**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


________________________________________





**FORM
      10-Q**





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





For
      the
      quarterly period ended January 31, 2006





OR





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





For
      the transition period from ____ to ______





Commission
      file number: 0-20008





__________________________________________





**FORGENT
      NETWORKS, INC.**


(Exact
      Name of Registrant as Specified in its Charter)








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





________________________________________







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


Yes
x No
o





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


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




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


Yes o 
No
x





At
      March
      10, 2006, the registrant had outstanding 25,378,768 **** shares
      of
      its Common Stock, $0.01 par value.





1







**INDEX
      TO FINANCIAL STATEMENTS**








**Page****Number****PART
                I - FINANCIAL INFORMATION**Item
                1 - Condensed Consolidated Financial StatementsCondensed
                Consolidated Balance Sheets as of January 31, 2006 (unaudited) and
                July
                31, 2005
            
            3Unaudited
                Condensed Consolidated Statements of Operations for the Three and
                Six
                Months Ended January 31, 2006 and 2005
            
            4Unaudited
                Condensed Consolidated Statements of Cash Flows for the Six Months
                Ended
              January
                31, 2006 and 2005
            
            5Notes
                to the Unaudited Condensed Consolidated Financial
                Statements
            
            6Item
                2 - Management's Discussion and Analysis of Financial Condition and
                Results of Operations
            
            11Item
                3 - Quantitative and Qualitative Disclosures About Market
                Risk
            
            18Item
                4 - Controls and Procedures
            
            18**PART
                II - OTHER INFORMATION**Item
                1 - Legal Proceedings
            
            19Item
                1A - Risk Factors
            
            20Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            24Item
                3 - Defaults upon Senior Securities
            
            24Item
                4 - Submission of Matters to a Vote of Security Holders
            
            24Item
                5 - Other Information
            
            24Item
                6 - Exhibits
            
            24**Signatures**
            
            26**Index
                to Exhibits**
            
            27








2






**FORGENT
        NETWORKS, INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 (Amounts
        in thousands, except per share data)
  **JANUARY
                    31,**
                  **2006**
                
                **JULY
                    31,**
                  **2005****(UNAUDITED)****ASSETS**
                  Current
                    Assets:Cash
                    and cash equivalents, including restricted cash of $650
                  at
                    January 31, 2006 and July 31, 2005
                
                $
                15,599
                
                $
                15,861Short-term
                    investments
                
                
                --
                
                
                1,487Accounts
                    receivable, net of allowance for doubtful accounts of
                  $14
                    and $10 at January 31, 2006 and July 31, 2005,
                    respectively
                
                
                1,039
                
                
                471Prepaid
                    expenses and other current assets
                
                
                405
                
                
                266Total
                    Current Assets
                
                
                **17,043**
                
                
                **18,085**Property
                    and equipment, net
                
                
                1,374
                
                
                1,957Intangible
                    assets, net
                
                
                17
                
                
                33Other
                    assets
                
                
                15
                
                
                27**$**
                **18,449**
                
                **$**
                **20,102****LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**
                  Current
                    Liabilities:Accounts
                    payable
                
                $
                2,317
                
                $
                1,856Accrued
                    compensation and benefits
                
                
                375
                
                
                590Other
                    accrued liabilities
                
                
                954
                
                
                1,209Notes
                    payable, current position
                
                
                355
                
                
                355Deferred
                    revenue
                
                
                588
                
                
                517Total
                    Current Liabilities
                
                
                **4,589**
                
                
                **4,527**Long-Term
                    Liabilities:Deferred
                    revenue
                
                
                12
                
                
                4Other
                    long-term obligations
                
                
                2,072
                
                
                2,280Total
                    Long-Term Liabilities
                
                
                **2,084**
                
                
                **2,284**Stockholders’
                    Equity:Preferred
                    stock, $.01 par value; 10,000 authorized;
                  none
                    issued or outstanding
                
                
                --
                
                
                --Common
                    stock, $.01 par value; 40,000 authorized; 27,168 and
                  26,967
                    shares issued; 25,378 and 25,177 shares outstanding
                  at
                    January 31, 2006 and July 31, 2005, respectively
                
                
                271
                
                
                269Treasury
                    stock at cost, 1,790 issued at January 31, 2006 and
                  July
                    31, 2005
                
                
                (4,815
                )
                
                (4,815
                )Additional
                    paid-in capital
                
                
                265,356
                
                
                265,020Accumulated
                    deficit
                
                
                (249,060
                )
                
                (247,199
                )Accumulated
                    other comprehensive income
                
                
                24
                
                
                16Total
                    Stockholders’ Equity
                
                
                **11,776**
                
                
                **13,291****$**
                **18,449**
                
                **$**
                **20,102**


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








3






**FORGENT
        NETWORKS, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 (Amounts
        in thousands, except per share data)


**FOR
                    THE**
                  **THREE
                    MONTHS ENDED**
                  **JANUARY
                    31,**
                
                **FOR
                    THE**
                  **SIX
                    MONTHS ENDED**
                  **JANUARY
                    31,****2006**
                
                **2005**
                
                **2006**
                
                **2005****(UNAUDITED)**
                
                **(UNAUDITED)****REVENUES:**Intellectual
                    property licensing
                
                $
                3,805
                
                $
                1,040
                
                $
                6,722
                
                $
                6,963Software
                    and services
                
                
                546
                
                
                476
                
                
                1,277
                
                
                912Total
                    revenues
                
                
                **4,351**
                
                
                **1,516**
                
                
                **7,999**
                
                
                **7,875****COST
                    OF SALES:**Intellectual
                    property licensing
                
                
                2,080
                
                
                1,553
                
                
                4,167
                
                
                4,481Software
                    and services
                
                
                198
                
                
                210
                
                
                392
                
                
                415Total
                    cost of sales
                
                
                **2,278**
                
                
                **1,763**
                
                
                **4,559**
                
                
                **4,896****GROSS
                    MARGIN**
                
                
                **2,073**
                
                
                **(247**
                **)**
                
                **3,440**
                
                
                **2,979****OPERATING
                    EXPENSES:**Selling,
                    general and administrative
                
                
                2,477
                
                
                3,581
                
                
                5,159
                
                
                6,150Research
                    and development
                
                
                170
                
                
                88
                
                
                301
                
                
                157Amortization
                    of intangible assets
                
                
                6
                
                
                12
                
                
                17
                
                
                24Total
                    operating expenses
                
                
                **2,653**
                
                
                **3,681**
                
                
                **5,477**
                
                
                **6,331****LOSS
                    FROM OPERATIONS**
                
                
                **(580**
                **)**
                
                **(3,928**
                **)**
                
                **(2,037**
                **)**
                
                **(3,352**
                **)****OTHER
                    INCOME AND (EXPENSES):**Interest
                    income
                
                
                134
                
                
                102
                
                
                232
                
                
                170Interest
                    expense and other
                
                
                (29
                )
                
                (13
                )
                
                (46
                )
                
                (25
                )Total
                    other income and (expenses)
                
                
                **105**
                
                
                **89**
                
                
                **186**
                
                
                **145****LOSS
                    FROM CONTINUING OPERATIONS**,
                  **BEFORE
                    INCOME TAXES**
                
                
                **(475**
                **)**
                
                **(3,839**
                **)**
                
                **(1,851**
                **)**
                
                **(3,207**
                **)**Provision
                    for income taxes
                
                
                (5
                )
                
                9
                
                
                (10
                )
                
                (5
                )**LOSS
                    FROM CONTINUING OPERATIONS**
                
                
                **(480**
                **)**
                
                **(3,830**
                **)**
                
                **(1,861**
                **)**
                
                **(3,212**
                **)**Loss
                    from discontinued operations, net of income taxes
                
                
                --
                
                
                (257
                )
                
                --
                
                
                (488
                )Gain
                    on disposal, net of income taxes
                
                
                --
                
                
                4,318
                
                
                --
                
                
                4,318**INCOME
                    FROM DISCONTINUED**
                  **OPERATIONS,
                    NET OF INCOME TAXES**
                
                
                **--**
                
                
                **4,061**
                
                
                **--**
                
                
                **3,830****NET
                    (LOSS) INCOME**
                
                **$**
                **(480**
                **)**
                **$**
                **231**
                
                **$**
                **(1,861**
                **)**
                **$**
                **618****BASIC
                    AND DILUTED (LOSS) INCOME PER SHARE:**Loss
                    from continuing operations
                
                $
                (0.02
                )
                $
                (0.15
                )
                $
                (0.07
                )
                $
                (0.13
                )Income
                    from discontinued operations
                
                $
                0.00
                
                $
                0.16
                
                $
                0.00
                
                $
                0.15Net
                    (loss) income
                
                $
                (0.02
                )
                $
                0.01
                
                $
                (0.07
                )
                $
                0.02**WEIGHTED
                    AVERAGE SHARES OUTSTANDING:**Basic
                
                
                25,238
                
                
                24,912
                
                
                25,208
                
                
                24,902Diluted
                
                
                25,238
                
                
                24,912
                
                
                25,208
                
                
                24,902


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






4




**FORGENT
          NETWORKS, INC.**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS**
 (Amounts
          in thousands)


**FOR
                    THE SIX MONTHS ENDED JANUARY 31,****2006**
                
                **2005****(UNAUDITED)****(Revised)****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Loss
                    from continuing operations
                
                $
                (1,861
                )
                $
                (3,212
                )Adjustments
                    to reconcile loss from continuing operations to net
                    cash used in operations:Depreciation
                    and amortization
                
                
                642
                
                
                696Amortization
                    of leasehold advance and lease impairment
                
                
                (279
                )
                
                (289
                )Provision
                    for doubtful accounts
                
                
                28
                
                
                (16
                )Share-based
                    compensation
                
                
                101
                
                
                --Foreign
                    currency translation loss
                
                
                4
                
                
                7(Gain)
                    loss on disposal of fixed assets
                
                
                (6
                )
                
                18Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (620
                )
                
                (512
                )Prepaid
                    expenses and other current assets
                
                
                (272
                )
                
                20Accounts
                    payable
                
                
                592
                
                
                678Accrued
                    expenses and other long-term obligations
                
                
                (399
                )
                
                497Deferred
                    revenues
                
                
                117
                
                
                79Net
                    cash used in operating activities
                
                
                **(1,953**
                **)**
                
                **(2,034**
                **)****CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Net
                    sales of short-term investments
                
                
                1,491
                
                
                1,135Net
                    purchases of property and equipment
                
                
                (37
                )
                
                (14
                )Net
                    issuance of notes receivable
                
                
                --
                
                
                (2
                )Net
                    cash provided by investing activities
                
                
                **1,454**
                
                
                **1,119****CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Net
                    proceeds from issuance of stock
                
                
                237
                
                
                59Proceeds
                    from notes payable
                
                
                194
                
                
                214Payments
                    on notes payable and capital leases
                
                
                (194
                )
                
                (219
                )Net
                    cash provided by financing activities
                
                
                **237**
                
                
                **54****CASH
                    FLOWS FROM DISCONTINUED OPERATIONS (REVISED):**Operating
                    cash flows
                
                
                --
                
                
                (544
                )Investing
                    cash flows
                
                
                --
                
                
                4,318Net
                    cash provided by discontinued operations
                
                
                **--**
                
                
                **3,774**Effect
                    of exchange rate changes on cash and cash equivalents
                
                
                --
                
                
                5Net
                    change in cash and cash equivalents
                
                
                (262
                )
                
                2,918Cash
                    and cash equivalents at beginning of period
                
                
                15,861
                
                
                19,051Cash
                    and cash equivalents at end of period
                
                **$**
                **15,599**
                
                $
                **21,969**
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.






