**UNITED STATES**

**SECURITIES AND 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 October 31, 2006**

**OR**

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

**Forthe transition periodfrom           to           **

**Commission file number: 0-20008**

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**FORGENT NETWORKS, INC.**

(ExactName of Registrant as Specified in its Charter)

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

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

Yes x     No o

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

Large accelerated filer  o                   Accelerated filer  o                             Non-acceleratedfiler  x

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

Yes o     No x

At December 11, 2006, the registrant had outstanding 25,433,043 sharesof its Common Stock, $0.01 par value.

 

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# **INDEX TOFINANCIAL STATEMENTS**

| ** **                                                                                            |   | **Page  Number**                                                                                       |
|-------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|
| **PART I - FINANCIAL INFORMATION**                                                                    |   |                                                                                                   |
|                                                                                                  |   |                                                                                                   |
| Item 1 -  Unaudited Consolidated Financial Statements                                                 |   |                                                                                                   |
|                                                                                                  |   | Consolidated Balance  Sheets as of October 31, 2006 (unaudited) and July 31, 2006                      |   | 3 |
|                                                                                                  |   | Unaudited  Consolidated Statements of Operations for the Three Months Ended  October 31, 2006 and 2005 |   | 4 |
|                                                                                                  |   | Unaudited Consolidated  Statements of Cash Flows for the Three Months Ended  October 31, 2006 and 2005 |   | 5 |
|                                                                                                  |   | Notes to  the Unaudited 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                                  |   | 17                                                                                                     |
| Item 4 - Controls  and Procedures                                                                     |   | 17                                                                                                     |
|                                                                                                  |   |                                                                                                   |
| **PART II - OTHER INFORMATION**                                                                       |   |                                                                                                   |
|                                                                                                  |   |                                                                                                   |
| Item 1 - Legal Proceedings                                                                            |   | 17                                                                                                     |
| Item 1A - Risk Factors                                                                                |   | 18                                                                                                     |
| Item 2 -  Unregistered Sales of Equity Securities and Use of Proceeds                                 |   | 24                                                                                                     |
| Item 3 -  Defaults upon Senior Securities                                                             |   | 24                                                                                                     |
| Item 4 -  Submission of Matters to a Vote of Security Holders                                         |   | 24                                                                                                     |
| Item 5 - Other  Information                                                                           |   | 24                                                                                                     |
| Item 6 - Exhibits                                                                                     |   | 24                                                                                                     |
|                                                                                                  |   |                                                                                                   |
| **Signatures**                                                                                        |   | 26                                                                                                     |
|                                                                                                  |   |                                                                                                   |
| **Index to Exhibits**                                                                                 |   | 27                                                                                                     |

 

2

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**FORGENT NETWORKS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

(Amounts inthousands, except per share data)
| ** **                                                                                                                                                                           | ** ** | **OCTOBER 31,  2006** | ** ** | **JULY 31,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
|                                                                                                                                                                                 | ** ** | **(UNAUDITED)**            | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                           |       |                       |       |                    |       |
| Current Assets:                                                                                                                                                                      |       |                       |       |                    |       |
| Cash and  equivalents, including restricted cash of $454 and $543 at October 31, 2006  and July 31, 2006, respectively                                                               |       | $                          | 15,038     |                    | $          | 16,206 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $9 and $13 at October  31, 2006 and July 31, 2006, respectively                                                      |       | 6,091                      |       | 714                     |       |
| Prepaid expenses  and other current assets                                                                                                                                           |       | 299                        |       | 274                     |       |
| Total Current  Assets                                                                                                                                                                | ** ** | **21,428**                 | ** ** | **17,194**              | ** ** |
|                                                                                                                                                                                 |       |                       |       |                    |       |
| Property and equipment,  net                                                                                                                                                         |       | 584                        |       | 788                     |       |
| Intangible assets, net                                                                                                                                                               |       | —                     |       | 4                       |       |
| Other assets                                                                                                                                                                         |       | 3                          |       | 3                       |       |
|                                                                                                                                                                                 | ** ** | **$**                      | **22,015** | ** **              | **$**      | **17,989** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                       |       |                       |       |                    |       |
| Current Liabilities:                                                                                                                                                                 |       |                       |       |                    |       |
| Accounts payable                                                                                                                                                                     |       | $                          | 4,752      |                    | $          | 3,631 |   |
| Accrued  compensation and benefits                                                                                                                                                   |       | 768                        |       | 547                     |       |
| Other accrued  liabilities                                                                                                                                                           |       | 798                        |       | 907                     |       |
| Notes payable,  current position                                                                                                                                                     |       | 282                        |       | 313                     |       |
| Deferred revenue                                                                                                                                                                     |       | 765                        |       | 683                     |       |
| Total Current  Liabilities                                                                                                                                                           | ** ** | **7,365**                  | ** ** | **6,081**               | ** ** |
|                                                                                                                                                                                 |       |                       |       |                    |       |
| Long-Term Liabilities:                                                                                                                                                               |       |                       |       |                    |       |
| Deferred revenue                                                                                                                                                                     |       | 9                          |       | 11                      |       |
| Other long-term  obligations                                                                                                                                                         |       | 1,640                      |       | 1,777                   |       |
| Total Long-Term  Liabilities                                                                                                                                                         | ** ** | **1,649**                  | ** ** | **1,788**               | ** ** |
|                                                                                                                                                                                 |       |                       |       |                    |       |
| Stockholders’ Equity:                                                                                                                                                           |       |                       |       |                    |       |
| Preferred stock,  $.01 par value; 10,000 shares authorized; none issued or outstanding                                                                                               |       | —                     |       | —                  |       |
| Common stock, $.01  par value; 40,000 shares authorized; 27,208 and 27,163 shares issued; 25,418  and 25,373 shares outstanding at October 31, 2006 and July 31, 2006,  respectively |       | 272                        |       | 271                     |       |
| Treasury stock  at cost, 1,790 shares at October 31, 2006 and July 31, 2006                                                                                                          |       | (4,815                     | )          | (4,815                  | )          |
| Additional  paid-in capital                                                                                                                                                          |       | 265,535                    |       | 265,406                 |       |
| Accumulated  deficit                                                                                                                                                                 |       | (248,005                   | )          | (250,754                | )          |
| Accumulated  other comprehensive income                                                                                                                                              |       | 14                         |       | 12                      |       |
| Total  Stockholders’ Equity                                                                                                                                                     | ** ** | **13,001**                 | ** ** | **10,120**              | ** ** |
|                                                                                                                                                                                 | ** ** | **$**                      | **22,015** | ** **              | **$**      | **17,989** | ** ** |

The accompanying notes are an integral part of theseconsolidated financial statements.

