**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**





Washington,
      DC 20549





FORM
      10-Q





**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





FOR
      THE
      QUARTERLY PERIOD ENDED OCTOBER 31, 2005




Commission
      file number 0-20008




**FORGENT
      NETWORKS, INC.**





A
                DELAWARE CORPORATION
            
            IRS
                EMPLOYER ID NO. 74-2415696





108
      WILD
      BASIN ROAD


AUSTIN,
      TEXAS 78746


(512)
      437-2700








The
      registrant 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 has
      been subject to such filing requirements for the past 90 days.





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


Yes
o
      No 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
      December 12, 2005 the registrant had outstanding 25,210,302 shares of its Common
      Stock, $0.01 par value.










**INDEX
      TO FINANCIAL STATEMENTS**




**Page****Number****PART
                  I - FINANCIAL INFORMATION**Item
                  1 -
              Unaudited
                  Consolidated Financial StatementsConsolidated
                  Balance Sheets as of October 31, 2005 (unaudited) and July 31,
                  2005
              
              3Unaudited
                  Consolidated Statements of Operations for the Three Months Ended
                  October
                  31, 2005 and 2004
              
              4Unaudited
                  Consolidated Statements of Cash Flows for the Three Months Ended
                  October
                  31, 2005 and 2004
              
              5Notes
                  to the Unaudited Consolidated Financial Statements
              
              6Item
                  2 -
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              10Item
                  3 -
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              17Item
                  4 -
              Controls
                  and Procedures
              
              17
 
 **PART
                  II - OTHER INFORMATION**Item
                  1 - Legal Proceedings
              
              18Item
                  1A - Risk Factors
              
              19Item
                  2 - Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              23Item
                  3 - Defaults upon Senior Securities
              
              23Item
                  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.**
 **CONSOLIDATED
        BALANCE SHEETS**
 (Amounts
        in thousands, except per share data)





**OCTOBER
                31,**
              **2005**
            
            **JULY
                31,**
              **2005****(UNAUDITED)****ASSETS**Current
                Assets:Cash
                and equivalents, including restricted cash of $650at
                October 31, 2005 and July 31, 2005
            
            $
            15,920
            
            $
            15,861Short-term
                investments
            
            
            1,389
            
            
            1,487Accounts
                receivable, net of allowance for doubtful accounts of $3 and $10
                at
                October 31, 2005 and July 31, 2005, respectively
            
            
            694
            
            
            471Prepaid
                expenses and other current assets
            
            
            293
            
            
            266Total
                Current Assets
            
            
            **18,296**
            
            
            **18,085**Property
                and equipment, net
            
            
            1,656
            
            
            1,957Intangible
                assets, net
            
            
            23
            
            
            33Other
                assets
            
            
            27
            
            
            27**$**
            **20,002**
            
            **$**
            **20,102****LIABILITIES
              AND STOCKHOLDERS’ EQUITY**Current
                Liabilities:Accounts
                payable
            
            $
            3,170
            
            $
            1,856Accrued
                compensation and benefits
            
            
            527
            
            
            590Other
                accrued liabilities
            
            
            1,196
            
            
            1,209Notes
                payable, current position
            
            
            356
            
            
            355Deferred
                revenue
            
            
            568
            
            
            517Total
                Current Liabilities
            
            
            **5,817**
            
            
            **4,527**Long-Term
                Liabilities:Deferred
                revenue
            
            
            10
            
            
            4Other
                long-term obligations
            
            
            2,177
            
            
            2,280Total
                Long-Term Liabilities
            
            
            **2,187**
            
            
            **2,284**Stockholders’
                Equity:Preferred
                stock, $.01 par value; 10,000 shares authorized;none
                issued or outstanding
            
            
            —
            
            
            —Common
                stock, $.01 par value; 40,000 shares authorized; 26,970 and 26,967
                shares
                issued; 25,180 and 25,177 shares outstanding at October 31, 2005
                and July
                31, 2005, respectively
            
            
            269
            
            
            269Treasury
                stock at cost, 1,790 shares at October 31, 2005 andJuly
                31, 2005
            
            
            (4,815
            )
            