5






**FORGENT
        NETWORKS, INC.**
 **NOTES
        TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Amounts
        in thousands, except per share data unless otherwise noted )


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





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with the rules and regulations of the Securities and
      Exchange Commission and accordingly, do not include all information and
      footnotes required under accounting principles generally accepted in the United
      States for complete financial statements. In the opinion of management, these
      interim financial statements contain all adjustments, consisting of normal,
      recurring adjustments, necessary for a fair presentation of the financial
      position of Forgent Networks, Inc. (“Forgent” or the “Company”) as of January
      31, 2006 and July 31, 2005, the results of operations for the three and six
      months ended January 31, 2006 and January 31, 2005, and the cash flows for
      the
      six months ended January 31, 2006 and January 31, 2005. These condensed
      consolidated financial statements should be read in conjunction with the
      Company's audited consolidated financial statements and notes thereto filed
      with
      the Securities and Exchange Commission in the Company's annual report on Form
      10-K for the year ended July 31, 2005. The results for the interim periods
      are
      not necessarily indicative of results for a full fiscal year.





The
      Company has revised and separately disclosed the operating, investing and
      financing portion of the cash flows attributable to its discontinued operations
      for the six months ended January 31, 2005, which in prior periods were reported
      on a combined basis as a single amount. This revision did not have any affect
      on
      the Company’s cash balances, working capital, or operations. ****





**NOTE
      2 - INTELLECTUAL** **PROPERTY LEGAL CONTRACTS**





In
      October 2004, Forgent terminated Jenkens & Gilchrist (“Jenkens”), who
      previously served as lead counsel in the litigation of the Company’s U.S. Patent
      No. 4,698,672 (the “’672 Litigation”). In December 2004, Forgent entered into a
      Resolution Agreement with Jenkens, paid Jenkens $1,000 and agreed to them pay
      50% of the first $6,000 in gross recoveries received on or after October 27,
      2004 and 10% of all gross recoveries received thereafter.





In
      January 2005, Forgent engaged Godwin Gruber, LLP (“Gruber”) to represent the
      Company as lead counsel in its Patent Licensing Program. Under this agreement,
      as amended in May 2005, Forgent agreed to pay Gruber a contingency fee of 22%
      of
      all license and litigation proceeds, net of expenses, once total proceeds from
      licensing and litigation exceed $6,000, and a fixed monthly fee of $200 for
      time
      incurred. In October 2005, Forgent terminated Gruber and engaged Susman Godfrey,
      LLP (“Susman”) to lead its Patent Licensing Program. Forgent agreed to pay
      Susman 33% of all net proceeds received from licensing and litigation once
      Forgent receives $6,000 in gross recoveries received on or after October 27,
      2004. Additionally, Forgent agreed to pay Susman a fixed monthly fee of $116
      for
      time incurred.





Although
      Forgent terminated Gruber in October 2005 as lead legal counsel for its Patent
      Licensing Program, the law firm continued to provide legal services related
      to
      the litigation of the Company’s U.S. Patent No. 6,285,746 (the “’746
      Litigation”). On January 31, 2006, Godwin Pappas Langley Ronquillo, LLP,
      formerly known as Godwin Gruber, LLP, notified Forgent that the law firm would
      be unable to continue providing legal services and would withdrawal upon
      substitution of new legal counsel. Forgent is currently evaluating several
      alternatives to ensure a successful transition.





Legal
      expenses for contingency fees and legal counsel’s time incurred are recorded as
      part of cost of sales for Forgent’s intellectual property licensing business on
      the Consolidated Statements of Operations. Cost of sales for the intellectual
      property licensing business for the three and six months ended January 31,
      2006
      were $2,080 and $4,167, respectively. Cost of sales for the intellectual
      property licensing business for the three and six months ended January 31,
      2005
      were $1,553 and $4,481, respectively. Other legal expenses incurred related
      to
      the Patent Licensing Program are recorded as part of operating expenses on
      the
      Consolidated Statements of Operations. Other related legal expenses for the
      three and six months ended January 31, 2006 were $397 and $816, respectively.
      Other related legal expenses for the three and six months ended January 31,
      2005
      were $1,322 and $1,741, respectively.






6




**FORGENT
        NETWORKS, INC.**
 **NOTES
        TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Amounts
        in thousands, except per share data unless otherwise noted )






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





In
      accordance with the disclosure requirements of Statement of Financial Accounting
      Standard No. 130, *“Reporting
      Comprehensive Income,”* the
      Company’s comprehensive income (loss) is comprised of net income (loss), foreign
      currency translation adjustments and unrealized gains and losses on short-term
      investments held as available-for-sale securities. Comprehensive loss for the
      three and six months ended January 31, 2006 was $476 and $1,854, respectively.
      Comprehensive income for the three and six months ended January 31, 2005 was
      $230 and $627, respectively.





**NOTE
      4 - RECENT ACCOUNTING PRONOUNCEMENTS**





In
      May
      2005, the Financial Accounting Standard Board (“FASB”) issued Statement
      No. 154, *“Accounting
      Changes and Error Corrections,”* which
      replaces Accounting Principles Board (“APB”) Opinion No. 20, *“Accounting
      Changes”* and
      Statement No. 3, *“Reporting
      Accounting Changes in Interim Financial Statements.”* Statement No. 154 requires that a voluntary change in accounting principle
      be applied retrospectively with all prior period financial statements presented
      on the new accounting principle. The standard also requires that a change in
      depreciation or amortization method for long-lived non-financial assets be
      accounted for prospectively as a change in estimate, and correction of errors
      in
      previously issued financial statements should be termed a “restatement.”
Statement No. 154 is effective for accounting changes and correction of
      errors made in fiscal years beginning after December 15, 2005. Thus,
      Forgent will adopt this standard for accounting changes and corrections of
      errors made beginning August 1, 2006.





**NOTE
      5 - SHARE BASED COMPENSATION**




In
      December 2004, the FASB issued Statement No. 123 (Revised 2004), “ *Share-Based
      Payment”* (“No.
      123R”). This revised standard addresses the accounting for stock-based payment
      transactions in which a company receives employee services in exchange for
      either equity instruments of the company or liabilities that are based on the
      fair value of the company’s equity instruments or that may be settled by the
      issuance of such equity instruments. Under the new standard, companies are
      no
      longer able to account for stock-based compensation transactions using the
      intrinsic-value method in accordance with APB Opinion No. 25, “ *Accounting
      for Stock Issued to Employees.”* Instead,
      companies are required to account for such transactions using a fair-value
      method and recognize the related expense in the Consolidated Statement of
      Operations.




The
      Company adopted Statement No. 123R effective beginning August 1, 2005 using
      the modified prospective application transition method. The modified prospective
      application method requires that companies recognize compensation expense on
      stock-based payment awards that are modified, repurchased or cancelled after
      the
      effective date. Additionally, compensation cost of the portion of awards for
      which the requisite service has not been rendered that are outstanding as of
      the
      August 1, 2005 shall be recognized as the requisite service is rendered.




The
      impact of adopting Statement No. 123R was an increase of $16 and $32 in selling,
      general and administrative expenses for the three and six months ended January
      31, 2006, respectively, and an increase of $16 and $32 in loss from operations,
      loss before income taxes and net loss for the three and six months ended January
      31, 2006, respectively. The adoption of Statement No. 123R had no impact on
      basic and diluted net loss per share for the three and six months ended January
      31, 2006.





The
      weighted average estimated grant date fair value, as defined by Statement No.
      123R, for options granted under the company’s stock option plan during the three
      and six months ended January 31, 2006 were $1.51 and $1.41 per share,
      respectively. The weighted average estimated grant date fair value, as defined
      by Statement No. 123 for options granted under the company’s stock option plan
      during the three and six months ended January 31, 2005 were $1.21 and $1.14
      per
      share, respectively.




During
      the three and six months ended January 31, 2005, had compensation expense for
      stock options been determined based on the fair value of the options at dates
      of
      grant consistent with the provisions of Statement No. 123, *“Accounting
      for Stock-Based Compensation,”* net
      income and net income per share would have been reduced to the pro forma amounts
      indicated in the following table:






7






**FORGENT
        NETWORKS, INC.**
 **NOTES
        TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Amounts
        in thousands, except per share data unless otherwise noted )
 **For
                    the**
                
                **For
                    the****Three
                    Months Ended**
                
                **Six
                    Months Ended****January
                    31, 2005**
                
                **January
                    31, 2005****Net
                    income (loss)**Net
                    income (loss), as reported
                
                $
                231
                
                $
                618Add:
                    Stock-based employee compensationexpense
                    included in reported net earnings(loss),
                    net of related tax effects
                
                
                --
                
                
                --Deduct:
                    Stock-based employeecompensation
                    expense determined under fairvalue-based
                    method for all awards, net ofrelated
                    tax effects
                
                
                (158
                )
                
                (340
                )Net
                    income (loss), pro forma
                
                **$**
                **73**
                
                **$**
                **278****Basic
                    earnings (loss) per common share:**As
                    reported
                
                $
                0.01
                
                $
                0.02Pro
                    forma
                
                $
                0.00
                
                $
                0.01**Diluted
                    earnings (loss) per common share:**As
                    reported
                
                $
                0.01
                
                $
                0.02Pro
                    forma
                
                $
                0.00
                
                $
                0.01


The
      fair
      value of each award granted from Forgent’s stock option plan during the three
      and six months ended January 31, 2006 and 2005 were estimated at the date
      of grant using the Black-Scholes option pricing model, assuming no expected
      dividends and the following weighted average assumptions:





**Three
                Months**
            
            **Three
                Months**
            
            **Six
                Months**
            
            **Six
                Months****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****January
                31, 2006**
            
            **January
                31, 2005**
            
            **January
                31, 2006**
            
            **January
                31, 2005**Expected
                volatility (based on historical data)
            
            
            73.70
            %
            
            81.70
            %
            
            72.60
            %
            
            82.00
            %Expected
                life in years
            
            
            4.93
            
            
            5.84
            
            
            5.21
            
            
            5.84Risk-free
                interest rate
            
            
            4.48
            %
            
            3.79
            %
            
            4.42
            %
            
            3.74
            %Fair
                value per award
            
            $
            1.51
            
            $
            1.21
            
            $
            1.41
            
            $
            1.14





As
      of
      January 31, 2006, $56 of unrecognized compensation costs related to non-vested
      option grants is expected to be recognized over the course of the following
      4
      years.




