSTATEMENTS**

Certain statementsin this 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.

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

**RESULTSOF OPERATIONS**

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

 

|                                          | ** ** | **FOR THE THREE  MONTHS ENDED  JANUARY 31,** | ** ** | **FOR THE SIX  MONTHS ENDED  JANUARY 31,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                                         | ** ** | **2006**                                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                     |       |                                                             |       |                                                           |       |   |   |   |   |
| Intellectual property licensing revenues |       | 3                                                                | %          | 87                                                             | %          | 80 | % | 84 | % |
| Software and  services revenues          |       | 97                                                               |       | 13                                                             |       | 20 |   | 16 |   |
| Gross margin                             |       | 81                                                               |       | 48                                                             |       | 60 |   | 43 |   |
| Selling, general and administrative      |       | 243                                                              |       | 57                                                             |       | 50 |   | 65 |   |
| Research and development                 |       | 13                                                               |       | 4                                                              |       | 2 |   | 4 |   |
| Total operating expenses                 |       | 256                                                              |       | 61                                                             |       | 52 |   | 69 |   |
| Other income, net                        |       | 298                                                              |       | 2                                                              |       | 32 |   | 2 |   |
| Net  income (loss)                       |       | 124                                                              | %          | (11                                                            | %)         | 40 | % | (23 | %) |

 

**THREE ANDSIX MONTHS ENDED JANUARY 31, 2007 AND 2006**

### **Revenues**

Revenues for the threemonths ended January 31, 2007 were $1.0 million, a decrease of $3.3 million, or76%, from the $4.3 million reported for the three months ended January 31,2006. Revenues for the six months ended January 31, 2007 were $10.1 million, anincrease of $2.1 million, or 27%, from the $8.0 million reported for the sixmonths ended January 31, 2006. Consolidated revenues represent the combinedrevenues of the Company

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and its subsidiaries,including royalties and settlements received from licensing the Company’sintellectual property as well as sales of Forgent’s NetSimplicity software,installation and training and software maintenance services.

** **

***IntellectualProperty Licensing Business***

Intellectualproperty licensing revenues for the threemonths ended January 31, 2007 were $28 thousand, a decrease of $3.8 million, or99%, from the $3.8 million reported for the three months ended January 31,2006.  Intellectual propertylicensing revenues for the six months endedJanuary 31, 2007 were $8.1 million, an increase of $1.4 million, or 21%, fromthe $6.7 million reported for the six months ended January 31, 2006.  Intellectual property licensingrevenues as a percentage of total revenueswere 3% and 87% for the three months ended January 31, 2007 and 2006,respectively.  Intellectualproperty licensing revenues as a percentageof total revenues were 80% and 84% for the six months ended January 31, 2007and 2006, respectively.  Forgent’s licensingrevenues relate primarily to one-time intellectual property license agreementswith companies for Forgent’s data compression technology embodied in U.S.Patent No. 4,698,672 (the “ ‘672 patent”) and its foreign counterparts.  Additionally, the ‘672 patent is included ina group of Moving Picture Experts Group (“MPEG”) patents that garnerroyalties.  Forgent’s licensing revenuesinclude royalties received from this MPEG-2 consortium.  The Company is also seeking to license itsU.S. Patent No. 6,285,746 (the “ ‘746 patent”), which relates totechnology for storing and retrieving multimedia data in a manner that allowsplayback during recording. However, no licensing revenues have been achieved as of January 31, 2007.

Forgentwas in legal proceedings with multiple companies in the United States DistrictCourt for the Northern District of California regarding the infringement of its‘672 patent (the “ ‘672 Litigation”).  OnOctober 25, 2006, Forgent signed a Patent License and Settlement Agreement withthe remaining defendants.  Under this agreement, Forgent granted thedefendants a patent license and the defendants paid Forgent $8.0 million.  As of January 31, 2007, Forgent has achieved approximately $121.6million in aggregate revenues generated from one-time license agreements related to its ‘672 patent. Since asettlement was reached with the remaining defendants and since the Company isnot actively pursuing additional ‘672 license agreements, no additionallicensing revenues from one-time license agreements were generated during thethree months ended January 31, 2007.  Theone-time license agreements generated approximately 0% and 98% of theintellectual property segment’s licensing revenues for the three and six monthsended January 31, 2007, respectively, and approximately 97% and 96% of theintellectual property segment’s licensing revenues for the three and six monthsended January 31, 2006, respectively. The $28 thousand in licensing revenues generated during the secondfiscal quarter of 2007 relate to royalties received from the MPEG-2consortium.  The ‘672 patent expired in October 2006 in the United States; therefore,Forgent will not receive any additional royalties from the consortium.

Forgent’s intellectualproperty licensing business is currently focused on its legal proceedings withseveral companies in the United States District Court for the Eastern Districtof Texas, Tyler Division, for the infringement of its ‘746 patent (the “ ‘746Litigation”).  On November 9, 2006,Forgent and the defendants in the ‘746 Litigation appeared before the Court andpresented arguments relating to claims construction, a motion for summary judgmentand a motion to stay the litigation.  OnNovember 20, 2006, the Court denied the motion to stay the litigation.  On February 16, 2007, the Court denied thedefendants’ motion for summary judgment for invalidity and the Court issued itsclaims construction ruling.  On February20, 2007, the Court ordered Forgent and the defendants to mediate by April 15,2007.  However, there can be no assurancethat any licensing revenues will result from the mediation.  The trial date for the ‘746 Litigation is setfor May 14, 2007.  At anytime during the litigation process, Forgent will consider any reasonablesettlements with the defendants, if the settlement amount provides a reasonablevalue.

On October 2, 2006, theUSPTO granted Motorola Inc.’s petition and ordered an **inter partes** re-examinationof the ‘746 patent.  On October 26, 2006,the USPTO issued its first office action related to this re-examination.  This first action, which is not the finalconclusion of the re-examination, rejected the five claims in the ‘746 patent. Forgent responded to the USPTO and anticipates working to vigorouslydefend all of the claims of the ‘746 patent.** **If the Company is unsuccessful indefending its patent’s claims with the USPTO examiner, Forgent could pursue theappeal process within the USPTO and within the federal court system, ifnecessary.  Negative results from there-examination could reduce the Company’s ability to negotiate settlements withdefendants and licenses with potential licensees, which could materially and adverselyaffect Forgent’s licensing revenues.  Theultimate rejection of significant claims would have material and adverseconsequences for Forgent.  Thus, there can be no assurance that theCompany will be able to continue to effectively license its technology to othercompanies.  