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**FORGENT NETWORKS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(Amounts inthousands, except per share data)
| ** **                                              | ** ** | **FOR THE THREE  MONTHS ENDED  OCTOBER 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                                         | ** ** | **2005** | ** ** |
|                                                    | ** ** | **(UNAUDITED)**                                                  | ** ** |
| **REVENUES:**                                           | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Intellectual property licensing                         |       | $                                                                | 8,134      |   | $ | 2,916 |   |
| Software & services                                 |       | 962                                                              |       | 731 |   |
| Total Revenues                                          | ** ** | **9,096**                                                        | ** ** | **3,647** | ** ** |
|                                                    |       |                                                             |       |   |   |
| **COST OF  SALES:**                                     | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Intellectual property licensing                         |       | 3,540                                                            |       | 2,087 |   |
| Software & services                                 |       | 310                                                              |       | 194 |   |
| Total Cost of Sales                                     | ** ** | **3,850**                                                        | ** ** | **2,281** | ** ** |
|                                                    |       |                                                             |       |   |   |
| **GROSS  MARGIN**                                       |       | 5,246                                                            |       | 1,366 |   |
|                                                    |       |                                                             |       |   |   |
| **OPERATING  EXPENSES:**                                | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Selling, general and administrative                     |       | 2,500                                                            |       | 2,683 |   |
| Research and development                                |       | 116                                                              |       | 131 |   |
| Amortization of intangible assets                       |       | 4                                                                |       | 10 |   |
| Total Operating Expenses                                | ** ** | **2,620**                                                        | ** ** | **2,824** | ** ** |
|                                                    |       |                                                             |       |   |   |
| **INCOME (LOSS)  FROM OPERATIONS**                      | ** ** | **2,626**                                                        | ** ** | **(1,458** | **)** |
|                                                    |       |                                                             |       |   |   |
| **OTHER  INCOME AND (EXPENSES):**                       | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Interest income                                         |       | 155                                                              |       | 98 |   |
| Other                                                   |       | (32                                                              | )          | (17 | ) |
| Total Other Income and (Expenses)                       | ** ** | **123**                                                          | ** ** | **81** | ** ** |
|                                                    |       |                                                             |       |   |   |
| **INCOME  (LOSS) FROM OPERATIONS, BEFORE INCOME TAXES** | ** ** | **2,749**                                                        | ** ** | **(1,377** | **)** |
| Provision for income taxes                              |       | —                                                           |       | (5 | ) |
| **NET  INCOME (LOSS)**                                  | ** ** | **2,749**                                                        | ** ** | **(1,382** | **)** |
|                                                    |       |                                                             |       |   |   |
| **BASIC  AND DILUTED INCOME (LOSS) PER SHARE:**         |       |                                                             |       |   |   |
| Net income (loss) per share - basic and diluted         |       | $                                                                | 0.11       |   | $ | (0.05 | ) |
| **WEIGHTED  AVERAGE SHARES OUTSTANDING:**               |       |                                                             |       |   |   |
| Basic                                                   |       | 25,381                                                           |       | 25,178 |   |
| Diluted                                                 |       | 25,522                                                           |       | 25,178 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

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**FORGENT NETWORKS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(Amounts inthousands)
| ** **                                                                  | ** ** | **FOR THE THREE  MONTHS ENDED  OCTOBER 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                                                         | ** ** | **2005** | ** ** |
| ** **                                                                  | ** ** | **(UNAUDITED)**                                                  | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                  | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Income (loss) from operations                                               |       | $                                                                | 2,749      |   | $ | (1,382 | ) |
| Adjustments to reconcile net income (loss) to net  cash used in operations: |       |                                                             |       |   |   |
|                                                                        |       |                                                             |       |   |   |
| Depreciation and amortization                                               |       | 239                                                              |       | 329 |   |
| Amortization of leasehold advance and lease  impairment                     |       | (106                                                             | )          | (140 | ) |
| Provision for doubtful accounts                                             |       | 1                                                                |       | 3 |   |
| Share-based compensation                                                    |       | 128                                                              |       | 81 |   |
| Foreign currency translation gain                                           |       | 5                                                                |       | 2 |   |
| Gain on sale/disposal of fixed  assets                                      |       | —                                                           |       | (6 | ) |
| Changes in operating assets and liabilities:                                |       |                                                             |       |   |   |
| Accounts receivable                                                         |       | (5,392                                                           | )          | (258 | ) |
| Prepaid expenses and other current assets                                   |       | (87                                                              | )          | (95 | ) |
| Accounts payable                                                            |       | 1,170                                                            |       | 1,379 |   |
| Accrued expenses and other long-term obligations                            |       | 140                                                              |       | (38 | ) |
| Deferred revenue                                                            |       | 94                                                               |       | 92 |   |
| Net cash used in operating activities                                       | ** ** | **(1,059**                                                       | **)**      | **(33** | **)** |
| ** **                                                                  | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                  | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Net sales of short-term investments                                         |       | —                                                           |       | 100 |   |
| Net purchases of property and equipment                                     |       | (32                                                              | )          | (12 | ) |
| Net cash (used in) provided by investing activities                         | ** ** | **(32**                                                          | **)**      | **88** | ** ** |
| ** **                                                                  | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                  | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Net proceeds from issuance of stock                                         |       | 2                                                                |       | 4 |   |
| Proceeds from notes payable                                                 |       | —                                                           |       | 95 |   |
| Payments on notes payable and capital leases                                |       | (89                                                              | )          | (95 | ) |
| Net cash (used in) provided by financing activities                         | ** ** | **(87**                                                          | **)**      | **4** | ** ** |
|                                                                        |       |                                                             |       |   |   |
| Effect of  translation exchange rates                                       |       | 10                                                               |       | — |   |
|                                                                        |       |                                                             |       |   |   |
| Net (decrease) increase  in cash and equivalents                            |       | (1,168                                                           | )          | 59 |   |
| Cash and  equivalents at beginning of period                                |       | 16,206                                                           |       | 15,861 |   |
| Cash and  equivalents at end of period                                      | ** ** | **$**                                                            | **15,038** | ** ** | **$** | **15,920** | ** ** |

The accompanyingnotes are an integral part of these consolidated financial statements.

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**FORGENT NETWORKS, INC.**

**NOTES TOTHE CONSOLIDATED FINANCIAL STATEMENTS**

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

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

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith the rules and regulations of the Securities and Exchange Commission andaccordingly, do not include all information and footnotes required under U.S. generally accepted accounting principles forcomplete financial statements. In the opinion of management, these interimfinancial statements contain all adjustments, consisting of normal, recurringadjustments, necessary for a fair presentation of the financial position ofForgent Networks, Inc. (“Forgent” or the “Company”) as of October 31, 2006 andJuly 31, 2006, and the results of operations and cash flows for the threemonths ended October 31, 2006 and 2005. These consolidated financial statementsshould be read in conjunction with the Company’s consolidated financial statementsand notes thereto filed with the Securities and Exchange Commission in theCompany’s annual report on Form 10-K/A for the fiscal year ended July 31,2006.   The results for the interimperiods are not necessarily indicative of results for a full fiscal year.

**NOTE2 - INTELLECTUAL PROPERTY LEGAL CONTRACTS**

In October 2005,Forgent terminated Godwin Gruber, LLP (“Godwin”) and engaged Susman Godfrey,LLP (“Susman”) to serve as lead counsel in the ‘672 Litigation.  Forgent agreed to pay Susman 33% of all netproceeds received from licensing and litigation once Forgent received $6,000 ingross recoveries received on or after October 27, 2004.  Additionally, Forgent agreed to pay Susman afixed monthly fee of $116 for time incurred. As a result of the Resolution Agreement entered into with Jenkens &Gilchrist (“Jenkens”) in December 2004, the Company’s liability to Jenkens is10% of future gross licensing and litigation proceeds related to the ‘672patent.

In April 2006, Forgentengaged Hagans Burdine Montgomery Rustay & Winchester (“Hagans”) andBracewell & Giuliani, L.L.P. (“Bracewell”) to provide legal servicesrelated to the litigation of the Company’s U.S. Patent No. 6,285,746 (the “ ‘746Litigation”).  Hagans and Bracewellreplaced Godwin.  Hagans is the leadcounsel on the ‘746 Litigation.  See Note8, “Subsequent Events,” for information regarding an amendment to the agreementwith Hagans and Bracewell.  In May 2005,the Company engaged The Roth Law Firm, P.C. (“Roth”) to serve as local counsel in Marshall,Texas.  Forgent agreed to pay Roth 10% ofall litigation proceeds related to the ‘746 Litigation.

Legalexpenses for the contingency fees and legal counsel’s time incurred arerecorded as part of cost of sales from Forgent’s intellectual property licensingbusiness on the Consolidated Statements of Operations.  Cost of sales for the intellectual propertylicensing business for the three months ended October 31, 2006 and 2005 were$3,540 and $2,087, respectively.  Otherlegal expenses incurred related to the Patent Licensing Program are recorded aspart of operating expenses on the Consolidated Statements of Operations.  Other related legal expenses for the threemonths ended October 31, 2006 and 2005 were $264 and $420, respectively.

**NOTE 3 - 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. Comprehensiveincome for the three months ended October 31, 2006 was $2,751****and comprehensive loss for the threemonths ended October 31, 2005 was $1,378.