On
      September 14, 2005 the Company’s Board of Directors approved the repricing of
      all employee stock options with an exercise price greater than $1.42 (the
      average of the high and low for September 14, 2005), most of which were fully
      vested. The new exercise price is $1.42. The Board of Directors determined
      that
      the repricing was the most cost effective way to motivate employees with options
      that had exercise prices greater than the current fair market value. The
      repricing resulted in a charge of $65 for the six months ended January 31,
      2006
      based on the incremental fair value of the new options versus the fair value
      of
      the old options.





The
      Company issued 167 and 170 thousand shares of common stock related to exercises
      of stock options granted from its Stock Option and Stock Purchase Plans for
      the
      three and six months ended January 31, 2006, respectively. The Company issued
      30
      and 30 thousand shares of restricted common stock related from its Restricted
      Stock Plan for the three and six months ended January 31, 2006,
      respectively.





8


**FORGENT
        NETWORKS, INC.**
 **NOTES
        TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Amounts
        in thousands, except per share data unless otherwise noted )





**NOTE
      6 - SEGMENT INFORMATION**





Currently,
      the Company operates in two distinct segments: intellectual property licensing
      and software and services. Forgent's intellectual property licensing business
      is
      currently focused on generating licensing revenues relating to the Company's
      technologies embodied in U.S. Patent No. 4,698,672 and its foreign counterparts
      as well as in U.S. Patent No. 6,285,746. Forgent's software and services
      business currently provides customers with scheduling and asset management
      software as well as software maintenance and support, installation and training
      services. In order to evaluate the intellectual property and software segments
      as stand-alone businesses, the Company records all unallocated corporate
      operating expenses in the Corporate segment. The prior year’s segment
      information has been revised to present the Company's reportable segments as
      they are currently defined.





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





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


and
      operating (loss) income for the three and six months ended January 31, 2006
      and
      2005:





**Intellectual****Property**
            
            **Software
                &****Licensing**
            
            **Services**
            
            **Corporate**
            
            **Total****For
                the Three Month Period Ending January 31, 2006**Revenues
                from unaffiliated customers
            
            $
            3,805
            
            $
            546
            
            $
            -
            
            $
            4,351Gross
                margin
            
            
            1,725
            
            
            348
            
            
            -
            
            
            2,073Operating
                income (loss)
            
            
            951
            
            
            (604
            )
            
            (927
            )
            
            (580
            )**For
                the Three Month Period Ending January 31, 2005**Revenues
                from unaffiliated customers
            
            $
            1,040
            
            $
            476
            
            $
            -
            
            $
            1,516Gross
                margin
            
            
            (513
            )
            
            266
            
            
            -
            
            
            (247
            )Operating
                income (loss)
            
            
            (2,189
            )
            
            (508
            )
            
            (1,231
            )
            
            (3,928
            )**For
                the Six Month Period Ending January 31, 2006**Revenues
                from unaffiliated customers
            
            $
            6,722
            
            $
            1,277
            
            $
            -
            
            $
            7,999Gross
                margin
            
            
            2,555
            
            
            885
            
            
            -
            
            
            3,440Operating
                income (loss)
            
            
            1,025
            
            
            (968
            )
            
            (2,094
            )
            
            (2,037
            )**For
                the Six Month Period Ending January 31, 2005**Revenues
                from unaffiliated customers
            
            $
            6,963
            
            $
            912
            
            $
            -
            
            $
            7,875Gross
                margin
            
            
            2,482
            
            
            497
            
            
            -
            
            
            2,979Operating
                income (loss)
            
            
            67
            
            
            (1,108
            )
            
            (2,311
            )
            
            (3,352
            )





**NOTE
      7 - CONTINGENCIES**





Forgent
        is the defendant or plaintiff in various actions that arose in the normal
        course
        of business.
 
 **Litigation
        of United States Patent No. 4,698,672 (JPEG)**
 
 Between
        April 2004 and November 2004, Forgent’s wholly-owned subsidiary, CLI, initiated
        litigation against multiple companies for infringement of the ‘672 patent in the
        United States District Court for the Eastern District of Texas, Marshall
        Division, seeking royalties from sales of infringing products and monetary
        damages, among other relief sought. On March 9, 2006, Forgent and the defendants
        in the ‘672 Litigation appeared before the United States District Court for the
        Northern District of California at a claims construction hearing. The results
        of
        this hearing are not yet known.
 
 On
        November 16, 2005, the Public Patent Foundation filed a petition with the
        United
        States Patent and Trademark Office (the “USPTO”) to re-examine the ‘672 patent.
        On January 31, 2006, the USPTO granted Public Patent Foundation’s petition to
        re-examine the ‘672 patent. The results of the re-examination are not yet
        known.
 
 In
        December 2003, the Company received notification from the Federal Trade
        Commission (the “FTC”) that it is conducting a non-public investigation to
        determine whether the Company may have engaged in violation of the Federal
        Trade
        Commission Act by reason of the alleged involvement of CLI in the JPEG
        standard-setting process during the 1980’s and very early 1990’s and its
        subsequent licensing of the ‘672 patent, which the Company believes is infringed
        by the implementation of that standard. The Company believes that CLI has
        not
        acted improperly and advised the FTC accordingly. In April 2004, Forgent
        received a Subpoena Duces Tecum (“Subpoena”) and a Civil Investigative Demand
        (“CID”) in this FTC proceeding. The Company responded in May 2004 by filing a
        petition to quash and/or limit the Subpoena and CID. In November 2004, the
        FTC
        issued a ruling denying Forgent’s Petition to Quash, but modifying the Subpoena
        and CID. In February 2005 and March 2005, the Company responded to the Subpoena
        and the CID by providing the required documents and other responsive material.
        Forgent has not received any final conclusion from the FTC on its inquiries.
 
 Forgent
        continues to monitor the progress of the ‘672 Litigation, the USPTO’s
        re-examination and the FTC’s investigation. The Company plans to vigorously
        defend the validity of its patents, as well as pursuing any entities which
        violated its patents. Resolution of some or all of these matters could
        materially affect the Company’s business, future results of operations,
        financial position or cash flows in a particular period.




9






**FORGENT
        NETWORKS, INC.**
 **NOTES
        TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Amounts
        in thousands, except per share data unless otherwise noted )


**Litigation
      of United States Patent No. 6,285,746 (DVR)**





In
      July
      2005, Forgent initiated litigation against 15 companies for infringement of
      the
      United States Patent No. 6,285,746 in the United States District Court for
      the
      Eastern District of Texas, Marshall Division, seeking injunctive relief against
      sales of infringing products and monetary damages, among other relief sought.





On
      September 19, 2005, Scientific-Atlanta Inc. and Motorola Inc. filed a
      declaratory judgment against Forgent in the United States District Court for
      the
      Eastern District of Texas, Tyler Division, claiming, among other assertions,
      that their products do not infringe Forgent’s patent and that the patent is
      invalid. During a hearing on November 8, 2005, the Court ordered this case
      to be
      transferred to the Marshall Division and consolidated with the case initiated
      by
      Forgent in July 2005. Also on November 8, 2005, the Court set the claims
      construction hearing for the ‘746 Litigation to be held in July 2006 and a trial
      date to be on February 12, 2007.





On
      January 3, 2006, Diego, Inc. filed a motion to intervene as a declaratory
      judgment plaintiff after learning that their products were accused of infringing
      the ‘746 patent in the midst of the ongoing ‘746 Litigation. On January 4, 2006,
      the Court granted Diego Inc.’s motion.





On
      April
      6, 2006, Forgent is scheduled to meet with the 15 defendants in a mediation
      proceeding.





Forgent
      continues to monitor the progress of the ‘746 Litigation. Resolution of this
      matter could materially affect the Company’s business, future results of
      operations, financial position or cash flows in a particular
      period.




10






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




The
      following review of Forgent’s financial position as of January 31, 2006 and July
      31, 2005, and for the three and six months ended January 31, 2006 and 2005,
      should be read in conjunction with the Company’s 2005 Annual Report on Form 10-K
      filed with the Securities and Exchange Commission.





**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**





Certain
      statements in this report represent forward-looking statements under Section
      27A
      of the Securities Act of 1933, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended. These statements involve known and unknown
      risks, uncertainties and other factors that may cause actual results of
      operations, levels of activity, economic performance, financial condition or
      achievements to be materially different from future results of operations,
      levels of activity, economic performance, financial condition or achievements
      as
      expressed or implied by such forward-looking statements.





Forgent
      has attempted to identify these forward-looking statements with the words
“believes,” “estimates,” “plans,” “expects,” “anticipates,” “may,” “could” and
      other similar expressions. Although these forward-looking statements reflect
      management’s current plans and expectations, which are believed to be reasonable
      as of the filing date of this report, they inherently are subject to certain
      risks and uncertainties, including:




·
            timing
                of intellectual property license agreements and related recording
                of
                licensing revenues;


·
            timing
                and costs related to the Company’s patent litigation;


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


·
            timing
                of customers’ budget cycles;


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


·
            the
                mix of software license and services
                revenue;


·
            seasonal
                fluctuations in capital spending;


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


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


·
            timing
                and costs related to possible acquisitions of technology or
                businesses;


·
            costs
                of attracting, retaining and training skilled
                personnel;


·
            management’s
                ability to manage future growth;
                and


·
            general
                economic climate.