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Additionally, there are no guarantees that the Companycan protect its intellectual property rights in its current litigation or prevent the unauthorized use ofits technology in the future.

**Software and Services Business**

Software and services revenues for the three months ended January 31,2007 were $1.0 million, an increase of $0.5 million, or 86%, from the $0.5million reported for the three months ended January 31, 2006. Software andservices revenues for the six months ended January 31, 2007 were $2.0 million,an increase of $0.7 million, or 55%, from the $1.3 million reported for the sixmonths ended January 31, 2006. Software and services revenues as a percentageof total revenues were 97% and 13% for the three months ended January 31, 2007and 2006, respectively.  Software andservices revenues as a percentage of total revenues were 20% and 16% for thesix months ended January 31, 2007 and 2006, respectively.  Revenues from this line of business include salesof Forgent’s NetSimplicity scheduling and asset management software, whichincludes Meeting Room Manager (“MRM”),Visual Asset Manager (“VAM”) and Resource Scheduler.  Also included in this segment’s revenues aresoftware maintenance and professional services, such as add-on softwarecustomization, installation and training.

During the three and six monthsended January 31, 2007, increases in software, hardware and maintenancerevenues accounted for approximately 85% and 89%, of the total increases in thesoftware segment’s revenues, respectively. Software sales increased by $0.2 million and $0.3 million, for the threeand six months ended January 31, 2007, respectively, primarily due to increasedsales to larger enterprise customers, stronger overall sales performance andadditional sales to existing customers who further invested in their originalsoftware purchases.  The increase insoftware sales, as well as the continued pursuit of maintenance renewals, ledto additional sales of maintenance and support contracts, which increasedmaintenance revenues by $0.1 million and $0.2 million during the three and sixmonths ended January 31, 2007, respectively. Towards the end of fiscalyear 2006, Forgent partnered with several vendors, which enabled the Company toresell touch screen and display panel hardware to complement its MRM softwareand barcode scanning hardware devices to complement its VAM software.  Revenues from hardware sales during the threeand six months ended January 31, 2007 increased by $0.1 million and $0.1million, respectively, since the Company had minimal hardware sales during the2006 fiscal periods. The software segment’s growth is further evidenced by a 6%increase in revenues during the second fiscal quarter of 2007, as compared tothe first fiscal quarter of 2007.  Thisgrowth is seen as an indication of strong demand for the Company’s softwareproducts because the second fiscal quarters have historically been achallenging revenue generating quarter due to seasonality factors.  Forgent will continue to target NorthAmerican and international companies in the education, governmental, healthcareand legal sectors, which generated approximately 60% and 55% of its softwarerevenues during the three and six months ended January 31, 2007, respectively.  The second fiscal quarter of 2007 marks thefourth consecutive quarter of revenue growth for the software segment andmanagement believes its software and services revenues will continue toincrease.

### **GrossMargin**

Gross margin forthe three months ended January 31, 2007 was $0.9 million, a decrease of $1.2million, or 59%, from the $2.1 million reported for the three months endedJanuary 31, 2006. Gross margin for the six months ended January 31, 2007 was$6.1 million, an increase of $2.7 million, or 77%, from the $3.4 millionreported for the six months ended January 31, 2006. Gross margin as a percentage of total revenues were 81% and48% for the three months ended January 31, 2007 and 2006, respectively.  Gross margin as a percentage of total revenues were 60% and 43% for the six monthsended January 31, 2007 and 2006, respectively.

The $1.2 million decrease in gross margin for the three months endedJanuary 31, 2007, as compared to the three months ended January 31, 2006, isdue primarily to the $1.7 million decrease in gross margin resulting fromintellectual property licensing business. Similarly, the $2.7 million increase in gross margin for the six monthsended January 31, 2007, as compared to the six months ended January 31, 2006,is due primarily to the $2.0 million increase in gross margin resulting fromintellectual property licensing business. To date, all of the Company’s licensing revenue has beengenerated by the ‘672 patent.  Becausethe ‘672 Litigation is concluded and the U.S. ‘672 patent expired in October2006, licensing revenues will continue to decline unless alternative sources ofrevenue are found.  If licensing revenuesdecline, total gross margins will be adversely affected.

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***Intellectual Property Licensing Business***

Intellectualproperty gross margin forthe three months ended January 31, 2007 was $25 thousand, a decrease of $1.7million, or 99%, from the $1.7 million reported for the three months endedJanuary 31, 2006.  Intellectual property gross margin for the six months ended January 31, 2007 was$4.6 million, an increase of $2.1 million, or 81%, from the $2.5 millionreported for the six months ended January 31, 2006. Intellectual property gross margin as a percentage of total revenueswere 89% and 45% for the three months ended January 31, 2007 and 2006,respectively.  Intellectual property gross margin as a percentage of total revenueswere 57% and 38% for the six months ended January 31, 2007 and 2006,respectively.

The cost of sales fromthe intellectual property segment relates to the legal fees incurred onsuccessfully achieving signed license agreements as well as legal expensesincurred from legal counsel’s time in connection with licensing and litigatingthe Company’s patents. During the three and six months ended January 31, 2006,the cost of sales from the intellectual property segment included a 50% contingency fee to Jenkens &Gilchrist (“Jenkens”).  This fee wasreduced to 10% in January 2006 when the Company achieved $6.0 million in grossrecoveries received on or after October 27, 2004.  During the six months ended January 31, 2007,the cost of sales from the intellectual property segment included the10% contingency fee to Jenkens and a 33% contingency fee, net of expenses, to Susman Godfrey, LLP (“Susman”).  Additionally, legal expenses incurred fromlegal counsel’s time during the three and six months ended January 31, 2006were higher than the legal expenses incurred during the three and six monthsended January 31, 2007 due to higher monthly rates paid to Godwin Gruber, LLP (“Godwin”)and expenses paid to terminate Godwin in fiscal 2006.  As a result of the change in legal counseland the reduction in contingency fees to Jenkens, Forgent’s gross margins fromthe intellectual property licensing business increased to 89% and 57% for thethree and six months ended January 31, 2007, respectively, as compared to 45%and 38% for the three and six months ended January 31, 2006, respectively.