            (4,815
            )Additional
                paid-in capital
            
            
            265,105
            
            
            265,020Accumulated
                deficit
            
            
            (248,581
            )
            
            (247,199
            )Accumulated
                other comprehensive income
            
            
            20
            
            
            16Total
                Stockholders’ Equity
            
            
            **11,998**
            
            
            **13,291****$**
            **20,002**
            
            **$**
            **20,102**





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





3





**FORGENT
      NETWORKS, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(Amounts
      in thousands, except per share data)




**FOR
                THE THREE**
              **MONTHS
                ENDED**
              **OCTOBER
                31,****2005**
            
            **2004****(UNAUDITED)****REVENUES:**Intellectual
                property licensing
            
            $
            2,916
            
            $
            5,923Software
                & services
            
            
            731
            
            
            436Total
                Revenues
            
            
            **3,647**
            
            
            **6,359****COST
                OF SALES:**Intellectual
                property licensing
            
            
            2,087
            
            
            2,928Software
                & services
            
            
            194
            
            
            205Total
                Cost of Sales
            
            
            **2,281**
            
            
            **3,133****GROSS
                MARGIN**
            
            
            1,366
            
            
            3,226**OPERATING
                EXPENSES:**Selling,
                general and administrative
            
            
            2,683
            
            
            2,569Research
                and development
            
            
            131
            
            
            69Amortization
                of intangible assets
            
            
            10
            
            
            12Total
                Operating Expenses
            
            
            **2,824**
            
            
            **2,650****(LOSS)
                INCOME FROM OPERATIONS**
            
            
            **(1,458**
            **)**
            
            **576****OTHER
                INCOME AND (EXPENSES):**Interest
                income
            
            
            98
            
            
            68Other
            
            
            (17
            )
            
            (12
            )Total
                Other Income and (Expenses)
            
            
            **81**
            
            
            **56****(LOSS)
                INCOME FROM CONTINUING OPERATIONS,****BEFORE
                INCOME TAXES**
            
            
            **(1,377**
            **)**
            
            **632**Provision
                for income taxes
            
            
            (5
            )
            
            (14
            )**(LOSS)
                INCOME FROM CONTINUING OPERATIONS**
            
            
            **(1,382**
            **)**
            
            **618**Loss
                from discontinued operations, net of income taxes
            
            
            —
            
            
            (230
            )**NET
                (LOSS) INCOME**
            
            **$**
            **(1,382**
            **)**
            **$**
            **388****BASIC
                AND DILUTED (LOSS) INCOME PER SHARE:**(Loss)
                income per share from continuing operations - basic and
                diluted
            
            $
            (0.05
            )
            $
            0.02(Loss)
                income per share from discontinued operations - basic and
                diluted
            
            $
            0.00
            
            $
            0.00Net
                (loss) income per share - basic and diluted
            
            $
            (0.05
            )
            $
            0.02**WEIGHTED
              AVERAGE SHARE OUTSTANDING:**Basic
            
            
            25,178
            
            
            24,893Diluted
            
            
            25,178
            
            
            24,933





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





4


**FORGENT
      NETWORKS, INC.**


**CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 (Amounts
        in thousands)


**FOR
                THE THREE**
              **MONTHS
                ENDED**
              **OCTOBER
                31,****2005**
            
            **2004****(UNAUDITED)****CASH
                FLOWS FROM OPERATING ACTIVITIES:**(Loss)
                income from continuing operations
            
            $
            (1,382
            )
            $
            618Adjustments
                to reconcile net (loss) income to net
                cash (used in) provided by operations:Depreciation
                and amortization
            
            
            329
            
            
            360Amortization
                of leasehold advance and lease impairment
            
            
            (140
            )
            
            (146
            )Provision
                for doubtful accounts
            
            
            3
            
            
            —Share-based
                compensation
            
            
            81
            
            
            —Foreign
                currency translation gain
            
            
            2
            
            
            2Gain
                on sale/disposal of fixed assets
            
            
            (6
            )
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (258
            )
            
            39Prepaid
                expenses and other current assets
            
            
            (95
            )
            
            (173
            )Accounts
                payable
            
            
            1,379
            
            
            (324
            )Accrued
                expenses and other long-term obligations
            