In
      addition to the items noted above, such risks and uncertainties include, but
      are
      not limited to, those described under “Risk Factors” in this Report and other
      risks indicated in Forgent’s filings with the Securities and Exchange Commission
      from time to time. Forgent is under no obligation to update any of the
      forward-looking statements after the date of this Form 10-Q to conform such
      statements to actual results.





**RESULTS
      OF OPERATIONS**





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





**FOR
                THE THREE**
              **MONTHS
                ENDED**
              **JANUARY
                31,**
            
            **FOR
                THE SIX**
              **MONTHS
                ENDED**
              **JANUARY
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Intellectual
                property licensing revenues
            
            
            87
            %
            
            69
            %
            
            84
            %
            
            88
            %Software
                and services revenues
            
            
            13
            
            
            31
            
            
            16
            
            
            12Gross
                margin
            
            
            48
            
            
            (16
            )
            
            43
            
            
            38Selling,
                general and administrative
            
            
            57
            
            
            236
            
            
            65
            
            
            78Research
                and development
            
            
            4
            
            
            6
            
            
            4
            
            
            2Total
                operating expenses
            
            
            61
            
            
            243
            
            
            69
            
            
            80Other
                income, net
            
            
            2
            
            
            6
            
            
            2
            
            
            2Income
                (loss) from continuing operations
            
            
            (11
            )
            
            (253
            )
            
            (23
            )
            
            (41
            )Income
                (loss) from discontinued operations
            
            
            --
            
            
            268
            
            
            --
            
            
            49Net
                income (loss)
            
            
            (11
            %)
            
            15
            %
            
            (23
            %)
            
            8
            %






11





**THREE
      AND SIX MONTHS ENDED JANUARY 31, 2006 AND 2005**





**Revenues**





Revenues
      for the three months ended January 31, 2006 were $4.3 million, an increase
      of
      $2.8 million, or 187%, from the $1.5 million reported for the three months
      ended
      January 31, 2005. Revenues for the six months ended January 31, 2006 were $8.0
      million, an increase of $0.1 million, or 2%, from the $7.9 million reported
      for
      the six months ended January 31, 2005. Consolidated revenues represent the
      combined revenues of the Company and its subsidiaries, including royalties
      received from licensing the Company's intellectual property as well as sales
      of
      Forgent's NetSimplicity software, installation and training and software
      maintenance services. Consolidated revenues do not include any revenues from
      Forgent's discontinued ALLIANCE operations, which provided conferencing and
      scheduling software and maintenance, installation, training and network
      consulting.





***Intellectual
      Property Licensing Business***





Intellectual
      property licensing revenues increased by $2.8 million, or 266%, to $3.8 million
      for the three months ended January 31, 2006 from $1.0 million for the three
      months ended January 31, 2005. Intellectual property licensing revenues
      decreased by $0.2 million, or 3%, to $6.7 million for the six months ended
      January 31, 2006 from $6.9 million for the six months ended January 31, 2005.
      Intellectual property licensing revenues as a percentage of total revenues
      were
      87% and 69% for the three months ended January 31, 2006 and 2005, respectively.
      Intellectual property licensing revenues as a percentage of total revenues
      were
      84% and 88% for the six months ended January 31, 2006 and 2005, respectively.
      Forgent’s licensing revenues relate primarily to one-time intellectual property
      license agreements with companies for Forgent's data compression technology
      embodied in U.S. Patent No. 4,698,672 (the “ ‘672 patent”) and its foreign
      counterparts, which cover several types of products including many digital
      cameras, personal computers, camera cell phones, scanners, printing devices,
      video cameras, rendering devices and other technologies. Additionally, the
‘672
      patent is included in a group of Moving Picture Experts Group (“MPEG”) patents
      that garner royalties. Forgent’s licensing revenues include royalties received
      from the 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 and retrieving multimedia data in a manner that allows playback during
      recording, although no licensing revenues have been achieved as of January
      31,
      2006.





As
      of
      January 31, 2006, Forgent has achieved approximately $108.4 million in aggregate
      revenues generated from one-time license agreements with international consumer
      and commercial electronics firms in multiple countries, including the United
      States. Licensing of the ‘672 patent is currently conducted through the
      Company’s wholly-owned subsidiary, Compression Labs, Inc. (“CLI”). These
      one-time license agreements generated approximately 97% and 96% of the
      intellectual property segment’s licensing revenues for the three and six months
      ended January 31, 2006, respectively, and approximately 84% and 97% of the
      intellectual property segment’s licensing revenues for the three and six months
      ended January 31, 2005, respectively. The timing of signing the license
      agreements and the variable amount of each license fee has been and continues
      to
      be uncertain. Therefore, the $2.8 million increase in licensing revenues during
      the three months ended January 31, 2006, as well as the $0.2 million decrease
      in
      licensing revenues during the six months ended January 31, 2006, are due to
      the
      change in the number of license agreements signed related to the ‘672 patent as
      well as the amount of each license fee received during these periods. Although,
      the Company does not anticipate any additional licensing revenue from companies
      that have previously signed license agreements, Forgent will continue to seek
      new licenses from its ‘672 patent as well as its ‘746 patent.





Forgent
      is currently in legal proceedings with multiple companies in the United
      States District Court for the Northern District of California regarding the infringement
      of its ‘672 patent (the “ ‘672 Litigation”). During the three months ended
      January 31, 2006, Forgent settled and signed license agreements with seven
      of
      the defendants in the ‘672 Litigation. As of January 31, 2006, 13 of the
      defendants in the ‘672 Litigation have settled with Forgent and signed license
      agreements. The remaining defendants, including Microsoft Corporation, and
      Forgent proceeded with the litigation at the claims construction hearing on
      March 9, 2006. Claims construction is the process by which specific terms in
      the
      patent are given precise meaning for the case. Additionally, Forgent is in
      legal
      proceedings with 15 companies for infringement of its ‘746 patent (the “ ‘746
      Litigation”). See Part II, Item 1 “Legal Proceedings” for more detail.






12







Although
      there continues to be uncertainties and risks related to the Company’s Patent
      Licensing Program, management anticipates generating revenues from its
      intellectual property licensing segment during the remainder of fiscal year
      2006. However, Forgent's Patent Licensing Program involves risks inherent in
      licensing intellectual property, including risks of protracted delays, legal
      challenges that would lead to disruption or curtailment of the program,
      increasing expenditures associated with pursuit of the licensing program and
      other risks that could adversely affect the Company.





Additionally,
      the ‘672 patent, which has generated all of the intellectual property licensing
      revenues, expires in October 2006 in the United States and its foreign
      counterparts expire in September 2007. Upon expiration of the ‘672 patent, no
      additional damages will accrue but the Company’s ability to recover for past
      damages will not immediately be affected. Ultimately, the Company’s ability to
      recover for past damages will be limited by any applicable statute of
      limitations.





There
      can
      be no assurance that the Company will be able to continue to effectively license
      its technology to other companies. Additionally, there are no guarantees that
      the Company can protect its intellectual property rights in its current
      litigation or prevent the unauthorized use of its technology in the future.
      However, Forgent will continue to seek to enforce and will pursue its rights
      through the legal system when necessary.





***Software
      and Services Business***





Software
      and services revenues increased by $0.1 million, or 15%, to $0.5 million for
      the
      three months ended January 31, 2006 from $0.4 million for the three months
      ended
      January 31, 2005. Software and professional services revenues increased by
      $0.4
      million, or 40%, to $1.3 million for the six months ended January 31, 2006
      from
      $0.9 million for the six months ended January 31, 2005. Software and services
      revenues as a percentage of total revenues were 13% and 31% for the three months
      ended January 31, 2006 and 2005, respectively. Software and services revenues
      as
      a percentage of total revenues were 16% and 12% for the six months ended January
      31, 2006 and 2005, respectively. Revenues from this line of business include
      sales of Forgent's NetSimplicity scheduling and asset management software.
      The
      NetSimplicity software includes Meeting Room Manager (“MRM”), Visual Asset
      Manager (“VAM”) and Resource Scheduler . Also
      included in this segment’s revenues are software maintenance and professional
      services, such as add-on software customization, installation and training.





During
      the second fiscal quarter of 2006, Forgent continued to notify its existing
      customers of upcoming expirations on their maintenance and support contracts.
      This aggressive pursuit of maintenance renewals led to additional sales of
      maintenance and support contracts. Additionally, more professional services
      and
      training were provided in fiscal 2006. The additional software maintenance
      and
      professional services increased services revenues by $0.1 million and $0.2
      million for the three and six months ended January 31, 2006, respectively.
      During the second fiscal quarter, Forgent experienced turnover within its
      NetSimplicity’s sales force and softer than anticipated holiday sales. Software
      revenues decreased by 17% for the three months ended January 31, 2006, as
      compared to the three months ended January 31, 2005. However, the Company
      experienced strong demand for the software products during the first fiscal
      quarter and a 30% increase in the average selling price for software, which
      is
      calculated as total software sales divided by the number of software orders,
      for
      the six months ended January 31, 2006. Therefore, software revenues for the
      six
      months ended January 31, 2006 increased by 15%, despite the decline in sales
      during the second fiscal quarter. NetSimplicity’s sales force was fully staffed
      starting in February 2006. Management believes that its software and services
      business is a growth business and will continue to actively pursue growing
      revenues from this segment.





**Gross
      Margin**





Gross
      margin for the three months ended January 31, 2006 was $2.1 million, an increase
      of $2.3 million from the ($0.2) million reported for the three months ended
      January 31, 2005. Gross margin for the six months ended January 31, 2006 was
      $3.4 million, an increase of $0.4 million, or 15%, from the $3.0 million
      reported for the six months ended January 31, 2005. Gross margin as a percentage
      of total revenues were 48% and (16%) for the three months ended January 31,
      2006
      and 2005, respectively. Gross margin as a percentage of total revenues were
      43%
      and 38% for the six months ended January 31, 2006 and 2005, respectively.