**NOTE 4 -RECENT ACCOUNTING PRONOUNCEMENTS**

In September 2006,the Financial Accounting Standard Board (“FASB”) issued Statement No. 157, *“Fair Value Measurements.”  *StatementNo. 157 defines fair value, establishes a framework for measuring fair value inU.S. generally accepted accounting principles and expands disclosures aboutfair value measurements.  Statement No. 157 is effective for fiscal yearsbeginning after November 15, 2007 and interim periods within those fiscalyears. Forgent is currently evaluating the effect that the adoption ofStatement No. 157 will have on its financial position and results ofoperations.

In June 2006, the FASBissued Interpretation No. 48, “*Accountingfor Uncertainty in Income Taxes—an interpretation of FASB StatementNo. 109”* (“FIN 48”). FIN 48 clarifies the accounting foruncertainty in income

6

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taxes recognized in an enterprise’s financialstatements in accordance with Statement No. 109, *“Accounting for Income Taxes.” *This interpretationdefines the minimum recognition threshold a tax position is required to meetbefore being recognized in the financial statements.  Additionally, FIN 48provides guidance on derecognition, classification, interest and penalties,accounting in interim periods and transition. FIN 48 is effective for fiscalyears beginning after December 15, 2006. Forgent believes theadoption of FIN 48 will not have a material effect on its consolidatedfinancial statements.

In May 2005, the FASBissued Statement No. 154, *“AccountingChanges and Error Corrections”*, which replaces Accounting PrinciplesBoard (“APB”) Opinion No. 20, *“AccountingChanges”* and Statement No. 3, *“ReportingAccounting Changes in Interim Financial Statements.”*  Statement No. 154 requires that avoluntary change in accounting principle be applied retrospectively with allprior period financial statements presented on the new accounting principle.The standard also requires that a change in depreciation or amortization methodfor long-lived non-financial assets be accounted for prospectively as a changein estimate, and correction of errors in previously issued financial statementsshould be termed a “restatement.” Statement No. 154 is effective foraccounting changes and correction of errors made in fiscal years beginningafter December 15, 2005. Thus, Forgent adopted this standard foraccounting changes and corrections of errors made in fiscal year 2007,effective August 1, 2006.  The adoptiondid not have any impact to the Company’s consolidated financial statements.

## **NOTE 5 –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 tomotivate employees with options that had exercise prices greater than thecurrent fair market value.  The repricingresulted in a charge of $88 based on the incremental fair value of the newoptions versus the fair value of the old options for the three months endedOctober 31, 2006.  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 threemonths ended October 31, 2005.

The Company issued 45and 3 shares of common stock related to exercises of stock options granted fromits Stock Option and Stock Purchase Plans for the three months ended October31, 2006 and 2005, respectively.

### **NOTE6 - SEGMENT INFORMATION**

Currently,the Company operates in two distinct segments: intellectual property licensingand software and services.  During thethree months ended October 31, 2006, Forgent’s intellectual property licensingbusiness focused on generating licensing revenues relating to the Company’stechnologies embodied in U.S. Patent No. 4,698,672 and its foreigncounterparts, as well as in U.S. Patent No. 6,285,746.  At the end of the first fiscal quarter of2007, the Company settled with the remaining defendants in the ‘672 Litigationand does not anticipate generating additional licensing revenues fromnon-defendants going forward.  Forgent’ssoftware and services business provides customers with scheduling and assetmanagement software as well as software maintenance and support, installationand training services. In order to evaluate the intellectual property andsoftware segments as stand-alone businesses, the Company records allunallocated corporate operating expenses in the Corporate segment.

The Company evaluates the performance as well as the financial results ofits segments. Included in the segment operating income (loss) is an allocationof certain corporate operating expenses. The Company does not identify assetsor capital expenditures by reportable segments, and the Company’s ChiefExecutive Officer and Chief Financial Officer do not evaluate the segmentsbased on these criteria.

Thetable below presents segment information about revenue from unaffiliatedcustomers, gross margins

7

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and operating income (loss) for the three months ended October 31, 2006and 2005:
| ** **                                              | ** ** | **Intellectual  Property  Licensing** | ** ** | **Software &  Services** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|---------------|------------|------------|------------|
| ** **                                              | ** ** | ** **                            | ** ** | ** **                        | ** ** | ** **    | ** ** | ** ** | ** ** |
| **For the  Three Month Period Ending October 31, 2006** |       |                                  |       |                              |       |          |       |       |       |
| Revenues from  unaffiliated customers                   |       | $                                     | 8,134      |                              | $          | 962           |       | $          | —     |   | $ | 9,096 |   |
| Gross margin                                            |       | 4,594                                 |       | 652                               |       | —        |       | 5,246      |       |
| Operating income  (loss)                                |       | 3,800                                 |       | (289                              | )          | (885          | )          | 2,626      |       |
|                                                    |       |                                  |       |                              |       |          |       |       |       |
| **For the  Three Month Period Ending October 31, 2005** |       |                                  |       |                              |       |          |       |       |       |
| Revenues from  unaffiliated customers                   |       | $                                     | 2,916      |                              | $          | 731           |       | $          | —     |   | $ | 3,647 |   |
| Gross margin                                            |       | 829                                   |       | 537                               |       | —        |       | 1,366      |       |
| Operating income  (loss)                                |       | 73                                    |       | (364                              | )          | (1,167        | )          | (1,458     | )          |

 

### **NOTE7 – CONTINGENCIES**

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**

Forgentand its wholly-owned subsidiary, Compression Labs, Incorporated (“CLI”), werein legal proceedings with multiple companies for infringement of the ‘672patent.  Prior to the first quarter of 2007, Forgenthad settled with 15 defendants.  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 agreed to pay Forgent $8.0million.  Additionally, all partiesagreed to release all claims against each other and Forgent has no future obligationsrelated to this settlement.

OnNovember 16, 2005, the Public Patent Foundation filed a petition with theUnited States Patent and Trademark Office (the “USPTO”) to re-examine the ‘672patent.  In January 2006, the USPTOgranted the petition and subsequently issued its first office action on May 25,2006.  This first action, which is notthe final conclusion of the re-examination, confirmed 27 of the 46 claims inthe ‘672 patent.  Forgent responded tothis first office action.  There-examination process is an extended process and Forgent is working directlywith the USPTO to vigorously defend all of the claims, including those thatwere not initially upheld in the first office action.   The USPTO has not issued any additionaloffice actions.

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

Forgentis currently in litigation proceedings with multiple companies in the UnitedStates District Court for the Eastern District of Texas, Tyler Division, forinfringement of its ‘746 patent.  InSeptember 2006, Forgent and the defendants participated in a court-orderedmediation, which did not result in any settlements or licenses. 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.  The Courtdid not rule on the motion for summary judgment and the Company is currentlyawaiting the Court’s ruling on the claims construction.

OnOctober 2, 2006, the USPTO 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, denied the five claims in the ‘746patent.  Forgent has 60 days to respondto the USPTO and anticipates working directly with the USPTO to vigorouslydefend all of the claims of the ‘746 patent. If the Company is unsuccessful indefending its patent’s 

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claims with the USPTO examiner, Forgent could pursuethe appeal process within the USPTO and within the federal court system, ifnecessary.  Any negative results from there-examination would 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 could 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.

### **NOTE8 – SUBSEQUENT EVENTS**

In November 2006, Forgent sold certain patentsassociated with videoconferencing and related fields and technology, togetherwith related goodwill, rights and documentation, to Tandberg Telecom AS (“Tandberg”)for $3,150.  Upon closing, Forgent received $2,900 of the purchase price,all of which was recorded as a gain.  Theremaining balance of $250 will be held in escrow for two years for indemnityclaims.  Following this sale, Forgent maintains approximately 10 patentsand patent applications, including the ‘746 Patent, which Forgent isasserting in the U.S. District Court for the Eastern District of Texas.