            
            (38
            )
            
            1Deferred
                revenue
            
            
            92
            
            
            48Net
                cash (used in) provided by operating activities
            
            
            **(33**
            **)**
            
            **425****CASH
                FLOWS FROM INVESTING ACTIVITIES:**Net
                sales of short-term investments
            
            
            100
            
            
            932Net
                purchases of property and equipment
            
            
            (12
            )
            
            —Issuance
                of notes receivable
            
            
            —
            
            
            (1
            )Net
                cash provided by investing activities
            
            
            **88**
            
            
            **931****CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceeds from issuance of stock
            
            
            4
            
            
            39Proceeds
                from notes payable
            
            
            95
            
            
            112Payments
                on notes payable and capital leases
            
            
            (95
            )
            
            (117
            )Net
                cash provided by financing activities
            
            
            **4**
            
            
            **34****CASH
                FLOWS FROM DISCONTINUED OPERATIONS:**Net
                cash used in discontinued operations
            
            
            —
            
            
            (292
            )Effect
                of translation exchange rates on cash
            
            
            —
            
            
            8Net
                increase in cash and equivalents
            
            
            59
            
            
            1,106Cash
                and equivalents at beginning of period
            
            
            15,861
            
            
            19,051Cash
                and equivalents at end of period
            
            **$**
            **15,920**
            
            **$**
            **20,157**





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





5




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




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





The
      accompanying unaudited 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 October 31, 2005 and
      July 31, 2005, and the results of operations and cash flows for the three months
      ended October 31, 2005 and 2004. These consolidated financial statements should
      be read in conjunction with the Company's 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 fiscal year ended July 31, 2005. The results
      for the interim periods are not necessarily indicative of results for a full
      fiscal year. Certain reclassifications have been made to prior year’s financial
      statement to conform to the current year presentation.





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





In
      October 2004, Forgent terminated its previous legal counsel participating in
      the
      Company’s Patent Licensing Program. As a result of discussions following the
      termination, on December 21, 2004, Forgent entered into a Resolution Agreement
      with its former counsel who previously served as lead counsel in the litigation
      of the Company’s U.S. Patent No. 4,698,672 (the “’672 Litigation”). Under the
      Resolution Agreement, the Company agreed to pay its former counsel an initial
      amount of $1,000, 50% of the first $6,000 in gross recoveries received on or
      after October 27, 2004 and 10% of all gross recoveries received thereafter.
      Forgent paid the $1,000 as required by the Resolution Agreement in December
      2004.





In
      January 2005, Forgent entered into an agreement with the law firm of 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 Godwin 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 as lead legal counsel for its Patent Licensing
      Program. However, Gruber will continue to provide legal services to the Company
      and will be paid on an hourly basis. On October 26, 2005, Forgent engaged Susman
      Godfrey, LLP (“Susman”) to lead its Patent Licensing Program. Under the new
      agreement, 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.





Legal
      expenses for the contingency fees and legal counsel’s time incurred are recorded
      as part of cost of sales from Forgent’s intellectual property licensing business
      on the Consolidated Statement of Operations. Cost of sales for the intellectual
      property licensing business for the three months ended October 31, 2005 and
      2004
      were $2,087 and $2,928, respectively. Other legal expenses incurred related
      to
      the Patent Licensing Program are recorded as part of operating expenses on
      the
      Consolidated Statement of Operations. Other related legal expenses for the
      three
      months ended October 31, 2005 and 2004 were $420 and $420, respectively.





**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 months ended October 31, 2005 was $1,378 **** and
      comprehensive income for the three months ended October 31, 2004 was
      $398 .





**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.





6




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


**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 expense in the 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
      of
      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 in  selling,
      general and administrative expenses
      resulting in a $16 increase in loss from operations, loss before income taxes,
      and net loss. The adoption of Statement No. 123R had no impact on basic and
      diluted net loss per share for the three months ended October 31,
      2005.





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 first
      three months of fiscal year2006 was $1.18 per share. 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 first three months of fiscal year2005 was $0.92 per share.