Cost of sales from the intellectualproperty licensing business related to the ‘746 Litigation will include 57.5%in contingency fees to Hagans Burdine Montgomery Rustay & Winchester (“Hagans”),Bracewell & Giuliani, L.L.P. (“Bracewell”), Jenkens and The Roth LawFirm.  Under these legal services agreements,Forgent does not pay any legal expenses for time incurred.

***Software and Services Business***

Softwareand services gross margin forthe three months ended January 31, 2007 was $0.8 million, an increase of $0.5million, or 137%, from the $0.3 million reported for the three months endedJanuary 31, 2006.  Software and services gross margin for the six months ended January 31, 2007 was$1.5 million, an increase of $0.6 million, or 67%, from the $0.9 millionreported for the six months ended January 31, 2006. Software and services gross margins as a percentage of totalrevenues were 81% and 64% for the three months ended January 31, 2007 and 2006,respectively.  Software and services gross margins as a percentage of totalrevenues were 75% and 69% for the six months ended January 31, 2007 and 2006,respectively.

The cost of salesassociated with the software segment relates primarily to the amortization ofthe Company’s purchased software development costs, compensation expenses andhardware expenses.  During the firstfiscal quarter of 2007, the purchased software development costs were fullyamortized, which reduced cost of sales by $0.2 million for the three and sixmonths ended January 31, 2007.  Thisreduction was offset by increases in compensation expenses and hardwareexpenses.  As of July 31, 2006, the Company formalized a group dedicated to providing maintenance andsupport.  The compensation expenses andrelated expenses for this group were classified as cost of sales during thethree and six months ended January 31, 2007. Since the group did not exist during the three and six months endedJanuary 31, 2006, no related expenses were recorded during the first and secondfiscal quarters of 2006.  Additionally,Forgent incurred increased hardware expenses during the three and six monthsended January 31, 2007, as compared to the three and six months ended January31, 2006, since the Company had minimal hardware sales during fiscal 2006.  Despite the $0.1 million increase in cost of salesfor the six months ended January 31, 2007, the increase in software andservices revenues and the fully amortized purchased software development costsled to increases of $0.5 million and $0.6 million in total software grossmargin for the three and six months ended January 31, 2007 and 2006,respectively.  As a result, gross marginas a percentage of revenues increased to 81% and 75% for the three and sixmonths ended January 31, 2007, respectively. Since the purchased software development costs were fullyamortized and since Forgent expectsto generate more business from its software segment, management expectscontinued healthy gross margin from its software and services business in termsof dollars and percentage of revenue.

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**Selling, General and Administrative**

Selling, generaland administrative (“SG&A”) expenses for the three months ended January 31,2007 were $2.5 million, an increase of $0.1 million, or 3%, from the $2.4million reported for the three months ended January 31, 2006. SG&A expensesfor the six months ended January 31, 2007 were $5.0 million, a decrease of $0.1million, or 2%, from the $5.1 million reported for the six months ended January31, 2006. SG&A expenses as a percentageof total revenues were 243% and 57% for the three months ended January 31, 2007and 2006, respectively.  SG&Aexpenses as a percentage of total revenueswere 50% and 65% for the six months ended January 31, 2007 and 2006,respectively.

During the three and sixmonths ended January 31, 2007, SG&A expenses changed slightly from thethree and six months ended January 31, 2006. In attempts to grow its software segment, Forgent hired additional salesand marketing personnel, which increased sales and marketing compensation expensesin fiscal 2007, as compared to fiscal 2006. Forgent will continue to make prudent investments in order to increaseNetSimplicity sales.  The increases inthe compensation expenses were partially offset by decreases in facilityexpenses resulting from the June 2006 expiration of the Company’s facilitylease in King of Prussia,Pennsylvania.  Additionally, during thethree and six months ended January 31, 2007, legal expenses related to the ‘672Litigation and licensing process decreased, as compared to the three and sixmonths ended January 31, 2006, due to the settlement reached in October2006.  However, these decreases wereoffset by increases in legal expenses related to the ‘746 Litigation andlicensing process as the Company prepares for its ‘746 patent trial in May2007.

AsForgent continues to pursue licensing and litigating the ‘746 patent,significant legal fees and consulting expenses will continue to be incurred andmay increase.  However, management believes the Company hasthe necessary financial resources to support all of its current and upcominglicensing and litigation efforts.  Due to uncertainties inherent with litigation,management is unable to accurately predict the ultimate outcome and thus, therecan be no assurances that the Company will be able to recover these costs.  Forgentwill continue, however, toevaluate and reduce any unnecessary SG&A expenses that do not directlysupport the generation of revenues for the Company.  For the remainder of fiscal year 2007,management expects its SG&A expenses, particularly legal fees andconsulting expenses, to increase as the Company prepares for trial in May 2007.

### **Researchand Development**

Research anddevelopment (“R&D”) expenses for the three months ended January 31, 2007were $0.1 million, a decrease of $38 thousand, or 22%, from the $0.2 millionreported for the three months ended January 31, 2006. R&D expenses for thesix months ended January 31, 2007 were $0.2 million, a decrease of $0.1million, or 18%, from the $0.3 million reported for the six months ended January31, 2006. R&D expenses as a percentageof total revenues were 13% and 4% for the three months ended January 31, 2007and 2006, respectively.  R&Dexpenses as a percentage of total revenueswere 2% and 4% for the six months ended January 31, 2007 and 2006, respectively.

During the threemonths ended January 31, 2007, Forgent continued developing MRM 7.5, which willinclude an Advanced Services Management feature for its Enterprise edition tobetter manage equipment and other meeting service requests and an improvedOutlook Scheduling interface with new capabilities.  Forgent expects to release MRM 7.5 in April2007.  In January 2007, the Companyreleased VAM 5.6, which included minor enhancement updates.  The Company is currently working on VAM 6.0and expects to release this new version during the summer of 2007.  Managementwill attempt to maintain R&D expenses at reasonable levels in terms ofpercentage of revenue and anticipates R&D expenses to remain relativelyflat during the next fiscal quarter.