On December 1, 2006, Forgent signed an amendment tothe Legal Services Fee Agreement with Hagans, Burdine, Montgomery, Rustay &Winchester, P.C. and Bracewell & Giuliani, L.L.P.  This amendment increased the contingency feepayable to Hagans and Bracewell from 30% (15% to each law firm) of all license and litigation proceedsrelated 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, document production expenses, etc. will be allocated asfollows: 25% to Forgent, 50% to Hagans, and 25% to Bracewell, until totalexpenses reach $2,500. Prior to the amendment, Forgent was liable for allrelated expenses.  Although the Companydoes not believe it will reach the $2,500 threshold, Forgent will be liable forall subsequent expenses if this threshold is exceeded.

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

 

                Thefollowing review of Forgent’s financial position as of October 31, 2006 andJuly 31, 2006 and for the three months ended October 31, 2006 and 2005 shouldbe read in conjunction with the Company’s 2006 Annual Report on Form 10-K/Afiled with the Securities and Exchange Commission.  Forgent’s internet website address ishttp://www.forgent.com.  The Company’s annual report on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and amendments to thosereports filed or furnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 are available through the investor relations page of theCompany’s internet website free of charge as soon as reasonably practicableafter they are electronically filed, or furnished to, the Securities andExchange Commission.  Forgent’s internet website and the informationcontained therein or connected thereto are not intended to be incorporated intothis Quarterly Report on Form 10-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**

Thefollowing table sets forth for the fiscal periods indicated the percentage oftotal revenues represented by certain items in Forgent’s ConsolidatedStatements of Operations:

|                                          | ** ** | **FOR THE THREE  MONTHS ENDED  OCTOBER 31,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                                         | ** ** | **2005** | ** ** |
|                                     |       |                                                             |       |   |   |
| Intellectual property licensing revenues |       | 89                                                               | %          | 80 | % |
| Software and  services revenues          |       | 11                                                               |       | 20 |   |
| Gross margin                             |       | 58                                                               |       | 37 |   |
| Selling, general and administrative      |       | 28                                                               |       | 73 |   |
| Research and development                 |       | 1                                                                |       | 4 |   |
| Total operating expenses                 |       | 29                                                               |       | 77 |   |
| Other income, net                        |       | 1                                                                |       | 2 |   |
| Net  income (loss)                       |       | 30                                                               | %          | (38 | )% |

 

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**THREE MONTHS ENDED OCTOBER 31,2006 AND 2005**

**Revenues**

Revenues for the threemonths ended October 31, 2006 were $9.1 million, an increase of $5.5 million,or 149%, from the $3.6 million reported for the three months ended October 31,2005. Consolidated revenues represent the combined revenues of the Company andits subsidiaries, including royalties and settlements received from licensingthe Company’s intellectual property as well as sales of Forgent’s NetSimplicitysoftware, installation and training and software maintenance services.

***IntellectualProperty Licensing Business***

Intellectual propertylicensing revenues for the three months ended October 31, 2006 were $8.1million, an increase of $5.2 million, or 179%, from the $2.9 million reportedfor the three months ended October 31, 2005. Intellectual property licensingrevenues as a percentage of total revenues were 89% and 80% for the threemonths ended October 31, 2006 and 2005, respectively.  Forgent’s licensing revenues relateprimarily to one-time intellectual property license agreements with companiesfor 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 garners royalties.  Forgent’s licensing revenues includeroyalties received from this MPEG-2 consortium. The Company is also seeking to license its U.S. Patent No. 6,285,746(the “ ‘746 patent”), which relates to technology for storing andretrieving multimedia data in a manner that allows playback during recording.However, no licensing revenues have beenachieved as of October 31, 2006.

During the past nineteen consecutive quarters,Forgent has achieved approximately $121.6 million in aggregate revenuesgenerated from multiple companies in Asia,Europe and the United States.  Theseone-time license agreements generated approximately 98% and 95% of theintellectual property segment’s licensing revenues for the three months endedOctober 31, 2006 and 2005, respectively. The Company does not anticipate anyadditional licensing revenue from companies that have previously signed licenseagreements.  The ‘672 patent, which hasgenerated all of the intellectual property licensing revenues to date, expiredin October 2006 in the United States and its foreign counterparts will expirein September 2007. Upon expiration of the ‘672 patent’s foreigncounterparts, Forgent will cease receiving any royalties from the MPEG-2consortium.

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”).  Prior to the first quarter of 2007, Forgenthad settled with 15 of the defendants. On October 25, 2006, Forgentsigned a Patent License and Settlement Agreement with the remainingdefendants.  Under this agreement, Forgent granted the defendants a patent licenseand the defendants agreed to pay Forgent $8.0 million.  Additionally, all parties agreed to releaseall claims against each other and Forgent has no future obligations related tothis settlement.  This settlementaccounts for the increase in licensing revenues during the three months endedOctober 31, 2006, as compared to the three months ended October 31, 2005.  Going forward, the Company believes itsability to garner additional licensing revenues from non-defendants related tothe ‘672 patent is substantially concluded.

Forgent is alsocurrently in legal proceedings with several companies in the United StatesDistrict Court for the Eastern District of Texas, Tyler Division, for theinfringement of its ‘746 patent (the “ ‘746 Litigation”).  In September 2006, Forgent and the defendantsparticipated in a court-ordered mediation, which did not result in anysettlements or licenses. On November 9, 2006, Forgent and the defendants in the‘746 Litigation appeared before the Court and presented arguments relating toclaims construction, a motion for summary judgment and a motion to stay thelitigation.  On November 20, 2006, theCourt denied the motion to stay the litigation. The Court did not rule on the motion for summary judgment and theCompany is currently awaiting the Court’s ruling on the claimsconstruction.  At any time during thelitigation process, Forgent will consider any reasonable settlements with thedefendants, if the settlement amount provides an appropriate value.

OnOctober 2, 2006, the USPTO 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, denied the five claims in the ‘746patent.  Forgent has 60 days to respondto the USPTO and anticipates working directly with the USPTO to vigorouslydefend all of the claims of the ‘746 patent. If the Company is unsuccessful indefending its patents’

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claims with the USPTO examiner, Forgent could pursuethe appeal process within the USPTO and within the federal court system, ifnecessary.  Any negative results from there-examination would 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 could have material andadverse consequences for Forgent.

The trial date forthe ‘746 Litigation is set for May 14, 2007.  Prior to the trial date, any negative resultsfrom the claims construction hearing, summary judgment motion, or the USPTO’sre-examination could significantly and adversely affect the Company’s abilityto proceed with the litigation and/or negotiate license agreements related tothe ‘746 patent.  Thus, there can be noassurance that the Company will be able to continue to effectively license itstechnology to other companies.  Additionally,there are no guarantees that the Company can protect its intellectual propertyrights in its current litigation or prevent the unauthorized use of itstechnology in the future.  However, management expects to generate licensingrevenues related to the ‘746 patent.

***Softwareand Services Business***

Software and servicesrevenues for the three months ended October 31, 2006 were $0.9 million, anincrease of $0.2 million, or 32%, from the $0.7 million reported for the threemonths ended October 31, 2005.  Softwareand services revenues as a percentage of total revenues were 11% and 20% for thethree months ended October 31, 2006 and 2005, respectively. Revenues from this lineof business include sales of Forgent’s NetSimplicity scheduling and assetmanagement software, which includes Meeting Room Manager (“MRM”), Visual Asset Manager (“VAM”) and ResourceScheduler.  Also included in this segment’s revenues aresoftware maintenance and professional services, such as add-on softwarecustomization, installation and training.

During the first fiscal quarter of 2007, as compared tothe first fiscal quarter of 2006, software revenues increased by 26% due toincreased MRM sales resulting from the release of Version 7.0 in June 2006 andincreased VAM sales resulting from the employment of a sales representativededicated solely to selling VAM. Continued pursuit of maintenance renewals, as well as the increase insoftware sales, led to additional sales of maintenance and support contractsand increased maintenance revenues by 38% during the three months ended October31, 2006.  Towards the end offiscal year 2006, Forgent partnered with several vendors which enabled theCompany to resell hardware to complement its MRM and VAM softwareproducts.  Hardware sales during thethree months ended October 31, 2006 led to a 33% increase in revenues asForgent did not have any hardware sales during the three months ended October31, 2005.  Increases in softwarerevenues, maintenance revenues and hardware revenues accounted for 97% of the$0.2 million increase in the software segment’s revenues during the firstfiscal quarter of 2007.  Forgent willcontinue to target North American and international companies in the education,governmental, healthcare and legal sectors, which generated approximately 49%of its software revenues during the three months ended October 31, 2006.