During
      the three months ended October 31, 2004, 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:




**Three
                  Months Ended****October
                  31, 2004****(Unaudited)**Net
                  (loss) earningsNet
                  (loss) earnings as reported
              
              $
              388Add:
                  Stock-based employee compensation expense included in reported
                  net (loss)
                  earnings, net of related tax effects
              
              $
              —Deduct:
                  Stock-based employee compensation expense determined under fair
                  value-based method for all awards, net of related tax
                  effects
              
              $
              (177
              )Pro
                  forma
              
              $
              211Basic
                  (loss) earnings per common share:As
                  reported
              
              $
              0.02Pro
                  forma
              
              $
              0.01Diluted
                  (loss) earnings per common share:As
                  reported
              
              $
              0.02Pro
                  forma
              
              $
              0.01




7


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





The
      fair
      value of each award granted from Forgent’sstock option plan during the three months ended October 31, 2005
      and
      2004 was 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 Ended**
            
            **Three
                Months Ended****October
                31, 2005**
            
            **October
                31, 2004**Expected
                volatility (based on historical data)
            
            
            70.3
            %
            
            
            83.1
            %Expected
                life in years
            
            
            5.84
            
            
            
            5.84Risk-free
                interest rate
            
            
            4.29
            %
            
            
            3.58
            %Fair
                value per award
            
            $
            1.18
            
            
            $
            0.92




As
      of
      October 31, 2005, $48 of unrecognized compensation costs related to non-vested
      awards 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). 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 based on the incremental fair value of the new options versus the fair
      value of the old options.





**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 restated 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.





8


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





The
      table
      below presents segment information about revenue from unaffiliated customers,
      gross margins and operating income (loss) for the three months ended October
      31,
      2005 and 2004:





**Intellectual****Property**
            
            **Software
                &****Licensing**
            
            **Services**
            
            **Corporate**
            
            **Total****For
                the Three Month Period Ending October 31, 2005**Revenues
                from unaffiliated customers
            
            $
            2,916
            
            $
            731
            
            $
            —
            
            $
            3,647Gross
                margin
            
            
            829
            
            
            537
            
            
            —
            
            
            1,366Operating
                income (loss)
            
            
            73
            
            
            (364
            )
            
            (1,167
            )
            
            (1,458
            )**For
                the Three Month Period Ending October 31, 2004**Revenues
                from unaffiliated customers
            
            $
            5,923
            
            $
            436
            
            $
            —
            
            $
            6,359Gross
                margin
            
            
            2,995
            
            
            231
            
            
            —
            
            
            3,226Operating
                income (loss)
            
            
            2,256
            
            
            (601
            )
            
            (1,079
            )
            
            576











9




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





The
      following review of Forgent’s financial position as of October 31, 2005 and July
      31, 2005 and for the three months ended October 31, 2005 and 2004 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 ‘672 Litigation and the ‘746 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” 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 fiscal periods indicated the percentage
      of
      total revenues represented by certain items in Forgent’s Consolidated Statements
      of Operations:





**FOR
                THE THREE**
              **MONTHS
                ENDED**
              **OCTOBER
                31,****2005**
            
            **2004**Intellectual
                property licensing revenues
            80%
            
            93%Software
                and services revenues
            20
            
            7Gross
                margin
            37
            
            51Selling,
                general and administrative
            73
            
            40Research
                and development
            4
            
            1Total
                operating expenses
            77
            
            42Other
                income, net
            2
            
            1Net
                (loss) income
            (38%)
            
            6%




10





**THREE
      MONTHS ENDED OCTOBER 31, 2005 AND 2004**





**Revenues**





Revenues
      for the three months ended October 31, 2005 were $3.6 million, a decrease of
      $2.7 million, or 43%, from the $6.3 million reported for the three months ended
      October 31, 2004. 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 for the three months ended October 31, 2005 were
      $2.9 million, a decrease of $3.0 million, or 51%, from the $5.9 million reported
      for the three months ended October 31, 2004. Intellectual property licensing
      revenues as a percentage of total revenues were 80% and 93% for the three months
      ended October 31, 2005 and 2004, 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 garners royalties. Forgent’s
      licensing revenues include royalties received from this MPEG-2 consortium.
      The
      Company is also seeking to license its U.S. Patent No. 6,285,746 (“the ‘746
      patent”), which relates to technology for storing and retrieving multimedia data
      in a manner that allows playback during recording, although no licensing
      revenues have been achieved as of October 31, 2005.