### **Other Incomeand Expenses**

Other income andexpenses for the three months ended January 31, 2007 were $3.1 million, anincrease of $3.0 million, or 2,870%, from the $0.1 million reported for thethree months ended January 31, 2006. Other income and expenses for the sixmonths ended January 31, 2007 were $3.2 million, an increase of $3.0 million,or 1,643%, from the $0.2 million reported for the six months ended January 31,2006. Other income and expenses as apercentage of total revenues were 298% and 2% for the three months endedJanuary 31, 2007 and 2006, respectively. Other income and expenses asa percentage of total revenues were 32% and 2% for the six months ended January31, 2007 and 2006, respectively.

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The $3.0 millionincreases for the three and six months ended January 31, 2007 resulted from thesale of assets during the second fiscal quarter of 2007.  In November 2006, Forgent sold certainpatents and applications associated with videoconferencing and related fields andtechnology, 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 will be held in escrow for two years for indemnity claims. Following this sale, Forgent continues to maintain several active patents andpatent applications, including the ‘746 patent, which is the basis for the ‘746Litigation.  Except for any licensingrevenues resulting from these remaining patents, of which there can be noassurance, unless Forgent develops or acquires additional patents that would besuitable for the Company’s Patent Licensing Program, Forgent’s licensingrevenues will decline.

**NetIncome (Loss)**

Forgentgenerated net income of $1.3 million, or $0.05 per share, during the threemonths ended January 31, 2007 compared to a net loss of $0.5 million, or $0.02per share, during the three months ended January 31, 2006. Forgent generatednet income of $4.0 million, or $0.16 per share, during the six months endedJanuary 31, 2007 compared to a net loss of $1.9 million, or $0.07 per share,during the six months ended January 31, 2006. Net income (loss) as a percentageof total revenues were 124% and (11%) for the three months ended January 31,2007 and 2006, respectively. Net income (loss) as a percentage of totalrevenues were 40% and (23%)  for the sixmonths ended January 31, 2007 and 2006, respectively. The $1.8 million increasein the Company’s net income during the three months ended January 31, 2007, ascompared to the three months ended January 31, 2006, is primarily attributableto the $2.9 million gain from the sale of assets, which is offset by the $1.2million decrease in gross margin.  The$5.9 million increase in the Company’s net income during the six months endedJanuary 31, 2007, as compared to the six months ended January 31, 2006, isprimarily attributable to the $2.9 million gain from the sale of assets and the$2.7 million increase in gross margin.

**LIQUIDITY AND CAPITAL RESOURCES**

 

|                                                    | ** ** | **FOR THE SIX  MONTHS ENDED  JANUARY 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                                       | ** ** | **2006** | ** ** |
| ** **                                         | ** ** | **(in thousands)**                                        | ** ** |
|                                               | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Working capital                                    |       | 15,105                                                         |       | 12,454 |   |
| Cash, cash  equivalents and short-term investments |       | 18,016                                                         |       | 15,599 |   |
| Cash provided by  (used in) operating activities   |       | 2,444                                                          |       | (1,953 | ) |
| Cash (used in)  provided by investing activities   |       | (1,690                                                         | )          | 1,454 |   |
| Cash (used in) provided  by financing activities   |       | (459                                                           | )          | 237 |   |

 

Cash provided byoperating activities was $2.4 million for the six months ended January 31, 2007due primarily to the  $4.0 million in netincome, which was offset by a $2.3 million decrease in accounts payable. Cashused in operating activities was $2.0 million for the six months ended January31, 2006 due primarily to a $1.9 million net loss. During the six months endedJanuary 31, 2007, Forgent collected $8.0 million in cash receipts from itsintellectual property licensing business. Management plans to continue utilizing these cash receipts for itsPatent Licensing Program, especially due to anticipated expenditures related tothe ‘746 Litigation, and to support the growth of its software operations.  Forgent’s average days sales outstanding was61 for the second fiscal quarter of 2007, a slight increase from the 60 daysfor the first fiscal quarter of 2007.

Cash usedinvesting activities was $1.7 million for the six months ended January 31, 2007due primarily to $1.5 million in purchases of short-term investments.  Cash provided by investing activities was$1.5 million for the six months ended January 31, 2006 due primarily to $1.5million in net sales/maturities of short-term investments. Forgent manages itsinvestments portfolio in order to fulfill corporate liquidity requirements andmaximize investment returns while preserving the quality of the portfolio.  The Company’s current operations are notcapital intensive.  Approximately 82% ofForgent’s purchased fixed assets during the six months ended January 31, 2007 

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related to leaseholdimprovements, primarily for new subtenants and subtenant expansions.  Management does not anticipate anysignificant purchases of fixed assets during the remaining fiscal quarters of2007.

The Company leases office space and equipment under non-cancelableoperating leases that expire at various dates through 2013. Certain leasesobligate Forgent to pay property taxes, maintenance and insurance and includeescalation clauses.  The total amount of base rentals over the termof the Company’s leases is charged to expense on a straight-line basis, withthe amount of the rental expense in excess of the lease payments recorded as adeferred rent liability.  During the second fiscal quarter of 2007,Forgent fully repaid its loans from Silicon Valley Bank.  As of January 31, 2007, Forgent had $1.0 millionavailable in notes payable from Silicon Valley Bank.  Additional notes payable obtained from Silicon Valley Bank would bearinterest at prime plus 0.75% and require monthly installments over a three yearterm.  Forgent may periodically makeother commitments and thus become subject to other contractualobligations.   Forgent’s future minimumlease payments under all operating and capital leases as of January 31, 2007are as follows:

 
| ** **                   | ** ** | **Payments Due By Period**(in thousands) | ** ** |
|------------------------------|------------|--------------------------------------------------------------|------------|
|                         | ** ** | **Total**                                                    | ** ** | **Less than  1 year** | ** ** | **1 - 3 years** | ** ** | **3- 5 years** | ** ** | **More than  5 years** | ** ** |
|                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Operating lease  obligations |       | $                                                            | 21,105     |   | $ | 3,515 |   | $ | 6,966 |   | $ | 6,836 |   | $ | 3,788 |   |
| Capital lease  obligations   |       | 3                                                            |       | 3 |   | —- |   | — |   | — |   |
| **Total**                    | ** ** | **$**                                                        | **21,108** | ** ** | **$** | **3,518** | ** ** | **$** | **6,966** | ** ** | **$** | **6,836** | ** ** | **$** | **3,788** | ** ** |

 

Approximately 99% of the Company’s operating leaseobligations relates to its corporate office location at Wild Basin in Austin,Texas.  As of January 31, 2007, Forgenthad $5.1 million in future minimum lease payments receivable undernon-cancelable sublease arrangements. Additionally, Forgent had a $1.0 million liability related to impairmentcharges for the economic value of the lost sublease rental income related toits Austin property.