### **GrossMargin**

Grossmargins for the three months ended October 31, 2006 were $5.3 million, anincrease of $3.9 million, or 284%, from the $1.4 million reported for the threemonths ended October 31, 2005. Gross margins as a percentage of total revenueswere 58% and 37% for the three months ended October 31, 2006 and 2005,respectively.

The $3.9 million increase in gross margin, as well as the relatedincrease in gross margin as a percentage of total revenues, for the threemonths ended October 31, 2006, is due primarily to the $3.8 million increase ingross margin resulting from licensing revenues generated during first fiscalquarter of 2007.  To date, all ofthe Company’s licensing revenue has been generated by the ‘672 patent.  Because the ‘672 Litigation is concluded, theU.S. ‘672 patent expired in October 2006 and its foreign counterparts willexpire in September 2007, licensing revenues will decline unless alternativesources of revenue are found.  Iflicensing revenues decline, total gross margins will be adversely affected.

***Intellectual Property Licensing Business***

Intellectualproperty gross margins forthe three months ended October 31, 2006 were $4.5 million, an increase of $3.7million, or 454%, from the $0.8 million reported for the three months endedOctober 31, 2005. 

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Intellectual property gross margins as a percentage of total revenues were 56% and 28% for thethree months ended October 31, 2006 and 2005, respectively.

Thecost of sales from the intellectual property licensing business relates to thelegal fees incurred in successfully achieving signed license agreements as wellas legal expenses incurred from legal counsel’s time in connection withlicensing and litigating the Company’s patents. In October 2005, Forgentterminated Godwin Gruber, LLP (“Godwin”), and engaged Susman Godfrey, LLP (“Susman”)to lead its Patent Licensing Program. Under the amended agreement with Godwin, Forgent agreed to pay Godwin afixed monthly fee of $0.2 million for time incurred.  Under the agreement with Susman, Forgentagreed to pay Susman 33% of all net proceeds received from licensing andlitigation once Forgent reached $6.0 million in gross recoveries received on orafter October 27, 2004, and a fixed monthly fee of $0.1 million for timeincurred.  Since the Company achieved$6.0 million in gross recoveries during the second fiscal quarter of 2006,Forgent’s contingency fee to Jenkens & Gilchrist (“Jenkens”) was reducedfrom 50% of the gross licensing revenues received related to the ‘672 patent to10%.  As a result of the change in legalcounsel and the reduction in contingency fees to Jenkens, Forgent’s grossmargins from the intellectual property licensing business increased to 56% forthe three months ended October 31, 2006, as compared to 28% for the threemonths ended October 31, 2005.

InApril 2006, Forgent engaged Hagans and Bracewell to provide legal servicesrelated to the ‘746 Litigation.  OnDecember 1, 2006, Forgent signed an amendment to the original agreement, whichincreased the contingency fee payable to Hagans and Bracewell from 30% (15% to each law firm) of all license andlitigation proceeds, net of expenses, to 37.5% (20% to Hagans and 17.5% toBracewell).  In May 2005, the Companyengaged The Roth Law Firm, P.C. (“Roth”) to serve as local counsel in Marshall,Texas.  Forgent agreed to pay Roth 10% ofall litigation proceeds related to the ‘746 Litigation.  Under these legal services agreements,Forgent does not pay any legal expenses for time incurred.  Therefore, management anticipates achieving52.5% gross margin on any licensing revenues related to future licenseagreements associated with the ‘746 patent.

***Software and Services Business***

Softwareand services gross margins forthe three months ended October 31, 2006 were $0.6 million, an increase of $0.1million, or 21%, from the $0.5 million reported for the three months endedOctober 31, 2005. Software andservices gross margins as apercentage of total revenues were 68% and 73% for the three months endedOctober 31, 2006 and 2005, respectively.

The cost of salesassociated with the software segment is relatively fixed and results primarilyfrom the amortization of the Company’s purchased software development costs andcompensation expenses.  During the threemonths ended October 31, 2006, cost of sales from the software segmentincreased by $0.1 million, approximately 80% of which related to changes inamortization expenses, compensation expenses and hardware expenses.  As of July 31, 2006, the Company hadformalized a group dedicated to providing maintenance and support.  The compensation expenses and relatedexpenses for this group were classified as cost of sales during the threemonths ended October 31, 2006.  Since thegroup did not exist during the three months ended October 31, 2005, no relatedexpenses were recorded during the first fiscal quarter of 2006.  The increase in compensation and relatedexpenses was offset by a decrease in amortization expenses sincethe purchased software development costs were fully amortized during the firstfiscal quarter of 2007.  Additionally,the hardware sales during the three months ended October 31, 2006 alsoincreased cost of sales.  Although theincrease in software and services revenues led to a $0.1 million increase intotal gross margin for the software segment, the additional compensationexpenses and the lower margins generated by the hardware sales resulted in a68% gross margin from the software segment during the first fiscal quarter of2007, as compared to 73% during the first fiscal quarter of 2006.  Sincethe purchased software development costs were fully amortized and since Forgent expects to generate more business fromits software segment, management expects gross margins from the softwaresegment to improve during the next fiscal quarter, in terms of total dollarsand percentage of revenues.

##### **Selling,General and Administrative**

Selling,general and administrative expenses for the three months ended October 31, 2006were $2.5 million, a decrease of $0.2 million or 7%, from the $2.7 millionreported for the three months ended October 31, 2005. Selling, general andadministrative (“SG&A”) expenses as a percentage of revenues were 28% and74% for the three months ended October 31, 2006 and 2005, respectively.

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The $0.2 million decreasein SG&A expenses during the three months ended October 31, 2006 is due tothe decrease in legal expenses from Forgent’s intellectual property licensingsegment.  Legal expenses recordedas part of SG&A expenses, as opposed to legal expenses recorded as part ofcost of sales, relate primarily to consultants’ fees, document productionexpenses and travel expenses.  During thefirst fiscal quarter of 2007, legal expenses related to the ‘672Litigation decreased by approximately $0.4 million, as compared to the firstfiscal quarter of 2006.  The ‘672Litigation was resolved on October 25, 2006 when Forgent signed a settlementagreement with the remaining defendants. The decrease in legal expenses related to the ‘672 Litigation was offsetby an increase of approximately $0.2 million in legal expenses related to the ‘746Litigation.

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.  In future periods, management expects its SG&Aexpenses to fluctuate as legal fees and consulting expenses are incurred duringthe various litigation milestones.

### **Researchand Development**

Researchand development expenses for the three months ended October 31, 2006 were $116thousand, a decrease of $15 thousand, or 121%, from the $131 thousand reportedfor the three months ended October 31, 2005. Research and development (“R&D”)expenses as a percentage of revenues were 1% and 4% for the three months endedOctober 31, 2006 and 2005, respectively.

During the threemonths ended October 31, 2006, Forgent continued developing its MRM product andreleased versions 7.1 and 7.2, which included minor enhancement updatesrequested by the Company’s enterprise customers.  The Company also continued to develop VAM andwill release version 5.6 in December 2006.  VAM 5.6 also included minor enhancement updates. Forgent is currentlyworking on MRM 7.5 and VAM 6.0 and expects to release these new versions duringthe third fiscal quarter of 2007.  Management will attempt to maintain R&Dexpenses at reasonable levels in terms of percentage of revenue and anticipatesR&D expenses to remain relatively flat during the next fiscal quarter.