13





The
      cost
      of sales from the intellectual property licensing business relates to the legal
      fees incurred on successfully achieving licensing revenues as well as legal
      expenses incurred from legal counsel’s time in connection with the Company’s
      Patent Licensing Program. In October 2004, Forgent terminated Jenkens &
Gilchrist (“Jenkens”) and entered into an agreement with the law firm of Godwin
      Gruber, LLP (“Godwin”) to represent the Company as lead counsel in its Patent
      Licensing Program. During the second fiscal quarter of 2005, Forgent’s cost of
      sales from the intellectual property licensing business included 50% of the
      licensing revenues received on signed agreements and paid to Jenkens and 50%
      of
      Godwin’s standard hourly rate for time incurred. In October 2005, Forgent
      terminated Gruber and engaged Susman Godfrey, LLP (“Susman”) to lead its Patent
      Licensing Program. Under this new agreement, Forgent agreed to pay Susman 33%
      of
      all net proceeds received from licensing and litigation once Forgent reached
      $6.0 million in gross recoveries received on or after October 27, 2004, and
      a
      fixed monthly fee of $0.1 million for time incurred. During second fiscal
      quarter of 2006, Forgent reached $6.0 million in gross recoveries received
      since
      October 27, 2004 and thus was obligated to pay Jenkens only 10% of future
      licensing revenues. The combination of the increased licensing revenues
      generated, the decrease in contingency fees incurred and the decrease in legal
      expenses for legal counsel’s time incurred during the three months ended January
      31, 2006, as compared to the three months ended January 31, 2005, accounts
      for
      96% of the $2.3 million increase in total gross margin. To date, all of the
      Company’s licensing revenue has been generated by the '672 patent. The U.S. '672
      patent expires in October 2006 and the foreign counterparts expire in September
      2007. When the '672 patents expire, licensing revenues may decline unless
      alternative sources are found. If licensing revenues decline, total gross
      margins may be adversely affected. Based on the Company’s current legal counsel
      agreements, management anticipates higher gross margins for the Company since
      it
      has ceased paying its former counsel the 50% contingent fee.





The
      cost
      of sales associated with the software and services business is relatively fixed
      and results primarily from the amortization of the Company’s purchased software
      development costs and intangible assets. Cost of sales for the software segment
      slightly decreased during the six months ended January 31, 2006. Therefore,
      the
      increase in software revenues during fiscal 2006 resulted in a 69% gross margin
      for the software segment during the six months ended January 31, 2006, as
      compared to a 54% gross margin during the six months ended January 31, 2005.
      The
      increase in gross margin from the software segment accounts for 84% of the
      $0.4
      million increase in total gross margin during the six months ended January
      31,
      2006. Since revenues generated from the software and services business directly
      affect gross margins, management expects gross margins from the software and
      services business to improve as Forgent generates more business from this
      segment.





**Selling,
      General and Administrative**





Selling,
      general and administrative (“SG&A”) expenses for the three months ended
      January 31, 2006 were $2.5 million, a decrease of $1.1 million, or 31%, from
      the
      $3.6 million reported for the three months ended January 31, 2005. SG&A
      expenses for the six months ended January 31, 2006 were $5.2 million, a decrease
      of $1.0 million, or 16%, from the $6.2 million reported for the six months
      ended
      January 31, 2005. SG&A expenses as a percentage of total revenues were 57%
      and 236% for the three months ended January 31, 2006 and 2005, respectively.
      SG&A expenses as a percentage of total revenues were 65% and 78% for the six
      months ended January 31, 2006 and 2005, respectively.





The
      $1.1
      million and $1.0 million decreases in SG&A expenses during the three and six
      months ended January 31, 2006 are due primarily to $1.2 million in one-time
      expenses incurred during the second fiscal quarter of 2005 related to the
      termination of Forgent’s former legal counsel. As Forgent continues to pursue
      licensing and litigating the ‘672 patent and the ‘746 patent, significant legal
      fees and consulting expenses will continue to be incurred. Additionally, as
      the
      litigation progresses, legal fees and consulting expenses may increase from
      current levels. However, management believes the Company has the necessary
      financial resources to support all of its current and upcoming licensing and
      litigation efforts. Management also continues to evaluate and reduce any
      unnecessary SG&A expenses that do not directly support the generation of
      revenues for the Company. In future periods, management expects its corporate
      SG&A expenses to fluctuate as legal fees and consulting expenses are
      incurred during the various litigation milestones.





**Research
      and Development**





Research
      and development (“R&D”) expenses for the three months ended January 31, 2006
      were $0.2 million, an increase of $0.1 million, or 93%, from the $0.1 million
      reported for the three months ended January 31, 2005. R&D expenses for the
      six months ended January 31, 2006 were $0.3 million, an increase of $0.1
      million, or 92%, from the $0.2 million reported for the six months ended January
      31, 2005. R&D expenses as a percentage of total revenues were 4% and 6% for
      the three months ended January 31, 2006 and 2005, respectively. R&D expenses
      as a percentage of total revenues were 4% and 2% for the six months ended
      January 31, 2006 and 2005, respectively.






14





The
      $0.1
      million increases in R&D expenses during the three and six months ended
      January 31, 2006 are due primarily to increases in compensation expenses
      resulting from shifting of resources between the NetSimplicity’s sales and
      R&D teams in fiscal 2006. During the three months ended January 31,
      2006, Forgent continued developing its MRM and VAM products and released MRM,
      version 6.5, in January 2006.  This release features a
      new Interactive Liquid Crystal Display (“LCD”) Solution module
      that enables customers to view meeting room schedules and book rooms from
      touch-screen LCD panels that can be wall-mounted outside each conference
      room or placed on a common area reception desk. Forgent is currently focused
      on
      developing its next major release of MRM, version 7.0, which the Company expects
      to release in the spring of 2006. Management anticipates R&D expenses
      to remain relatively flat during the next fiscal quarter.





**Income
      from Discontinued Operations**





Income
      from discontinued operations for the three and six months ended January 31,
      2005
      were $4.1 million and $3.8 million, respectively. Income from discontinued
      operations as a percentage of total revenues were 268% and 49% for the three
      and
      six months ended January 31, 2005, respectively.





During
      the second fiscal quarter of 2005, Forgent sold certain patents and other
      intellectual property and documentation, including its Alliance software suite,
      to Tandberg Telecom AS. As a result of this sale, Forgent recorded a $3.3
      million gain, net of expenses, for the three months ended January 31, 2005.
      Additionally, the Company recorded $1.0 million in income during the second
      fiscal quarter of 2005. The income represents the final cash payment received
      from Gores in January 2005 for indemnity claims held in escrow related to the
      sale of Forgent’s videoconferencing hardware services business. No indemnity
      claims were paid pursuant to the sales agreement with Gores. The $3.3 million
      gain and $1.0 income were offset by $0.3 million and $0.5 million in losses
      from
      the Alliance operations during the three and six months ended January 31, 2005,
      respectively. During the fourth fiscal quarter of 2005, Forgent decided to
      discontinue its ALLIANCE operations. The Company did not conduct any business
      from this business line during the six months ended January 31,
      2006.





**Net
      (Loss) Income**





Forgent
      realized a net loss of $0.5 million, or $0.02 per share, during the three months
      ended January 31, 2006 compared to net income of $0.2 million, or $0.01 per
      share, during the three months ended January 31, 2005. Forgent realized a net
      loss of $1.9 million, or $0.07 per share, during the six months ended January
      31, 2006 compared to net income of $0.6 million, or $0.02 per share, during
      the
      six months ended January 31, 2005. Net (loss) income as a percentage of total
      revenues were (11%) and 15% for the three months ended January 31, 2006 and
      2005, respectively. Net (loss) income as a percentage of total revenues were
      (23%) and 8% for the six months ended January 31, 2006 and 2005, respectively.
      The $0.7 million decrease in the Company’s net income during the three months
      ended January 31, 2006 as compared to the three months ended January 31, 2005
      is
      primarily attributable to the $4.1 million decrease in income from discontinued
      operations, which is offset by the $2.3 million increase in gross margin and
      $1.1 million decrease in SG&A expenses during the second fiscal quarter of
      2006. Similarly, the $2.5 million decrease in the Company’s net income during
      the six months ended January 31, 2006 as compared to the six months ended
      January 31, 2005 is primarily attributable to the $3.8 million decrease in
      income from discontinued operations, which is offset by the $0.5 million
      increase in gross margin and $1.0 million decrease in SG&A expenses during
      the first two fiscal quarters of 2006.





**LIQUIDITY
      AND CAPITAL RESOURCES**





On
      January 31, 2006, Forgent had working capital of $12.5 million, including $15.6
      million in cash and cash equivalents. Cash used in operating activities was
      $2.0
      million for the six months ended January 31, 2006 due primarily to a $1.9
      million net loss. Cash used in operating activities was $2.0 million for the
      six
      months ended January 31, 2005 due primarily to a $3.2 million net loss, which
      was offset by $0.7 million in non-cash depreciation and amortization expenses
      and a $0.7 million increase in accounts payable. During the six months ended
      January 31, 2006, Forgent collected $6.1 million in cash receipts from its
      licensing program. Management plans to utilize these cash receipts in its Patent
      Licensing Program, especially due to anticipated expenditures related to the
      ‘672 Litigation and the ‘746 Litigation, and to manage its software operations.
      Forgent’s average days sales outstanding was 21 for the second fiscal quarter of
      2006, an increase from the 17 days for the first fiscal quarter of 2006. This
      increase was due primarily to approximately $0.4 million in outstanding
      receivables from the licensing program as of January 31, 2006. These receipts
      were fully collected during February 2006.






15





Cash
      provided by investing activities was $1.5 million for the six months ended
      January 31, 2006 due primarily to $1.5 million in net sales of short-term
      investments. Similarly, cash provided by investing activities was $1.1 million
      for the six months ended January 31, 2005 due primarily to $1.1 million in
      net
      sales of short-term investments. Forgent manages its investments portfolio
      in
      order to fulfill corporate liquidity requirements and maximize investment
      returns while preserving the quality of the portfolio. The Company’s current
      operations are not capital intensive and Forgent purchased minimal fixed assets
      during the six months ended January 31, 2006. Management does not anticipate
      any
      significant purchases of fixed assets during the remaining fiscal quarters
      of
      2006. Most purchases during fiscal year 2006 will be used primarily for
      equipment and subtenant improvements as the Company seeks to sublease its
      vacated office space.