Cashused in financing activities was $0.5 million for the six months ended January31, 2007 due primarily to the repayment of Forgent’s outstanding notespayable.  Cash provided by financingactivities was $0.2 million for the six months ended January 31, 2006 dueprimarily to $0.2 million in proceeds received from the issuance of stock.  Forgent’s stock repurchase program allows the Company to purchase up tothree million shares of the Company’s common stock. No shares were repurchasedduring the six months ended January 31, 2007 or 2006.  As of January 31, 2007, Forgent hadrepurchased 1,790,401 shares for approximately $4.8 million and had theapproval to repurchase approximately 1.2 million additional shares.  Management will periodically assessrepurchasing additional shares in fiscal year 2007, depending on the Company’scash position, market conditions and other factors.

As of January 31, 2007, Forgent’s principal source of liquidityconsisted of $18.0 million in cash, cash equivalents and short-terminvestments.  Management currently plansto utilize its cash balances as necessary to focus on the litigation efforts,continue licensing its intellectual property and fund its software operations.** **Forgent’s ability to generate cash from itsintellectual property licensing business is subject to certain risks asdiscussed under “Risk Factors.” There is no assurance that the Company will beable to limit its cash consumption and preserve its cash balances, and it ispossible that the Company’s business demands may lead to cash utilization atlevels greater than recently experienced due to the litigation, increased legalexpense levels and other factors. Management believes that the Company hassufficient capital and liquidity to pursue its licensing and litigation effortsand to fund its current operations. However, due to uncertainties related to the timing and costs of theseefforts, Forgent may need to raise additional capital in the future.  Yet, there is no assurance that the Companywill be able to raise additional capital if and when it is needed.

#### **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 

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condensed consolidated financial statements in conformity with U.S.generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of the assets and liabilitiesand disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period. The more significant estimates made by management includethe valuation allowance for the gross deferred tax asset, contingency reserves,useful lives of fixed assets, the determination of the fair value of itslong-lived assets and the loss from its impairments. These estimates could bematerially different under different conditions and assumptions.  Additionally, the actual amounts could differfrom the estimates made. Management periodically evaluates estimates used inthe preparation of the financial statements for continued reasonableness.Appropriate adjustments, if any, to the estimates used are made prospectivelybased upon such periodic evaluation.

Managementbelieves the following represent Forgent’s critical accounting policies:

**Revenue Recognition**

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

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

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

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

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

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

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 Qualitative Disclosuresabout Market Risk, in the Company’s Annual Report on Form 10-K/A for the yearended July 31, 2006.

**ITEM 4.CONTROLS AND PROCEDURES**

Management established and is responsible formaintaining internal control over the Company’s financial reporting.  Under the supervision and with theparticipation of the Company’s Chief Executive Officer and Chief FinancialOfficer, management of the Company has evaluated the effectiveness of theCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) andRule 15d-15 under the Securities Exchange Act of 1934) as of a date within 90days prior to the filing date of this report. Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that, as of thedate of the evaluation, the Company’s disclosure controls and procedures areeffective in timely alerting them to the material information relating to theCompany required to be included in its periodic filings with the Securities andExchange Commission.  No changes weremade in the Company’s internal controls over financial reporting during thequarter ended January 31, 2007, that have materially affected, or is reasonablylikely to materially affect, the Company’s internal controls over financialreporting.

**PART II —OTHER INFORMATION**

**ITEM 1. LEGALPROCEEDINGS**

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

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

Between April 2004 and November 2004, Forgent’swholly-owned subsidiary, Compression Labs, Incorporated (“CLI”), initiated litigation against multiplecompanies for infringement of the ‘672 patent in the United States DistrictCourt for the Eastern District of Texas, Marshall Division, seeking royaltiesfrom sales of infringing products and monetary damages, among other reliefsought.  The defendants included AgfaCorporation; Apple Computer, Incorporated; AudioVox Corporation; AudioVoxElectronics Corporation; Axis Communications, Incorporated; BancTec, Inc.;Canon USA; Dell Incorporated; Eastman Kodak Company; Fuji Photo Film Co.U.S.A.; Fujitsu Computer Products of America; Gateway, Inc.; Hewlett-PackardCompany; International Business Machines Corp.; JASC Software; JVC AmericasCorporation; Macromedia, Inc.; Matsushita Electric Corporation of America;Mitsubishi Digital Electronics American, Incorporated; Oce’ North America,Incorporated; PalmOne, Inc.; Ricoh Corporation; Riverdeep, Incorporated (d.b.a.Broderbund); Savin Corporation; ScanSoft, Inc.; Thomson S.A.; TiVo Inc.;Toshiba Corporation; Xerox Corporation; Yahoo! Inc.; Acer America Corporation;Adobe Systems Incorporated; BenQ America Corporation; Color Dreams, Inc. (d/b/aStarDot Technologies); Concord Camera Corporation; Creative Labs, Incorporated;Creo, Inc.; Creo Americas, Inc.; Google Inc.; Kyocera Wireless Corporation;Onkyo Corporation; Panasonic Communications Corporation of America; PanasonicMobile Communications Development Corporation of USA; Sun Microsystems Inc.;Veo Inc.; and Microsoft Corporation.

Prior to fiscal year 2007, Forgent settled withdefendants Adobe Systems, Inc.; Apple Computer, Incorporated; AudioVox Corporation;Axis Communications, Incorporated; BenQ America Corporation; Color Dreams,Inc.; JASC Software; Google Inc.; Macromedia, Inc.; ScanSoft, Inc.; Oce’ NorthAmerica, Incorporated; Onkyo Corporation; Riverdeep, Incorporated; XeroxCorporation and Yahoo! Inc.  OnOctober 25, 2006, Forgent signed a Patent License and Settlement Agreement withthe remaining defendants.  Under this agreement, Forgent granted thedefendants a patent license and the defendants paid Forgent $8.0 million.  Additionally, all parties agreed to releaseall claims against each other and Forgent has no future obligations related tothis settlement.