**NetIncome (Loss)**

Forgent generateda net income of $2.7 million, or $0.11 per share, during the three months endedOctober 31, 2006, compared to a net loss of $1.4 million, or $0.05 per share,during the three months ended October 31, 2005. Net income (loss) as a percentage of total revenues were 30% and (38%)for the three months ended October 31, 2006 and 2005, respectively. The $4.1million increase in the Company’s net income is primarily attributable to the$3.9 million increase in gross margin, which is mainly associated with the ‘672settlement in the current period.

**LIQUIDITY AND CAPITAL RESOURCES**

|                                                    | ** ** | **FOR THE THREE  MONTHS ENDED  OCTOBER 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                         | ** ** | **2006**                                                         | ** ** | **2005** | ** ** |
| ** **                                         | ** ** | **(in thousands)**                                          | ** ** |
| ** **                                         | ** ** | ** **                                                       | ** ** | ** ** | ** ** |
| Working capital                                    |       | $                                                                | 14,063     |   | $ | 12,479 |   |
| Cash, cash  equivalents and short-term investments |       | 15,038                                                           |       | 17,309 |   |
| Cash used in  operating activities                 |       | (1,059                                                           | )          | (33 | ) |
| Cash (used in)  provided by investing activities   |       | (32                                                              | )          | 88 |   |
| Cash (used in) provided  by financing activities   |       | (87                                                              | )          | 4 |   |
|                                                    |            |                                                                  |            |  |  |  |  |

 

Cashused in operating activities was $1.1 million for the three months endedOctober 31, 2006 due primarily to a $5.4 million increase in accountsreceivable, which was offset by the $2.8 million in net income and a $1.2million increase in accounts payable. Cash used in operating activities was $33 thousand for the three months 

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ended October 31, 2005due primarily to $1.4 million in net loss, which was offset by a $1.4 millionincrease in accounts payable. During the three months ended October 31, 2006,Forgent collected $2.8 million in accounts receivable from its intellectualproperty licensing business.  Managementplans to continue utilizing these cash receipts for its Patent LicensingProgram, especially due to anticipated expenditures related to the ‘746Litigation, and to support the growth of its software operations.  Forgent’s average days sales outstanding was60 for the first fiscal quarter of 2007, an increase from 15 days for thefourth fiscal quarter of 2006.  Thisincrease was due to $5.2 million in outstanding receivables from theintellectual property licensing program as of October 31, 2006.  Subsequently, approximately $3.8 million ofthese receivables were collected as of December 12, 2006.  The remaining outstanding receivables are duefrom international companies and are anticipated to be received fully duringthe second fiscal quarter.  Additionally,Forgent’s ability to collect its accounts receivables from the software segmenttimely is evidenced by the fact that only 5% of the Company’s trade receivableswere aged out past 60 days as of October 31, 2006.

Cash used ininvesting activities was $32 thousand for the three months ended October 31,2006 due to purchases of fixed assets. Cash provided by investing activitieswas $0.1 million for the three months ended October 31, 2005 due largely to$0.1 million in net sales/maturities of short-term investments.  Forgent manages its investments portfolio inorder to fulfill corporate liquidity requirements and maximize investmentreturns while preserving the quality of the portfolio.  During the first fiscal quarter, Forgent’sinvestments were maintained in short-term investments that were classified ascash equivalents.  The Company’s currentoperations are not capital intensive and Forgent purchased minimal fixed assetsduring the three months ended October 31, 2006. Management does not anticipate any significant purchases of fixed assetsduring the remaining fiscal quarters of 2007.

The Company leases office space and equipment under non-cancelableoperating leases that expire at various dates through 2013. Certain leasesobligate Forgent to pay property taxes, maintenance and insurance and includeescalation clauses. Thetotal amount of base rentals over the term of the Company’s leases is chargedto expense on a straight-line basis, with the amount of the rental expense inexcess of the lease payments recorded as a deferred rent liability.  Additionally,the Company used the proceeds from its loans with Silicon Valley Bank topurchase equipment and fund operations. As of October 31, 2006, Forgent had an additional $0.5 million availablein notes payable from Silicon Valley Bank. Additional notes payable obtainedfrom Silicon Valley Bank would bear interest at prime plus 0.75% and requiremonthly installments over a three year term. Forgent may periodically make other commitments and thus become subjectto other contractual obligations.  Forgent’s future minimum lease payments under all operating leases andpayments on its notes payable as of October 31, 2006 are 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 |       | $                                         | 21,849     |   | $ | 3,502 |   | $ | 6,938 |   | $ | 6,797 |   | $ | 4,612 |   |
| Notes payable  obligations   |       | 486                                       |       | 305 |   | 181 |   | — |   | — |   |
| **Total**                    | ** ** | **$**                                     | **22,335** | ** ** | **$** | **3,807** | ** ** | **$** | **7,119** | ** ** | **$** | **6,797** | ** ** | **$** | **4,612** | ** ** |

 

Approximately 98% of the Company’s operating lease obligations relates toits corporate office location at Wild Basin in Austin, Texas.  As of October 31, 2006, Forgent had $5.6million in future minimum lease payments receivable under non-cancelablesublease arrangements.  Additionally,Forgent had a $1.0 million liability related to impairment charges for theeconomic value of the lost sublease rental income related to its Austinproperty.  In November 2006, the Companyfully paid off its outstanding notes payables.

Cash used in financing activities was $87 thousand forthe three months ended October 31, 2006 due primarily to $0.1 million in notespayable payments. Cash provided by financing activities was $4 thousand for thethree months ended October 31, 2005 due to $0.1 million in proceeds receivedfrom the issuance of a note payable, which was offset by $0.1 million in notespayable payments and $4 thousand in proceeds received from the issuance ofstock. 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 three months ended October 31, 2006 or 2005.

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As of October 31, 2006, Forgenthad repurchased 1,790,401 shares for approximately $4.8 millionand had the approval to repurchase approximately 1.2 million additional shares.Management will periodically assess repurchasing additional shares duringfiscal year 2007, depending on the Company’s cash position, market conditionsand other factors.

As of October 31, 2006, Forgent’s principal sources of liquidityconsisted of $15.0 million of cash and cash equivalents and its ability togenerate cash from its intellectual property licensing segment.  Management currently plans to utilize its cashbalances as necessary to focus on the litigation efforts, continue licensingits intellectual property and fund its software operations.  Forgent’s ability to generate cash from its intellectual propertylicensing business is subject to certain risks as discussed under “Risk Factors.”  There remain risks and uncertainties as tothe timing of the receipts of license fees due, in part, to the inherent natureof a patent licensing program. Therefore, there is no assurance that theCompany will be able to limit its cash consumption and preserve its cashbalances, and it is possible that the Company’s business demands may lead tocash utilization at levels greater than recently experienced due to thelitigation, increased legal expense levels and other factors. Managementbelieves that the Company has sufficient capital and liquidity to pursue itslicensing and litigation efforts and to fund its current operations.  However, due to uncertainties related to thetiming and costs of these efforts, Forgent may need to raise additional capitalin the future.  Yet, there is noassurance that the Company will be able to raise additional capital if and whenit is needed.

#### **CRITICAL ACCOUNTING POLICY**

The Company’sconsolidated financial statements have been prepared in accordance with U.S.generally accepted accounting principles and include the accounts of Forgent’swholly owned subsidiaries. All significant intercompany transactions andbalances have been eliminated in the consolidation. Preparation of theconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of the assets and liabilities and disclosureof contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period.The more significant estimates made by management include the valuationallowance for the gross deferred tax asset, contingency reserves, useful livesof fixed assets, the determination of the fair value of its long-lived assetsand the loss from its impairments. These estimates could be materiallydifferent 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 represents Forgent’s critical accounting policy:

**Revenue Recognition**

The Companyrecognizes revenue when persuasive evidence of an arrangement exists, deliveryhas occurred, the fee is fixed or determinable and collectibility is probable.   The Company recognizes software revenue inaccordance with Statement of Position (“SOP”) 97-2, *“Software Revenue Recognition,”*as amended by SOP 98-4, “*Deferralof the Effective Date of a Provision of SOP 97-2,”* andSOP 98-9, “*Modificationof SOP 97-2 With Respect to Certain Transactions,”* andSecurities and Exchange Commission Staff Accounting Bulletin 104, *“Revenue Recognition,”*and Emerging IssuesTask Force Issue No. 00-21, *“RevenueArrangements with Multiple Deliverables.”*

Intellectualproperty licensing revenue is derived from the Company’s Patent LicensingProgram, which has generated licensing revenues relating to the Company’stechnologies embodied in the ‘672 patent 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 ofsales.  The cost of sales on theintellectual property licensing business relates to contingent legalfees incurred on successfully achieving signed agreements, as well as legalfees incurred based upon legal counsel’s time.