The
      Company leased office space and equipment under non-cancelable operating leases
      that expire at various dates through 2013. Certain leases obligate Forgent
      to
      pay property taxes, maintenance and insurance. Additionally, the Company used
      the proceeds from its loans from Silicon Valley Bank to purchase equipment
      and
      fund operations. Any additional loans from Silicon Valley Bank will bear
      interest at prime plus 0.75% and require monthly installments over a three-year
      term. Forgent may periodically make other commitments and thus become subject
      to
      other contractual obligations. Forgent’s future minimum lease payments under all
      operating leases and payments on its notes payable as of January 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
            
            $
            24,658
            
            $
            3,764
            
            $
            6,930
            
            $
            6,805
            
            $
            7,159Notes
                payable obligations
            
            
            699
            
            
            388
            
            
            311
            
            
            --
            
            
            --**Total**
            
            **$**
            **25,357**
            
            **$**
            **4,152**
            
            **$**
            **7,241**
            
            **$**
            **6,805**
            
            **$**
            **7,159**




Approximately
      97.4% of the Company’s operating lease obligations relates to its corporate
      office location at Wild Basin in Austin, Texas. Additionally, Forgent had a
      $1.3
      million liability related to impairment charges for the economic value of the
      lost sublease rental income for its Wild Basin property. As of January 31,
      2006,
      Forgent had $4.0 million in future minimum lease payments receivable under
      non-cancelable sublease arrangements.





Cash
      provided by financing activities was $0.2 million for the six months ended
      January 31, 2006 due primarily to $0.2 million in proceeds received from the
      issuance of stock. Similarly, cash provided by financing activities was $0.1
      million for the six months ended January 31, 2005 due primarily to $0.1 million
      in proceeds received from the issuance of stock. Forgent’s stock repurchase
      program allows the Company to purchase up to three million shares of the
      Company’s common stock. No shares were repurchased during the six months ended
      January 31, 2006 or 2005. As of January 31, 2006, Forgent had repurchased
      1,790,401 shares and had the approval to repurchase approximately 1.2 million
      additional shares. Management will periodically assess repurchasing additional
      shares in fiscal year 2006, depending on the Company’s cash position, market
      conditions and other factors.





As
      of
      January 31, 2006, Forgent’s principal source of liquidity consisted of
      approximately $15.0 million in cash and cash equivalents and its ability to
      generate cash from its intellectual property licensing business. However,
      Forgent’s ability to generate cash from its intellectual property licensing
      business is subject to certain risks as discussed under "Risk Factors."
      Management currently plans to utilize its cash balances to focus on the
      litigation efforts, continue licensing its intellectual property and fund its
      software operations. However, there remain risks and uncertainties as to the
      timing of the receipts of license fees due, in part, to the inherent nature
      of a
      patent licensing program. Therefore, there is no assurance that the Company
      will
      be able to limit its cash consumption and preserve its cash balances, and it
      is
      possible that the Company's business demands may lead to cash utilization at
      levels greater than recently experienced due to the litigations, increased
      expense levels and other factors. While management believes that the Company
      has
      sufficient capital and liquidity to pursue its licensing and litigation efforts,
      due to uncertainties related to the timing and costs of these efforts, Forgent
      may need to raise additional capital in the future. However, there is no
      assurance that the Company will be able to raise additional capital if and
      when
      it is needed.






16






**CRITICAL
      ACCOUNTING POLICIES**





The
      Company’s consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States and include
      the accounts of Forgent's wholly owned subsidiaries. All significant
      intercompany transactions and balances have been eliminated in the
      consolidation. Preparation of the consolidated financial statements in
      conformity with accounting principles generally accepted in the United States
      requires management to make estimates and assumptions that affect the reported
      amounts of the assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reporting period. The more significant
      estimates made by management include the valuation allowance for the gross
      deferred tax asset, contingency reserves, useful lives of fixed assets, the
      determination of the fair value of its long-lived assets and the loss from
      discontinued operations. These estimates could be materially different under
      different conditions and assumptions. Additionally, the actual amounts could
      differ from the estimates made. Management periodically evaluates estimates
      used
      in the preparation of the financial statements for continued reasonableness.
      Appropriate adjustments, if any, to the estimates used are made prospectively
      based upon such periodic evaluation.





Management
      believes the following represent Forgent’s critical accounting
      policies:





**Revenue
      Recognition**





The
      Company recognizes revenue when persuasive evidence of an arrangement exists,
      delivery has occurred, the fee is fixed or determinable and collectibility
      is
      probable. The Company recognizes software revenue in accordance with Statement
      of Position ("SOP") 97-2, *“Software
      Revenue Recognition,”* as
      amended by SOP 98-4, “ *Deferral
      of the Effective Date of a Provision of SOP 97-2,”* and SOP
      98-9, “ *Modification
      of SOP 97-2 With Respect to Certain Transactions,”* and
      Securities and Exchange Commission Staff Accounting Bulletin 104, *“Revenue
      Recognition.”*





Intellectual
      property licensing revenue is derived from the Company’s Patent Licensing
      Program, which is currently focused on generating licensing revenues relating
      to
      the Company's technologies embodied in the ‘672 patent and its foreign
      counterparts as well as in the ‘746 patent. Gross intellectual property
      licensing revenue is recognized at the time a license agreement has been
      executed, collection has been deemed probable and related costs are recorded
      as
      cost of sales. The cost of sales on the intellectual property licensing business
      relates to contingent legal fees incurred on successfully achieving signed
      agreements, as well as legal fees incurred for legal counsel’s
      time.





Software
      and service revenue consists of software license and service fees. Revenue
      from
      the software element is earned through the licensing or right to use the
      Company’s software and from the sale of specific software products. Service fee
      income is earned through the sale of maintenance and technical support, training
      and installation. The Company allocates the total fee to the various elements
      based on the relative fair values of the elements specific to the Company.
      The
      Company determines the fair value of each element in the arrangement based
      on
      vendor-specific objective evidence ("VSOE") of fair value. During the six months
      ended January 31, 2006, VSOE of fair value for the software, maintenance, and
      training and installation services are based on the prices charged for the
      software, maintenance and services when sold separately. During the six months
      ended January 31, 2005, VSOE of fair value for maintenance was based upon the
      renewal rate specified in each contract; VSOE of fair value for training and
      installation services was based on the prices charged for these services when
      sold separately; and VSOE of fair value for the software element was not
      available and thus, software revenue was recognized under the residual method.
      Under the residual method, the contract value is first allocated to the
      undelivered elements (maintenance and service elements) based upon their VSOE
      of
      fair value; the remaining contract value, including any discount, is allocated
      to the delivered element (software element). The establishment of VSOE of fair
      value for the software element during the six months ended January 31, 2006
      did
      not have a material impact on the Company’s consolidated financial statements.
      Revenue allocated to maintenance and technical support is recognized ratably
      over the maintenance term (typically one year). Revenue allocated to
      installation and training is recognized upon completion of these services.  The
      Company’s training and installation services are not essential to the
      functionality of its products as such services can be provided by a third party
      or the customers themselves. For instances in which VSOE cannot be determined
      for undelivered elements, and these undelivered elements do not provide
      significant customization or modification of its software product, Forgent
      recognizes the entire contract amount ratably over the period during which
      the
      services are expected to be performed.






17





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





Deferred
      revenue includes amounts received from customers in excess of revenue
      recognized, and is comprised of deferred maintenance, service and other revenue.
      Deferred revenues are recognized in the Consolidated Statements of Operations
      when the service is completed and over the terms of the arrangements, primarily
      ranging from one to three years.





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





The
      Company’s primary market risk exposure relates to interest rate risk. Forgent's
      interest income is sensitive to changes in U.S. interest rates. However, due
      to
      the short-term nature of the Company's investments, Forgent does not consider
      these risks to be significant. For additional Quantitative and Qualitative
      Disclosures about Market Risk, reference is made to Part II, Item 7A,
      Quantitative and Qualitative Disclosures about Market Risk, in the Company’s
      Annual Report on Form 10-K for the year ended July 31, 2005.





**ITEM
      4. CONTROLS AND PROCEDURES**





Under
      the
      supervision and with the participation of the Company's Chief Executive Officer
      and Chief Financial Officer, management of the Company has evaluated the
      effectiveness of the Company's disclosure controls and procedures (as defined
      in
      Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934)
      as
      of a date within 90 days prior to the filing date of this report on Form 10-Q.
      Based on that evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that, as of the date of the evaluation, the Company's
      disclosure controls and procedures are effective in timely alerting them to
      the
      material information relating to the Company required to be included in its
      periodic filings with the Securities and Exchange Commission. No changes were
      made in the Company’s internal controls over financial reporting during the
      quarter ended January 31, 2006, that have materially affected, or is reasonably
      likely to materially affect, the Company’s internal controls over financial
      reporting.







18






**PART
      II -- OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





Forgent
      is the defendant or plaintiff in various actions that arose in the normal course
      of business. With the exception of the proceedings described below, none of
      the
      pending legal proceedings to which the Company is a party involves claims for
      damages in excess of 10% of the Company's current assets for the period covered
      by this report on Form 10-Q.





**Litigation
      of United States Patent No. 4,698,672 (JPEG)**





Between
      April 2004 and November 2004, Forgent’s wholly-owned subsidiary, CLI, initiated
      litigation against multiple companies for infringement of the ‘672 patent in the
      United States District Court for the Eastern District of Texas, Marshall
      Division, seeking royalties from sales of infringing products and monetary
      damages, among other relief sought. The defendants are Agfa Corporation; Apple
      Computer, Incorporated; AudioVox Corporation; AudioVox Electronics 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-Packard Company; International Business Machines
      Corp.; JASC Software; JVC Americas Corporation; Macromedia, Inc.; Matsushita
      Electric Corporation of America; Mitsubishi Digital Electronics American,
      Incorporated; Oce’ North America, Incorporated; PalmOne, Inc.; Ricoh
      Corporation; Riverdeep, Incorporated (d.b.a. Broderbund); Savin Corporation;
      ScanSoft, Inc.; Thomson S.A.; TiVo Inc.; Toshiba Corporation; Xerox Corporation;
      Yahoo! Inc.; Acer America Corporation; Adobe Systems Incorporated; BenQ America
      Corporation; Color Dreams, Inc. (d/b/a StarDot Technologies); Concord Camera
      Corporation; Creative Labs, Incorporated; Creo, Inc.; Creo Americas, Inc.;
      Google Inc.; Kyocera Wireless Corporation; Onkyo Corporation; Panasonic
      Communications Corporation of America; Panasonic Mobile Communications
      Development Corporation of USA; Sun Microsystems Inc.; and Veo Inc. Also
      included in the ‘672 Litigation is Microsoft Corporation. Forgent has since
      settled with defendants Adobe Systems, Inc.; AudioVox Corporation; Axis
      Communications, Incorporated; BenQ America Corporation; Color Dreams, Inc.;
      JASC
      Software; Google Inc.; Macromedia, Inc.; ScanSoft, Inc.; Oce’ North America,
      Incorporated; Onkyo Corporation; Riverdeep, Incorporated; and Yahoo!
      Inc.