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

InJuly 2005, Forgent initiated litigation against 15 companies for infringementof the United States Patent No. 6,285,746 in the United States District Courtfor the Eastern District of Texas, Marshall Division, seeking injunctive reliefagainst sales of infringing products and monetary damages, among other reliefsought.  The defendants include CableOne, Inc., a subsidiary of the Washington Post Company; Charter Communications,Inc.; Comcast Corporation; Cox Communications, Inc., a subsidiary of CoxEnterprises, Inc.; EchoStar Communications Corporation; The DIRECTV Group,Inc.; Time Warner Inc.; Scientific-Atlanta Inc.; Motorola Inc.; Diego,Inc.; and their respectivesubsidiaries.  Forgent dismissedsix defendants from the lawsuit since they had no operational role with respectto infringement: Cox Communications, Inc.; DIRECTV Group, Inc.; DIRECTVEnterprises, LLC; DIRECTV Operations, LLC; EchoStar Communications Corporation;and EchoStar DBS Corporation.  Nosettlements accompanied these dismissals and there have been no othersettlements to date in this litigation.  The ‘746 Litigation has since been moved to the United States DistrictCourt for the Eastern District of Texas, Tyler Division.

On October 2, 2006, theUnited States Patent and Trademark Office (“USPTO”) granted Motorola Inc.’spetition and ordered an **inter partes** re-examination of the ‘746patent.  On October 26, 2006, the USPTOissued its first office action related to this re-examination.  This first action, which is not the finalconclusion of the re-examination, rejected the five claims in the ‘746patent.  Forgent responded to the USPTOand anticipates working to vigorously defend all of the claims of the ‘746patent.

On November 9,2006, Forgent and the defendants in the ‘746 Litigation appeared before theCourt and presented arguments relating to claims construction, a motion forsummary judgment and a motion to stay the litigation.  On November 20, 2006, the Court denied themotion to stay the litigation.  OnFebruary 16, 2007, the Court denied the defendants’ motion for summary judgmentfor invalidity and the Court issued its claims construction ruling.  Various other motions are currently pending against Forgent, includingsome which seek summary judgment.  TheCompany has and will continue to respond accordingly.  On February 20, 2007, the Courtordered Forgent and the defendants to mediate by April 15, 2007.  The trial date for the ‘746 Litigation is setfor May 14, 2007.

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

On February 14,2007, Cisco Systems, Inc. and Cisco Technology, Inc. (collectively “Cisco”)initiated litigation in the United States District Court for the WesternDistrict of Wisconsin against Forgent for alleged infringement of UnitedStatements Patent Nos. 5,720,023 and 6,295,527. Cisco is seeking injunctive relief against sales of Forgent’s VirtualAsset Manager software product and monetary damages, among other reliefsought.  Forgent intends to answer thecomplaint filed by Cisco by the required deadline and to vigorously defend itsrights to continue to sell the Virtual Asset Manager product. The Court has notyet issued a scheduling order or trial setting in this matter.

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

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

#### **INTELLECTUALPROPERTY LICENSING BUSINESS**

**If the Company is unable to obtain new licenseagreements, operating results will decline.**

TheCompany’s Patent Licensing Program involves risks inherent in licensingintellectual property, including risks of protracted delays, legal orregulatory challenges that would lead to disruption or curtailment of theprogram, increasing expenditures associated with the pursuit of the program andother risks. Failure to sign new license agreements would cause operatingresults to suffer.  There can be noassurance that the Company will be able to continue to license its technologyto others.  Additionally, quarterlyoperating results may fail to meet 

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expectations for a number of reasons, including a decline in the demandfor the Company’s patented technology, higher than expected operating expensesand license delays due to legal and other factors.

**Forgent may not prevail in its ‘746 Litigationproceedings, which could cause the Company to incur significant legalexpenditures without any related earnings.**

The Company hasinitiated the ‘746 Litigationagainst several companies for the infringement of its ‘746 patent.  As with any litigation, the outcome isuncertain.  Although the Company intendsto vigorously pursue its claims, there are no guarantees that the Company canprotect its intellectual property rights in its current litigation or preventthe unauthorized use of its technology in the future.  The litigation will be lengthy andcostly.  Additionally, unintendedconsequences of the Company’s litigations may adversely affect the Company’sbusiness, including, without limitation, that the Company may have to devotesignificant time and financial resources to pursuing the litigation, that theCompany may become subject to counterclaims or lawsuits and that the expensesof pursuing the litigation could increase based upon new developments.  These, and other factors not currently knownto or deemed material by management, could have a material and adverse impacton the Company’s business, prospects, liquidity and results of operations.

**Negative results from the UnitedStates Patent and Trademark Office’s re-examination of the ‘746 patent maynegatively affect the Company’s ability to generate licensing revenues.**

See Part II, Item1 “Legal Proceedings” for information regarding the United States Patent andTrademark Office’s (“USPTO”) first office action issued related to the ‘746patent.  The USPTO’s re-examination cancause Forgent to incur significant legal expenses to defend its ‘746patent.  Since the USPTO rejected theclaims of the ‘746 patent, the Company’s licensing abilities may be negativelyaffected.  Although Forgent has notrecognized any licensing revenues from the ‘746 patent to date, any successful challenge to the licensingprocess would reduce the Company’s ability to negotiate settlements withdefendants in the ‘746 Litigation and new licenses with other companies.

**The ‘672 patent expired in the U.S.and revenues will decline if Forgent is unable to replace this revenue stream.**

Todate, all of the Company’s intellectual property licensing revenue has beenderived from the ‘672 patent.  The U.S. ‘672patent expired in October 2006.  Thus, Forgent will cease receiving any royaltiesfrom the MPEG-2 consortium.  Revenuesfrom the ‘672 patent are finite and, if such revenues are not replaced, netincome will decrease and the market price of Forgent’s common stock maydecline.

**Forgent’s ‘672 patent is being re-examined by the USPTOand the Federal Trade Commission is conducting a non-public inquiry into theCompany’s Patent Licensing Program, as it relates to the ‘672 patent.  Any negative results from the re-examinationor the inquiry could adversely affect the Company.**

The USPTO iscurrently re-examining the ‘672 patent and the Federal Trade Commission’s (“FTC”)is conducting a non-public inquiry associated with the Company’s PatentLicensing Program, as it relates to the ‘672 patent.  This re-examination and inquiry can causeForgent to incur significant legal expenses to defend its ‘672 patent andrelated license agreements.  Additionally,if the FTC proceeds withits inquiry and thereafter determines that the Company acted improperly,further proceedings before the FTC could ensue.