Software andservice 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

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elements based on therelative fair values of the elements specific to the Company.  The Company determines the fair value of eachelement in the arrangement based on vendor-specific objective evidence (“VSOE”)of fair value.  VSOE of fair value forthe software, maintenance, and training and installation services are based onthe prices charged for the software, maintenance and services when soldseparately.  Revenue allocated tomaintenance and technical support is recognized ratably over the maintenanceterm (typically one year).  Revenueallocated to installation and training is recognized upon completion of theseservices.  The Company’s training andinstallation services are not essential to the functionality of its products assuch services can be provided by a third party or the customers themselves.

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, and iscomprised of deferred maintenance, service and other revenue.  Deferred revenues are recognized in theConsolidated Statements of Operations when the service is completed and overthe terms of the arrangements, primarily ranging from one to three years.

**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 ANDPROCEDURES**

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 October 31, 2006, 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.; 

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Ricoh Corporation; Riverdeep,Incorporated (d.b.a. Broderbund); Savin Corporation; ScanSoft, Inc.; ThomsonS.A.; TiVo Inc.; Toshiba Corporation; Xerox Corporation; Yahoo! Inc.; AcerAmerica Corporation; Adobe Systems Incorporated; BenQ America Corporation;Color Dreams, Inc. (d/b/a StarDot Technologies); Concord Camera Corporation;Creative Labs, Incorporated; Creo, Inc.; Creo Americas, Inc.; Google Inc.;Kyocera Wireless Corporation; Onkyo Corporation; Panasonic CommunicationsCorporation of America; Panasonic Mobile Communications Development Corporationof USA; Sun Microsystems Inc.; Veo Inc.; and Microsoft Corporation.

Prior to the first quarter of 2007, Forgent settledwith defendants Adobe Systems, Inc.; Apple Computer, Incorporated; AudioVoxCorporation; Axis Communications, Incorporated; BenQ America Corporation; ColorDreams, Inc.; JASC Software; Google Inc.; Macromedia, Inc.; ScanSoft, Inc.; Oce’North America, Incorporated; Onkyo Corporation; Riverdeep, Incorporated; XeroxCorporation and Yahoo! Inc.  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 agreed to pay Forgent $8.0million.  Additionally, all partiesagreed to release all claims against each other and Forgent has no futureobligations related to this settlement.

###### **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 has sincedismissed six defendants from the lawsuit since they had no operational rolewith respect to infringement: Cox Communications, Inc.; DIRECTV Group, Inc.;DIRECTV Enterprises, LLC; DIRECTV Operations, LLC; EchoStar CommunicationsCorporation; and EchoStar DBS Corporation. No settlements 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, 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, denied the five claims in the ‘746patent.  Forgent has 60 days to respondto the USPTO and anticipates working directly with the USPTO to vigorouslydefend all of the claims of the ‘746 patent.

On July 18, 2006the defendants in the ‘746 Litigation filed a motion for summary judgmentagainst Forgent, asserting that the ‘746 patent claims are invalid based onalleged indefiniteness in the patent’s claims. On September 11, 2006, Forgent and the defendants participated in acourt-ordered mediation, which did not result in any settlements or licenses.  OnSeptember 29, 2006, Motorola, Inc. filed a motion to stay the ‘746 Litigationpending the re-examination of ‘746 patent by the USPTO**.**

On November 9,2006, Forgent and the defendants in the ‘746 Litigation appeared before theCourt and presented arguments relating to claims construction, the motion forsummary judgment and the motion to stay the litigation.  On November 20, 2006, the Court deniedMotorola Inc.’s motion to stay the litigation. The Court did not rule on the motion for summary judgment and theCompany is currently awaiting the Court’s ruling on the claimsconstruction.  The trial date for the ‘746Litigation is set for May 14, 2007.

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

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

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#### **INTELLECTUALPROPERTY LICENSING BUSINESS**

**If the Company is unable toobtain new license agreements, 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 expectations for a number of reasons,including the unwillingness or inability of licensees to pay for the licenseand other fees, a decline in the demand for the Company’s patented technology,higher than expected operating expenses and license delays due to legal andother factors.

**The ‘672patent expired in the U.S. and revenues will decline if Forgent is unable toreplace 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 and its foreign counterparts will expire inSeptember 2007.  Upon expiration of the ‘672 patent’s foreigncounterparts, Forgent will cease receiving any royalties from the MPEG-2consortium.  Therefore, revenuesfrom this patent are finite and, if such revenues are not replaced, net incomeand the market price of Forgent’s common stock will decline following theexpiration of the ‘672 patent.

**Forgent’s ‘672 patent is currently being re-examinedby the United States Patent and Trademark Office and the Federal TradeCommission is conducting a non-public inquiry into the Company’s PatentLicensing Program.  Any negative resultsfrom the re-examination or the inquiry could reduce the Company’s ability toproceed with its licensing process.**

The United StatesPatent and Trademark Office’s (“USPTO”) is currently re-examining the ‘672patent and the Federal Trade Commission’s (“FTC”) is conducting a non-publicinquiry associated with the Company’s Patent Licensing Program.  This re-examination and inquiry can causeForgent to incur significant legal expenses to defend its ‘672 patent.  Additionally, if the FTC proceeds with its inquiry andthereafter determines that the Company acted improperly, further proceedingsbefore the FTC could ensue, which could result in a challenge to the Company’slicensing process.

**Negativeresults from the United States Patent and Trademark Office’s re-examination ofthe ‘746 patent may negatively affect the Company’s ability to generatelicensing revenues.**

See Part II, Item1 “Legal Proceedings” for information regarding the USPTO’s first office actionissued related to the ‘746 patent.  TheUSPTO’s re-examination can cause Forgent to incur significant legal expenses todefend its ‘746 patent.  Since the USPTOdenied the claims of the ‘746 patent, the Company’s licensing abilities may benegatively affected.  Although Forgenthas not recognized 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.

**Forgent may not prevail in its ‘746Litigation proceedings, which could cause the Company to incur significantlegal expenditures without any related earnings.**

The Company hasinitiated the ‘746Litigation against several companies for the infringement of its ‘746 patent.  As with any litigation, the outcome isuncertain, and although the Company intends to vigorously pursue its claims,there are no guarantees that the Company can protect its intellectual propertyrights in its current litigation or prevent the unauthorized use of itstechnology in the future.  The litigationwill be lengthy and costly. Additionally, unintended consequences of the Company’s litigations mayadversely affect the Company’s business, including, without limitation, thatthe Company may have to devote significant time and financial resources topursuing the litigation, that the Company may become subject to counterclaimsor lawsuits and that the expenses of pursuing the litigation could increasebased upon new developments.  These, andother factors not currently known to or deemed material by management, couldhave a material and adverse impact on the Company’s business, prospects,liquidity and results of operations.

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

Forgent’s litigation involves intensive legal due diligence andnegotiations.  In the past, the Companychanged its legal counsel, which cost the Company in terms of time andmoney.  The Company may stillencounter a number of risks associated with its current legal counsel,including but not limited to (1) turnover of individual

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attorneys working on theCompany’s Patent Licensing Program; (2) availability of key attorneys workingon the program; (3) financial and other resources available to legal counsel;and (4) the financial strength of legal counsel.  These risks may cause delays in Forgent’s ability to proceed with itslitigation, which could require significant additional legal expenditures andcould result in declining revenues and earnings for the Company.