On
      November 16, 2005, the Public Patent Foundation filed a petition with the United
      States Patent and Trademark Office (the “USPTO”) to re-examine the ‘672 patent.
      On January 31, 2006, the USPTO granted Public Patent Foundation’s petition to
      re-examine the ‘672 patent. The results of the re-examination are not yet
      known.





On
      March
      9, 2006, Forgent and the defendants in the ‘672 Litigation appeared before the
      United States District Court for the Northern District of California at a claims
      construction hearing. The results of this hearing are not yet
      known.





**Federal
      Trade Commission Inquiry**





In
      December 2003, the Company received notification from the Federal Trade
      Commission (the “FTC”) that it is conducting a non-public investigation to
      determine whether the Company may have engaged in violation of the Federal
      Trade
      Commission Act by reason of the alleged involvement of CLI in the JPEG
      standard-setting process during the 1980’s and very early 1990’s and its
      subsequent licensing of the ‘672 patent, which the Company believes is infringed
      by the implementation of that standard. The Company believes that CLI has not
      acted improperly and advised the FTC accordingly. In April 2004, Forgent
      received a Subpoena Duces Tecum (“Subpoena”) and a Civil Investigative Demand
      (“CID”) in this FTC proceeding. The Company responded in May 2004 by filing a
      petition to quash and/or limit the Subpoena and CID. In November 2004, the
      FTC
      issued a ruling denying Forgent’s Petition to Quash, but modifying the Subpoena
      and CID. In February 2005 and March 2005, the Company responded to the Subpoena
      and the CID by providing the required documents and other responsive material.
      Forgent has not received any final conclusion from the FTC on its
      inquiries.





**Litigation
      of United States Patent No. 6,285,746 (DVR)**





In
      July
      2005, Forgent initiated litigation against 15 companies for infringement of
      the
      United States Patent No. 6,285,746 in the United States District Court for
      the
      Eastern District of Texas, Marshall Division, seeking injunctive relief against
      sales of infringing products and monetary damages, among other relief sought.
      The defendants are Cable One, Inc., a subsidiary of the Washington Post Company;
      Charter Communications, Inc.; Comcast Corporation; Cox Communications, Inc.,
      a
      subsidiary of Cox Enterprises, Inc.; EchoStar Communications Corporation; The
      DIRECTV Group, Inc.; Time Warner Inc.; and their respective subsidiaries.






19





On
      September 19, 2005, Scientific-Atlanta Inc. and Motorola Inc. filed a
      declaratory judgment against Forgent in the United States District Court for
      the
      Eastern District of Texas, Tyler Division, claiming, among other assertions,
      that their products do not infringe Forgent’s patent and that the patent is
      invalid. During a hearing on November 8, 2005, the Court ordered this case
      to be
      transferred to the Marshall Division and consolidated with *Forgent
      Networks, Inc. v. EchoStar Communications Corporation, et al.* Also
      on
      November 8, 2005, the Court set the claims construction hearing for the ‘746
      Litigation to be held in July 2006 and a trial date to be on February 12,
      2007.





On
      January 3, 2006, Diego, Inc. filed a motion to intervene as a declaratory
      judgment plaintiff after learning that their products were accused of infringing
      the ‘746 patent in the midst of the ongoing ‘746 Litigation. On January 4, 2006,
      the Court granted Diego Inc.’s motion.





On
      April
      6, 2006, Forgent is scheduled to meet with the 15 defendants in a mediation
      proceeding.





**ITEM
      1A. RISK FACTORS**





There
      are
      many factors that affect the Company's business, prospects, liquidity and the
      results of operations, some of which are beyond the control of the Company.
      The
      following is a discussion of some, but not all, of these and other important
      risk factors that may cause the actual results of the Company's operations
      in
      future periods to differ materially from those currently expected or desired.
      Additional risks not presently known to management or risks that are currently
      believed to be immaterial, but which may become material, may also affect the
      Company’s business, prospects, liquidity and results of operations.





**Forgent
      is largely dependent on its Patent Licensing Program. If the Company’s patent
      licensing process is successfully challenged and/or the Company is unable to
      obtain new license agreements, licensing revenues will
      decrease.**


Forgent
      is largely dependent on its ability to enter into new license agreements.
      Failure to sign new license agreements would cause operating results to suffer.
      The Company's Patent Licensing Program involves risks inherent in licensing
      intellectual property, including risks of protracted delays, legal or regulatory
      challenges that would lead to disruption or curtailment of the program,
      increasing expenditures associated with the pursuit of the program and other
      risks that could cause the Company’s results of operations to decline. Thus,
      there can be no assurance that the Company will be able to continue to license
      its technology to others. Additionally, quarterly operating results may fail
      to
      meet expectations for a number of reasons, including the unwillingness or
      inability of licensees to pay for the license and other fees, a decline in
      the
      demand for the Company's patented technology, higher than expected operating
      expenses and license delays due to legal and other factors.





See
      Part
      II, Item 1 “Legal Proceedings” for information regarding the United States
      Patent and Trademark Office’s (“USPTO”) re-examination of the ‘672 patent and
      the Federal Trade Commission’s (“FTC”) non-public investigation associated with
      the Company’s Patent Licensing Program. If the USPTO invalidates or
      substantially modifies the ‘672 patent, the Company’s licensing abilities would
      be affected, which could result in significantly decreased licensing revenues.
      If the FTC proceeds with its investigation and thereafter determines that the
      Company acted improperly, further proceedings before the FTC could ensue, which
      could result in a challenge to the Company’s ‘672 patent licensing process. Any
      successful challenge to the licensing process could result in decreased
      licensing revenues.




**Forgent’s
      licensing cycle is lengthy and costly, which could require the Company to incur
      significant legal expenditures, causing earnings to fluctuate.**


Forgent’s
      licensing cycle for its Patent Licensing Program is lengthy and costly,
      including expenditures related to various legal costs, consultant fees and
      travel costs. Due to multiple negotiations and legal due diligence required,
      the
      licensing process cannot necessarily be expedited. As a result, the Company's
      intellectual property licensing revenues will fluctuate from quarter to quarter,
      making it difficult for Forgent to predict its revenues. Additionally, these
      fluctuations may lead to reduced prices for the Company’s common stock.






20





**Forgent
      may not prevail in its litigation proceedings, which could cause the Company
      to
      incur significant legal expenditures without any related earnings.**


The
      Company has initiated the ‘672 Litigation against multiple companies for
      infringement of its ‘672 patent. Additionally, the Company has initiated the
‘746 Litigation against several companies for the infringement of its ‘746
      patent. As with any litigation, the outcome is uncertain, and although the
      Company intends to vigorously pursue its claims, there are no guarantees that
      the Company can protect its intellectual property rights in its current
      litigation or prevent the unauthorized use of its technology in the future.
      The
      litigation will be lengthy and costly. Additionally, unintended consequences
      of
      the Company’s litigations may adversely affect the Company’s business,
      including, without limitation, that the Company may have to devote significant
      time and financial resources to pursuing the litigations, that the Company
      may
      become subject to counterclaims or lawsuits and that the expenses of pursuing
      the litigations could increase based upon new developments occurring. These,
      and
      other factors not currently known to or deemed material by management, could
      have a material and adverse impact on the Company’s business, prospects,
      liquidity and results of operations.





**If
      Forgent is unable to retain qualified legal counsel to advise the Company in
      connection with its Patent Licensing Program, the Company’s operating results
      and financial condition could suffer.**


The
      Patent Licensing Program is dependent on intensive legal due diligence and
      negotiations. The Company may encounter a number of other risks associated
      with
      its legal counsel, including but not limited to (1) turnover of individual
      attorneys working on the Company’s Patent Licensing Program; (2) availability of
      key attorneys working on the program; (3) financial and other resources
      available to legal counsel; and (4) the financial position of legal counsel.
      These risks may cause delays in Forgent's ability to proceed with its Patent
      Licensing Program, which could require significant additional legal expenditures
      and could result in declining revenues and earnings for the
      Company.





**Forgent
      may not be able to protect or enforce its intellectual property rights which
      could cause the Company’s ability to license its technologies to be
      impaired.**


The
      Company's success and ability to compete are substantially dependent on its
      proprietary technology and trademarks. The Company seeks to protect these assets
      through a combination of patent and trademark laws, as well as confidentiality
      procedures and contractual provisions. These legal protections afford only
      limited protection and enforcement of these rights may be time consuming and
      expensive. If Forgent cannot protect or enforce these rights, the Company’s
      ability to obtain future licenses could be impaired. Furthermore, despite best
      efforts, the Company may be unable to prevent third parties from infringing
      upon
      or misappropriating its intellectual property. Competitors may also
      independently develop similar, but not infringing, technology, duplicate
      products or design around the Company's patents or other intellectual property.
      Additionally, the Company's patent applications or trademark registrations
      may
      not be approved. Moreover, even if approved, the resulting patents or trademarks
      may not provide Forgent with any competitive advantage or may be challenged
      by
      third parties. If challenged, patents might not be upheld or claims could be
      narrowed. Any litigation surrounding the Company's rights would force Forgent
      to
      divert important financial and other resources away from business operations.





**The
      '672 patent will be expiring soon and revenues may decline if Forgent is unable
      to replace this revenue stream.**


To
      date,
      all of the Company’s intellectual property licensing revenue has been derived
      from the '672 patent. The U.S. '672 patent expires in October 2006 and its
      foreign counterparts expire in September 2007. Revenues from this patent are
      finite and, if such revenues are not replaced, net income and the market price
      of Forgent’s common stock will decline following the expiration of the '672
      patent or the resolution of the '672 Litigation.





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


The
      future success of the Company’s software segment is dependent in significant
      part on its ability to generate demand for its software products and services.
      To this end, Forgent's sales operations must increase market awareness of its
      products to generate increased revenue. All sales new hires will require
      training and may take time to achieve full productivity. Forgent cannot be
      certain that its new hires will become as productive as necessary or that it
      will be able to hire enough qualified individuals or retain existing employees
      in the future. The Company cannot be certain that it will be successful in
      its
      efforts to market and sell its products, and if it is not successful in building
      greater market awareness and generating increased sales, future software
      revenues may decline.