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

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

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

**Claims ofintellectual property infringement by third parties may adversely affectForgent’s business.**

On February 14,2007, Cisco Systems, Inc. and Cisco Technology, Inc. (collectively “Cisco”)initiated litigation in the United States District Court for the WesternDistrict of Wisconsin against Forgent for alleged infringement of United StatesPatent Nos. 5,720,023 and 6,295,527 (the “Cisco Claim”).  Cisco is seeking 

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injunctive relief againstsales of Forgent’s Virtual Asset Manager software product and monetary damages,among other relief sought.  Forgentintends to answer the complaint filed by Cisco by the required deadline and tovigorously defend its rights to continue to sell the Virtual Asset Managerproduct.

In addition to the Cisco Claim, Forgent may becomesubjected to other claims of intellectual property infringement by thirdparties as the number of competitors and available software products continuesto grow and the functionality of such products increasingly overlap. Anyinfringement claims, with or without merit, could be time-consuming, result incostly litigation, divert management’s attention and financial resources, causethe loss or deferral of sales or require Forgent to enter into royalty orlicense agreements. 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, if Forgent isunable to either license the technology or similar technology or developalternative technology on a timely basis. If Forgent is able to license thetechnology, such royalty or license agreements may not be available on termsacceptable to the Company.

**If Forgent is unable to successfully market andsell its software products and services, future software revenues will decline.**

The future successof the Company’s software segment is dependent in significant part on itsability to generate demand for its NetSimplicity software products andservices. To this end, Forgent’s marketing and sales operations must increasemarket awareness of its products and services to generate increased revenue.All sales new hires will require training and may take time to achieve fullproductivity. Forgent cannot be certain that its new hires will become asproductive as necessary or that it will be able to hire enough qualifiedindividuals or retain existing employees in the future. The Company cannot becertain that it will be successful in its efforts to market and sell itsproducts and services.  If it is notsuccessful in building greater market awareness and generating increased sales,future software revenues may decline.

**Lack of new customers or additionalsales from current customers could negatively affect the Company’s ability togrow revenues.**

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

**Increased competition may have an adverse effecton the Company’s profitability.**

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

**Opensource software may increase competition, resulting in decreases in Forgent’sprices of its software products.**

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

**Forgent’s software products’functionality may be impaired if third-party hardware products associated withthe NetSimplicity software do not operate successfully.**

In addition to itssoftware products, Forgent currently sells hardware from partnered vendors toits customers.  The effectiveimplementation of Forgent’s software products depends upon the successfuloperation of 

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these third-partyhardware products. Any undetected defects in these third-party products couldprevent the implementation of or impair the functionality of Forgent’s softwareor blemish the Company’s reputation.

**If Forgent fails to introduce newversions and releases of functional and scalable software products in acost-effective and timely manner, customers may license competing products andForgent’s revenues will decline.**

The technologyindustry is characterized by continuing improvements in technology, resultingin the frequent introduction of new products, short product life cycles,changes in customer needs and continual improvement in product performancecharacteristics.  Forgent expects thatits future financial performance will depend, in part, on revenue generatedfrom its existing and future software products and the related products thatthe Company plans to develop 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.

Forgent spends alarge portion of its research and development resources to product upgrades andmay need to invest further in research and development in order to keep itssoftware applications and solutions viable in the rapidly changing marketplace.This research and development effort, which may require significant resources,could ultimately be unsuccessful if Forgent does not achieve market acceptancefor its new products or enhancements. Additionally, if the Company fails to anticipate and respond effectivelyto technological improvements or if Forgent’s competitors release new productsthat are superior to Forgent’s products in performance and/or price, demand forthe Company’s software products may decline and Forgent may lose sales and failto achieve anticipated revenues.

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

                Errors or defects in theCompany’s software, sometimes called “bugs,” may be found from time-to-time,particularly when new versions or enhancements are released. Any significantsoftware errors or defects may result in loss of sales, decreased revenues,delay in market acceptance and injury to the Company’s reputation. Despiteextensive product testing during development, new versions or enhancements ofForgent’s software may still have errors after commencement of commercialshipments.  Forgent corrects the “bugs”and delivers the corrections in subsequent maintenance releases andpatches.  However, errors or defectscould put Forgent at a competitive disadvantage and can be costly andtime-consuming to correct.

**If Forgent is unable to develop ormaintain strategic relationships with its resellers and vendor partners whomarket and sell the Company’s products, software revenues may decline.**

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

#### **OTHER**

**Forgentmay not be able to protect or enforce its intellectual property rights whichcould cause the Company’s ability to license its technologies to be impaired.**

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

22

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

**Forgent may face problems inconnection with future acquisitions, which could create business difficultiesand adversely affect operations.**

As part of Forgent’sbusiness strategy, Forgent may acquire additional businesses, products andtechnologies that could complement or expand its ongoing business.  However, Forgent may be unable to identifysuitable acquisitions or investment candidates. Even if Forgent identifiessuitable candidates, there are no assurances that the Company will be able tomake the acquisitions or investments on favorable terms. Negotiations ofpotential acquisitions could divert management time and resources and theCompany may incorrectly judge the value or worth of an acquired business,product or technology. Additionally, Forgent may incur significant debt or berequired to issue equity securities to pay for such future acquisitions orinvestments.

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

**IfForgent elects to raise additional capital, funds may not be available or ifavailable, may not be on favorable terms to the Company.**

                In the future, Forgent may electto raise additional capital to fund its operations and/or acquisitions.However, Forgent cannot be certain that it will be able to obtain additionalfinancing on favorable terms, if at all. If Forgent takes out additional loans, the Company may incur significantinterest expense, which could adversely affect results of operations.  If Forgent issues equity securities, itsstockholders’ percentage of ownership would be reduced and the new equitysecurities may have rights, preferences or privileges senior to those existingstockholders of the Company’s common stock. If Forgent is unable to raise funds on acceptable terms, Forgent may notbe able to develop or enhance its products, respond to competitive pressures orunanticipated requirements, or take advantage of future opportunities, all ofwhich could adversely affect Forgent’s business, operating results andfinancial condition.

**Historically,the Company has not been profitable and Forgent may continue to incur losses,which may result in decreases in revenues if customers raise viabilityconcerns.**

Although Forgent generated net income for the six months ended January31, 2007, the Company incurred losses during the prior fiscal quarters.  As of January 31, 2007, Forgent had anaccumulated deficit of $246.7 million and Forgent may continue to incuradditional 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 continue its currentprofitability.