The
      first
      fiscal quarter of 2006 marks the fifteenth consecutive quarter that Forgent
      has
      generated licensing revenues. As of October 31, 2005, Forgent has achieved
      approximately $104.7 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 99% and 95% of the intellectual property segment’s licensing
      revenues for the three months ended October 31, 2005 and 2004, respectively.
      Therefore, the $3.0 million decrease in licensing revenues is due primarily
      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. The
      timing of signing the license agreements as well as the variable amount of
      each
      license fee continues to be uncertain. 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
      October 31, 2005, Forgent settled and signed license agreements with two of
      the
      defendants in the ‘672 Litigation. At a case management proceeding held on
      October 3, 2005, the
      United States District Court for the Northern District of California reconfirmed the claims construction hearing for February 13, 2006. The Court
      also placed Microsoft Corporation on the same claims construction schedule.
      Claims construction is the process by which specific terms in the patent are
      given precise meaning for the case. Forgent will complete the exchange of
      proposed terms and claim elements, start on the claims construction discovery
      and submit claims construction briefs and related materials. 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.





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 but ultimately may be limited by any applicable statute
      of limitations. However, 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.





11





**Software
      and Services Business**





Software
      and services revenues for the three months ended October 31, 2005 were $0.7
      million, an increase of $0.3 million, or 68%, from the $0.4 million reported
      for
      the three months ended October 31, 2004. Software and services revenues as
      a
      percentage of total revenues were 20% and 7% for the three months ended October
      31, 2005 and 2004, 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.





Approximately
      60% of the $0.3 million increase during the three months ended October 31,
      2005
      is due to an increase in software sales. The average selling price for software,
      which is calculated as total quarterly software sales divided by the number
      of
      software orders, increased by 45% during the first fiscal quarter of 2006 as
      compared to the first fiscal quarter of 2005. Additionally, the average selling
      price for software increased by approximately 135%, as compared to the first
      fiscal quarter of 2004 when Forgent acquired its NetSimplicity products. The
      increase in the average selling price resulted in part from increased sales
      to
      enterprise customers during the three months ended October 31, 2005. Forgent
      also proactively contacted its existing customers to notify them of upcoming
      expirations on their maintenance and support contracts. The aggressive pursuit
      of maintenance renewals, as well as the increase in software sales, led to
      additional sales of maintenance and support contracts, thereby increasing
      maintenance revenues by 89% during the three months ended October 31, 2005
      as
      compared to the three months ended October 31, 2004. Forgent will continue
      to
      target North American and international companies in the healthcare, education,
      legal, and financial industries. Management expects to continue growing revenues
      from the software and services business.





**Gross
      Margin**





Gross
      margins for the three months ended October 31, 2005 were $1.3 million, a
      decrease of $1.9 million, or 58%, from the $3.2 million reported for the three
      months ended October 31, 2004. Gross margins as a percentage of total revenues
      were 37% and 51% for the three months ended October 31, 2005 and 2004,
      respectively.





The
      $1.9
      million decrease in gross margin, as well as the related decrease in gross
      margin as a percentage of total revenues, for the three months ended October
      31,
      2005, is due primarily to the $2.2 million decrease in gross margin resulting
      from licensing revenues generated during first fiscal quarter of 2006. 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.





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. During the first fiscal quarter of 2005, cost of
      sales
      from the intellectual property licensing business only included contingent
      legal
      fees, which were based on 50% of the licensing revenues received on signed
      agreements. In October 2004, Forgent terminated its previous legal counsel
      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. Under
      the
      amended agreement, Forgent agreed to pay Godwin a contingency fee of 22% of
      all
      license and litigation proceeds, net of expenses, once total proceeds from
      licensing and litigation exceed $6.0 million, and a fixed monthly fee of $0.2
      million for time incurred. Forgent incurred approximately $0.7 million in legal
      fees for time incurred during the first fiscal quarter of 2006 and paid these
      fees to Godwin and another law firm assisting in the Patent Licensing Program.
      As a result of these additional legal fees for time incurred, gross margins
      for
      the intellectual property segment decreased from 51% for the three months ended
      October 31, 2004 to 28% for the three months ended October 31, 2005. 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 receives $6.0 million in gross recoveries received on or after October
      27, 2004. Additionally, Forgent agreed to pay Susman a fixed monthly fee of
      $0.1
      million for time incurred. Based on the Company’s legal counsel agreements,
      management anticipates higher gross margins for the Company once the Company
      generates licensing revenue sufficient to cease paying its former counsel the
      50% contingent fee provided for in the Resolution Agreement.