21






**Lack
      of new customers or additional sales from current customers could negatively
      affect the Company’s ability to grow revenues.**


Forgent’s
      business model depends on the expanded use of its software within its current
      and new customers’ organizations. Therefore, Forgent must execute on its growth
      objectives. If the Company fails to grow its customer base or generate repeat
      and expanded business from its current customers, Forgent’s software revenues
      could be adversely affected. Since the Company’s maintenance and other service
      fees depend largely on the size and number of licenses that are sold, any
      downturn in Forgent’s software license revenue would negatively impact the
      Company’s deployment services revenue and future maintenance revenue.
      Additionally, if customers elect not to renew their maintenance agreements,
      Forgent’s maintenance revenue could be adversely affected.





**If
      Forgent cannot develop new or enhanced technologies for its software products,
      technological changes could adversely affect the Company’s operating results.**


The
      technology industry is characterized by continuing improvements in technology,
      resulting in the frequent introduction of new products, short product life
      cycles and continual improvement in product performance characteristics. Forgent
      expects that its future financial performance will depend, in part, on revenue
      generated from its existing and future software products and the related
      products that the Company plans to develop or acquire. To be successful, Forgent
      must be cost-effective and timely in enhancing its existing software
      applications, developing new software technology and solutions that address
      the
      increasingly sophisticated and varied needs of its existing and prospective
      clients, and anticipating technological advances and evolving industry standards
      and practices. Forgent may need to invest further in research and development
      in
      order to keep its software applications and solutions viable in the rapidly
      changing marketplace. This research and development effort may require
      significant resources and could ultimately be unsuccessful. If the Company
      fails
      to anticipate and respond effectively to technological improvements and new
      product introductions, these improvements could render the Company's products
      noncompetitive and adversely affect the Company’s operating results as well as
      its liquidity.





**If
      Forgent is unable to meet customer needs or expectations, the Company’s sales
      may suffer.**


Forgent
      cannot be certain that its existing or future software product offerings will
      meet customer performance needs or expectations when shipped or that they will
      be free of significant software defects or bugs. If the Company's products
      do
      not meet customer needs or expectations, for whatever reason, the Company's
      sales would be adversely affected and furthermore, upgrading or enhancing the
      Company’s products could be costly and time consuming. Such upgrades or
      enhancements could have an adverse effect on the Company’s results of operations
      and liquidity.





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


The
      Company may encounter new entrants or competition from competitors in some
      or
      all aspects of its business. The Company currently competes on the basis of
      price, technology, availability, performance, quality, reliability, service
      and
      support. There can be no assurance that the Company will be able to maintain
      a
      competitive advantage with respect to any of these factors. Many of the
      Company's current and possibly future competitors have greater resources than
      the Company and, therefore, may be able to compete more effectively on price
      and
      other terms.





**Forgent
      may experience significant fluctuations in its quarterly results and if the
      Company’s future results are below expectations from market analysts or
      investors, the price for the Company’s common stock may
      decline.**


In
      the
      past, Forgent’s revenues and operating results have varied significantly from
      quarter to quarter. Additionally, management expects that revenues and operating
      results will continue to fluctuate significantly from quarter to quarter. These
      fluctuations may lead to reduced prices for the Company’s common stock. Several
      factors may cause the quarterly results to fluctuate, including:




·
            timing
                of intellectual property license agreements and related recording
                of
                licensing revenues;





·
            timing
                and costs related to the Company’s patent litigation;





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





·
            timing
                of customers’ budget cycles;





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






22





·
            the
                mix of software license and services
                revenue;





·
            seasonal
                fluctuations in capital spending;





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





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





·
            timing
                and costs related to possible acquisitions of technology or
                businesses;





·
            costs
                of attracting, retaining and training skilled
                personnel;





·
            management’s
                ability to manage future growth;
                and





·
            general
                economic climate.




Some
      of
      these factors are within management’s control while others are not. Accordingly,
      management believes that quarter-to-quarter comparisons of the Company’s
      revenues and operating results are not necessarily meaningful. Therefore, market
      analysts and investors should not rely on the results of any particular quarter
      as an indication of future performance.





**The
      loss of key management and personnel could hinder the development of Forgent’s
      technology and otherwise adversely affect the Company’s
      business.**


Forgent’s
      success depends upon its ability to attract, hire and retain highly trained
      and
      experienced software developers and engineers to design and develop software
      applications in order to keep pace with client demand for rapidly evolving
      technologies and varying client needs. The Company’s operations are also
      dependent on the continued efforts of its executive officers and senior
      management. If any of the Company’s key personnel or senior management are
      unable or unwilling to continue in his or her present role, or if Forgent is
      unable to retain, hire, train and integrate new personnel effectively, Forgent’s
      business could be adversely affected.





**Compliance
      with changing laws and regulations could cause the Company to incur additional
      expenses.**


As
      a
      result of assessing, implementing and complying with recently proposed and
      enacted changes in the laws and regulations affecting public companies,
      including but not limited to, the Sarbanes-Oxley Act of 2002, management
      anticipates increased accounting, audit and legal fees, as well as increased
      costs for certain types of insurance. Additionally, the new and proposed rules
      could also make it more difficult for Forgent to retain qualified individuals
      to
      serve on its Board of Directors. Although management continually monitors and
      evaluates developments with respect to these new and proposed laws and
      regulations, management cannot estimate the amount of the additional costs
      the
      Company may incur or the timing of such costs at this time. However, such
      increased costs could materially affect Forgent’s results of
      operations.





**Due
      to Forgent’s limited operating history in its current lines of business, the
      Company may not be able to accurately predict future operating results, which
      could cause the Company to miss market analysts’ and investors’
expectations.**


Although
      founded in 1985, Forgent has a limited operating history in its current lines
      of
      business due to the Company's transition to a licensor of intellectual property
      and a provider of scheduling and asset management software and services. As
      a
      result of this limited operating history, Forgent cannot forecast revenues
      and
      operating expenses based on historical results. Additionally, the Company's
      ability to forecast quarterly revenue accurately is limited because of the
      relative unpredictability of its intellectual property licensing revenues.
      The
      Company's business, operating results and financial condition will be materially
      adversely affected if revenues do not meet projections and if results in a
      given
      quarter do not meet expectations.





**Although
      Forgent has divested its non-core operations, the Company may not strengthen
      its
      core operations and achieve profitability.**


As
      a
      result of Forgent's transition to a licensor of intellectual property and a
      provider of scheduling and asset management software and services, the Company
      has divested certain non-core operations, including its ALLIANCE software and
      services business, a videoconferencing hardware services business, an
      integration business and a videoconferencing endpoint manufacturing business.
      There can be no assurance that, having divested such non-core operations,
      Forgent will be able to achieve greater or any profitability, strengthen its
      core operations or compete more effectively in existing or new markets. In
      addition, the Company continues to evaluate the profitability realized or that
      is likely to be realized by its existing businesses and operations. Forgent
      reviews from a strategic standpoint, which, if any, of its businesses or
      operations should be divested. Entering into, evaluating or consummating
      divestiture transactions may entail risks and uncertainties in addition to
      those
      which may result from the divestiture-related change in the Company's business
      operations, including but not limited to extraordinary transaction costs,
      unknown indemnification liabilities and unforeseen administrative complications,
      any of which could result in reduced revenues, increased charges or
      post-transaction administrative costs, or could otherwise have a material
      adverse effect on Forgent's business, financial condition or results of
      operations.






23





Due
      to
      the risk factors noted above and elsewhere in “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations of the Company,”
Forgent’s past earnings and stock price have been, and future earnings and stock
      price potentially may be, subject to significant volatility, particularly on
      a
      quarterly basis. Past financial performance should not be considered a reliable
      indicator of future performance and investors are cautioned in using historical
      trends to anticipate results or trends in future periods. Any shortfall in
      revenue or earnings from the levels anticipated by market analysts and investors
      could have an immediate and significant effect on the trading price of the
      Company’s common stock in any given period.





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





None





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





None





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





None





**ITEM
      5. OTHER INFORMATION**





In
      December 2005, the Company's Compensation Committee approved an increase in
      Ms.
      Harris' (Vice President, Software) annual base salary from $190,000 to $205,000
      to adjust her compensation to market.





**ITEM
      6. EXHIBITS**





Exhibits:





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





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





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




4.2
              Rights
                    Agreement, dated as of December 19, 2005, between Forgent Networks,
                    Inc. and American Stock Transfer & Trust Company, which includes the
                    form of Series A Preferred Stock, $0.01 par value, the form of
                    Rights
                    Certificate, and the Summary of Rights (incorporated by reference
                    to
                    Exhibit 4.1 to the Company's Current Report on Form 8-K dated
                    December 15,
                    1995).
  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.






24






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.


25


**SIGNATURES**





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




FORGENT
              NETWORKS,
              INC.Date:
              March 14, 2006
            By:
            /s/ RICHARD
              N. SNYDERRichard
                N. Snyder
              Chief
                Executive
                Officer


Date:
                  March 14, 2006
              By:
              /s/ JAY
                C.
                PETERSONJay
                  C.
                  Peterson
                Chief
                  Financial Officer


26






**INDEX
      TO EXHIBITS**








**EXHIBIT****NUMBER**
            
            **DESCRIPTION**3.1
            
            Restated
              Certificate of Incorporation (incorporated by reference to Exhibit
              3.1 to
              the Company’s quarterly report on Form 10-Q for the three months ended
              October 31, 2004).3.2
            
            Restated
                Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s
                quarterly report on Form 10-Q for the three months ended October
                31,
                2004).4.1
            
            Specimen
                Certificate for the Common Stock (incorporated by reference to Exhibit
                4.1
                to the Company's Registration Statement on Form S-1, File No. 33-45876,
                as
                amended).4.2
            
            Rights
                Agreement, dated as of December 19, 2005, between Forgent Networks,
                Inc. and American Stock Transfer & Trust Company, which includes the
                form of Series A Preferred Stock, $0.01 par value, the form of Rights
                Certificate, and the Summary of Rights (incorporated by reference
                to
                Exhibit 4.1 to the Company's Current Report on Form 8-K dated December
                15,
                1995).31.1
            
            Certification pursuant to Section 302
              of the
              Sarbanes-Oxley Act of 200231.2
            
            Certification pursuant to Section 302
              of the
              Sarbanes-Oxley Act of 200232.1
            
            Certification pursuant to 18 U.S.C.
              Section
              1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
              of
              200232.2
            
            Certification pursuant to 18 U.S.C.
              Section
              1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
              of
              2002






27