**Forgent may experience significantfluctuations in its quarterly results and if the Company’s future results arebelow expectations, the price for the Company’s common stock may decline.**

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

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

·                  resolution of the USPTO’s re-examination ofthe ‘672 patent and the ‘746 patent;

·                  resolution of the FTC’s non-publicinvestigation;

·                  timing and costs related to the Company’spatent litigation;

·                  market demand for NetSimplicity’s softwareproducts and services;

·                  timing of customers’ budget cycles;

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

23

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·                  the mix of software license and services revenues;

·                  timingof introducing new products and services or enhancements to existing productsand services;

·                  newproduct releases or pricing policies by Forgent’s competitors;

·                  seasonal fluctuations in capital spending;

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

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

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

·                  costs of attracting, retaining and trainingskilled personnel;

·                  management’s ability to manage future growth;

·                  changesin U.S. generally accepted accounting principles; and

·                  general economic climate.

Some of these factors are within management’s controlwhile 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.

**The loss of key management and personnel couldhinder the development of Forgent’s technology and otherwise adversely affectthe Company’s business.**

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

**Forgent executed a new shareholdersrights plan that could make it difficult for another company to acquire controlof the Company.**

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

Due to the riskfactors noted above and elsewhere in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations of the Company,” Forgent’s pastearnings and stock price have been, and future earnings and stock pricepotentially may be, subject to significant volatility, particularly on aquarterly basis. Past financial performance should not be considered a reliableindicator of future performance and investors are cautioned in using historicaltrends to anticipate results or trends in future periods. Any shortfall inrevenue or earnings from the levels anticipated by market analysts andinvestors could have an immediate and significant effect on the trading priceof the Company’s common stock.

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

None

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**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:

| 3.1   |   | Restated Certificate of Incorporation (incorporated  by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q  for the three months ended October 31, 2004).                                                                                                                                                                                                            |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2   |   | Restated Bylaws (incorporated by reference to  Exhibit 3.2 to the Company’s quarterly report on Form 10-Q for the three  months ended October 31, 2004).                                                                                                                                                                                                                                  |
| 4.1   |   | Specimen Certificate for the Common Stock  (incorporated by reference to Exhibit 4.1 to the Company’s Registration  Statement on Form S-1, File No. 33-45876, as amended).                                                                                                                                                                                                                |
| 4.2   |   | Rights Agreement, dated as of December 19,  2005, between Forgent Networks, Inc. and American Stock Transfer & Trust  Company, which includes the form of Series A Preferred Stock, $0.01 par  value, the form of Rights Certificate, and the Summary of Rights (incorporated by reference to Exhibit 4.1 to  the Company’s Current Report on Form 8-K dated December 19, 2005). |
| 10.36 |   | Second Asset Purchase Agreement, effective November 21,  2006, between Forgent Networks, Inc. and Tandberg Telecom AS. (incorporated  by reference to Exhibit 10.36 to the Company’s quarterly report on Form 10-Q  for the three months ended October 31, 2006).                                                                                                                         |
| 10.37 |   | Amended Legal Services Fee Agreement, effective  September 1, 2006, by and among Forgent Networks, Inc., Hagans, Burdine,  Montgomery, Rustay & Winchester, P.C. and Bracewell & Giuliani,  L.L.P. (incorporated by reference to Exhibit 10.37 to the Company’s quarterly  report on Form 10-Q for the three months ended October 31, 2006).                                      |
| 31.1* |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                      |
| 31.2* |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                      |
| 32.1* |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                       |
| 32.2* |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                       |

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* Filed herewith

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**SIGNATURES**

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

 
|                                       |   | FORGENT NETWORKS, INC.                                                                                                                                                                                                                                                                          |
|---------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                  |   |                                                                                                                                                                                                                                                                                            |
|                                  |   |                                                                                                                                                                                                                                                                                            |
|  Date:  March 14, 2007 |   | By:         /s/  RICHARD N. SNYDER                                                                     |
|                                  |   |               Richard  N. Snyder                                                                                                                                                                                     |
|                                  |   |               Chief  Executive Officer                                                                                                                                                                                    |
|                                  |   |                                                                                                                                                                                                                                                                                            |
| Date:  March  14, 2007      |   | By:        /s/  JAY C. PETERSON                                     |
|                                  |   |               Jay  C. Peterson                                                                                                                                                                                            |
|                                  |   |               Chief  Financial Officer                                                                                                                                                                                    |

 

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**INDEX TO EXHIBITS**
| **EXHIBIT**NUMBER | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                                                                                |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.1               |       | Restated Certificate of Incorporation (incorporated  by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q  for the three months ended October 31, 2004).                                                                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2               |       | Restated Bylaws (incorporated by reference to  Exhibit 3.2 to the Company’s quarterly report on Form 10-Q for the three  months ended October 31, 2004).                                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1               |       | Specimen Certificate for the Common Stock  (incorporated by reference to Exhibit 4.1 to the Company’s Registration  Statement on Form S-1, File No. 33-45876, as amended).                                                                                                                                                                                                                |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2               |       | Rights Agreement, dated as of December 19,  2005, between Forgent Networks, Inc. and American Stock Transfer & Trust  Company, which includes the form of Series A Preferred Stock, $0.01 par  value, the form of Rights Certificate, and the Summary of Rights (incorporated by reference to Exhibit 4.1 to  the Company’s Current Report on Form 8-K dated December 19, 2005). |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.36             |       | Second Asset Purchase Agreement, effective November  21, 2006, between Forgent Networks, Inc. and Tandberg Telecom AS.  (incorporated by reference to Exhibit 10.36 to the Company’s quarterly report  on Form 10-Q for the three months ended October 31, 2006).                                                                                                                         |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.37             |       | Amended Legal Services Fee Agreement, effective  September 1, 2006, by and among Forgent Networks, Inc., Hagans, Burdine,  Montgomery, Rustay & Winchester, P.C. and Bracewell & Giuliani,  L.L.P. (incorporated by reference to Exhibit 10.37 to the Company’s quarterly  report on Form 10-Q for the three months ended October 31, 2006).                                      |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.1              |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                       |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.2              |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                       |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.1              |       | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.2              |       | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        |

 

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