12





The
      $2.2
      million decrease in gross margin from the intellectual property licensing
      business was offset by an increase of $0.3 million from the software segment
      for
      the three months ended October 31, 2005. 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 three months ended October 31, 2005. Therefore, the increase in
      software revenues resulted in a 73% gross margin for the software segment during
      the three months ended October 31, 2005, as compared to a 53% gross margin
      during the three months ended October 31, 2004. Since revenues generated from
      the software and services business directly affect gross margins and since
      management anticipates growing revenues from this segment, management expects
      gross margins from the software and services business to continue to
      improve.




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





Selling,
      general and administrative expenses for the three months ended October 31,
      2005
      were $2.7 million, an increase of $0.1 million, from the $2.6 million reported
      for the three months ended October 31, 2004. Selling, general and administrative
      (“SG&A”) expenses as a percentage of revenues were 74% and 40% for the three
      months ended October 31, 2005 and 2004, respectively.





During
      the three months ended October 31, 2005, Forgent implemented Statement of
      Financial Accounting Standard No. 123
      (Revised 2004), “ *Share-Based
      Payment”* (“No.
      123R”). 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). 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 non-cash
      charge of $0.1 million during the first fiscal quarter of 2006, based on the
      incremental fair value of the new options versus the fair value of the old
      options. No such expenses were recorded during the first fiscal quarter of
      2005.
      Other SG&A expenses remained relatively consistent during the two fiscal
      periods. Thus, the $0.1 million increase in SG&A expenses during the three
      months ended October 31, 2005 is due primarily to the implementation of
      Statement No. 123R.





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, due to the upcoming claims construction hearing for
      the
‘672 Litigation on February 13, 2006, 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 will decrease as assets become fully depreciated
      and as the Company seeks to sublet vacated office space to subtenants.





**Research
      and Development**





Research
      and development expenses for the three months ended October 31, 2005 were $131
      thousand, an increase of $62 thousand, or 90%, from the $69 thousand reported
      for the three months ended October 31, 2004. Research and development
      (“R&D”) expenses as a percentage of revenues were 4% and 1% for the three
      months ended October 31, 2005 and 2004, respectively.





During
      the three months ended October 31, 2005, Forgent continued developing its MRM
      product and released the new Advanced Catering Management module in August
      2005.
      This new premium module provides multi-site enterprises the ability to integrate
      customized catering requests into their meeting scheduling process, on a
      site-by-site basis. Additionally, the Company completed development and released
      its German version of MRM in September 2005. This product is currently marketed
      on Forgent’s German-language website. Forgent continues to develop a new
      value-added module for MRM as well as the next major release of MRM, version
      7.0. The Company expects to release the new module in January 2006 and MRM
      7.0
      in the spring of 2006.





13





The
      Company also continued to develop VAM and released version 5.5 of VAM in August
      2005. A new VAM Enterprise edition, introduced with version 5.5, features new
      support for handheld barcode scanners, tablet PC input devices and other
      enhancements designed to meet the needs of large, multi-site organizations
      seeking to inventory and valuate all of their assets. The need for such capacity
      arises when companies must comply with regulatory requirements, including the
      Sarbanes-Oxley Act, and/or in circumstances such as disaster recovery when
      companies must be able to show an inventory of all assets and their worth.





Management
      will attempt to maintain R&D expenses at reasonable levels in terms of
      percentage of revenue and anticipates R&D expenses to remain relatively flat
      during the next fiscal quarter.