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

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

Forgent may become subjected to claims ofintellectual property infringement by third parties as the number ofcompetitors and available software products continues to grow and thefunctionality of such products increasingly overlap. Any infringement claims,with or without merit, could be time-consuming, result in costly litigation,divert management’s attention and financial resources, cause the loss ordeferral of sales or require Forgent to enter into royalty or licenseagreements. In the event of a successful claim of intellectual propertyinfringement against Forgent, the Company’s business, operating results andfinancial condition could be materially adversely affected, 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 successfullymarket and sell its software products and services, future software revenueswill 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 to generate increased revenue. All sales newhires will require training and may take time to achieve full productivity.Forgent cannot be certain that its new hires will become as productive asnecessary or that it will be able to hire enough qualified individuals orretain existing employees in the future. The Company cannot be certain that itwill be successful in its efforts to market and sell its products, and if it isnot successful in building greater market awareness and generating increasedsales, future software revenues may decline.

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

Forgent’s businessmodel depends on the expanded use of its software and Forgent must execute onits growth objectives.  If the Companyfails to grow its customer base or generate repeat and expanded business fromits current customers, Forgent’s software revenues could be adverselyaffected.  Since the Company’smaintenance and other service fees depend largely on the size and number oflicenses that are sold, any downturn in Forgent’s software license 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 anadverse effect on the Company’s profitability.**

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

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

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

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**Forgent’ssoftware products’ functionality may be impaired if third-party hardware productsassociated with the 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 these third-party hardware products. Any undetected defects inthese third-party products could prevent the implementation of or impair thefunctionality of Forgent’s software or blemish the Company’s reputation.

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

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

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.

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

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

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

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

#### **OTHER**

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

On August 11,2006, Forgent received a ****NASDAQ**** deficiency letterindicating that for 30 consecutive days, the per-share price of the Company’scommon stock closed below the minimum $1.00 per-share requirement andtherefore, its common stock is subject to potential delisting from the ****NASDAQ****Global Market pursuant to Rule 4450(a)(5). The Company was provided 180calendar days, or until February 7, 2007, to regain compliance by maintaining abid price of at least $1.00 for 10 consecutive trading days. If the Companycannot achieve compliance with the minimum per-share price requirement byFebruary 7, 2007, NASDAQ will provide written notification that the Company’ssecurities will be de-listed.

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The Company maypursue trading on the NASDAQ Capital Market. If NASDAQ approves, Forgent would be provided an additional 180 calendardays to regain compliance with the minimum $1.00 per-share requirement whiletrading on the NASDAQ Capital Market. If NASDAQ does not approve the Company totrade on the Capital Market and the Company cannot achieve compliance by anyother means, Forgent’s common stock will be de-listed from NASDAQ.

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

**Forgent may not be able toprotect or enforce its intellectual property rights which could cause theCompany’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.

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

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

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

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

In the future,Forgent may elect to raise additional capital to fund its operations and/oracquisitions. However, Forgent cannot be certain that it will be able to obtainadditional financing on favorable terms, if at all.  If Forgent takes out additional loans, theCompany may incur significant interest expense, which could adversely affectresults of operations.  If Forgent issuesequity securities, its stockholders’ percentage of ownership would be reducedand the new equity securities may have rights, preferences or privileges seniorto those existing

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stockholders of theCompany’s common stock.  If Forgent isunable to raise funds on acceptable terms, Forgent may not be able to developor enhance its products, respond to competitive pressures or unanticipatedrequirements, or take advantage of future opportunities, all of which couldadversely affect Forgent’s business, operating results and financial condition.

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

Although Forgent generated net income for the three months ended October31, 2006, the Company incurred losses during the prior fiscal quarters.  As of October 31, 2006, Forgent had anaccumulated deficit of $248.0 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 achieveprofitability.

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

Inthe past, Forgent’s revenues and operating results have varied significantlyfrom quarter to quarter.  Additionally,management expects that revenues and operating results will 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 license agreementsand related recording of licensing revenues;

·                  results of the claims construction andsummary judgment hearings for the ‘746 Litigation;

·                  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;

·                  the mix of software license and servicesrevenue;

·                  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’scontrol while others are not. Accordingly, management believes that quarter-to-quarter comparisons ofthe Company’s revenues and operating results are not necessarily meaningful andthat market analysts and investors should not rely on the results of anyparticular quarter as an indication of future performance.

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

Forgent relies on thecontinued contributions of its senior management, sales and marketing,professional services and finance personnel. Forgent’s success depends upon itsability to attract, hire and retainhighly qualified and experienced personnel, especially softwaredevelopers and engineers who design and develop software applications in order to keep pace with client demand forrapidly evolving technologies and varying client needs.  The Company’s operations are also dependenton the continued efforts of its executive officers and senior management andForgent will likely depend on the senior management of any business it mayacquire in the future.  If any of theCompany’s key personnel or senior management are unable or unwilling tocontinue in his or her

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present role, or if Forgent is unable to attract, train, retainand manage its employees effectively,Forgent could encounterdifficulties in developing new products and product enhancements,generating revenue through increased sales efforts and providing high qualitycustomer service.

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

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

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

**ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None

###### **ITEM 3. DEFAULTS UPONSENIOR 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, $.01 par |

 

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|        | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.35* | Patent License and Settlement Agreement, effective  October 25, 2006, by and among Forgent Networks, Inc., ACER, Incorporated,  Agfa-Gevaert N.V., BancTec, Inc., Canon Inc., Concord Camera Corp., Creative  Technology, Ltd., Dell Inc., Eastman Kodak Company and Creo, Inc., FUJIFILM  Holdings Corporation, Fujitsu Limited, Gateway, Inc., Hewlett Packard  Company, International Business Machines Corporation, Kyocera Corporation,  Matsushita Electric Industrial Co., Ltd., Microsoft Corporation, Mitsubishi  Electric Corporation, Palm, Inc., Ricoh Company, Ltd., Sun Microsystems,  Inc., Thomson, Inc., TiVo Inc., and Toshiba Corporation (incorporated by  reference to Exhibit 10.35 of the Company’s annual report on Form 10-K for  the year ended July 31, 2006). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.36* | Second Asset Purchase Agreement, effective November  21, 2002, between Forgent Networks, Inc. and Tandberg Telecom AS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.38* | Forgent Networks, Inc. Incentive Bonus Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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

25

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                   | FORGENT NETWORKS, INC. |
|-------------------|------------------------|
|              |                   |   |
| December 15, 2006 | By:                    | /s/ RICHARD N.  SNYDER |
|              |                   | Richard N.  Snyder |
|              |                   | Chief Executive  Officer |
|              |                   |   |
| December 15, 2006 | By:                    | /s/ JAY C.  PETERSON |
|              |                   | Jay C. Peterson |
|              |                   | Chief Financial  Officer |

 

26

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**INDEX TOEXHIBITS**
| 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, $.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).                                                                                                                                                                                                                                                                                                                                                                                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.35      |       | Patent License and Settlement Agreement, effective  October 25, 2006, by and among Forgent Networks, Inc., ACER, Incorporated,  Agfa-Gevaert N.V., BancTec, Inc., Canon Inc., Concord Camera Corp., Creative  Technology, Ltd., Dell Inc., Eastman Kodak Company and Creo, Inc., FUJIFILM  Holdings Corporation, Fujitsu Limited, Gateway, Inc., Hewlett Packard  Company, International Business Machines Corporation, Kyocera Corporation,  Matsushita Electric Industrial Co., Ltd., Microsoft Corporation, Mitsubishi  Electric Corporation, Palm, Inc., Ricoh Company, Ltd., Sun Microsystems,  Inc., Thomson, Inc., TiVo Inc., and Toshiba Corporation (incorporated by  reference to Exhibit 10.35 of the Company’s annual report on Form 10-K for  the year ended July 31, 2006). |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.36      |       | Second Asset Purchase Agreement, effective November  21, 2002, between Forgent Networks, Inc. and Tandberg Telecom AS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.38      |       | Forgent Networks, Inc. Incentive Bonus Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

27

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