**Net
      Income (Loss)**





Forgent
      generated a net loss of $1.4 million, or $0.05 per share, during the three
      months ended October 31, 2005 compared to a net income of $0.4 million, or
      $0.02
      per share, during the three months ended October 31, 2004. Net (loss) income
      as
      a percentage of total revenues were (38%) and 6% for the three months ended
      October 31, 2005 and 2004, respectively. The $1.8 million decrease in the
      Company’s net income is primarily attributable to the $1.9 million decrease in
      gross margin.





During
      the three months ended October 31, 2005, Forgent continued to sign new license
      agreements and record additional licensing revenues. The Company also made
      significant progress with its litigation process by achieving schedules for
      the
      claims construction hearings and trials. Additionally, Forgent grew software
      revenues, bookings and average selling prices, and maintained a healthy cash
      balance. However, uncertainties and challenges remain, and there can be no
      assurance that the Company can successfully grow its revenues or achieve
      profitability.





**LIQUIDITY
      AND CAPITAL RESOURCES**





On
      October 31, 2005, Forgent had working capital of $12.5 million, including $17.3
      million in cash, cash equivalents and short-term investments. Cash used in
      operating activities was $33 thousand for the three months ended October 31,
      2005 due primarily to $1.4 million in net loss, which was offset by a $1.4
      million increase in accounts payable. Cash provided by operating activities
      was
      $0.4 million for the three months ended October 31, 2004 due primarily to $0.6
      million in net income and $0.2 million of non-cash depreciation and amortization
      expenses, which were offset by a $0.3 million decrease in accounts payable.
      During the three months ended October 31, 2005, Forgent collected $2.8 million
      in accounts receivable from its intellectual property licensing business.
      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. The $2.8 million in
      collections from the intellectual property licensing business and the diligent
      collection of the Company’s other accounts receivable resulted in an average
      days sales outstanding of 17 for the first fiscal quarter of 2006. Based on
      the
      continued growth of its software business, management believes the software
      segment will generate positive cash flows in the near future.





Cash
      provided by investing activities was $0.1 million for the three months ended
      October 31, 2005 due largely to $0.1 million in net sales of short-term
      investments. Similarly, cash provided by investing activities was $0.9 million
      for the three months ended October 31, 2004 due to $0.9 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
      three months ended October 31, 2005. 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 notes payable with Silicon Valley Bank to purchase
      equipment and fund operations. Additional notes payable obtained from Silicon
      Valley Bank would 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 October 31, 2005 are as follows:





14








**Payments
                Due By Period**(in
                thousands)**Total**
            
            **Less
                than**
              **1
                year**
            
            **1
                - 3 years**
            
            **3-
                5 years**
            
            **More
                than**
              **5
                years**Operating
                lease obligations
            
            $
            24,992
            
            $
            3,842
            
            $
            6,734
            
            $
            6,615
            
            $
            7,801Notes
                payable obligations
            
            
            696
            
            
            387
            
            
            309
            
            
            —
            
            
            —**Total**
            
            **$**
            **25,688**
            
            **$**
            **4,229**
            
            **$**
            **7,043**
            
            **$**
            **6,615**
            
            **$**
            **7,801**




Approximately
      96.8% of the Company’s operating lease obligations relates to its corporate
      office location at Wild Basin in Austin, Texas. Additionally, Forgent had a
      $1.4
      million liability related to impairment charges for the economic value of the
      lost sublease rental income for its Wild Basin property.





Cash
      provided by financing activities was $4 thousand for the three months ended
      October 31, 2005 due to $0.1 million in proceeds received from the issuance
      of a
      note payable, which was offset by $0.1 million in notes payable payments and
      $4
      thousand in proceeds received from the issuance of stock. Cash provided by
      financing activities was $34 thousand for the three months ended October 31,
      2004 due to $0.1 million in proceeds received from the issuance of a note
      payable, which was offset by $0.1 million in notes payable and capital lease
      payments and $39 thousand 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 three months ended October 31, 2005 or 2004. As of October 31, 2005, 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
      October 31, 2005, Forgent’s principal sources of liquidity consisted of $17.3
      million of cash, cash equivalents and short-term investments 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. As previously stated above, 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.





**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.





15





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 data compression technology embodied in the ‘672 patent, and its
      foreign counterparts and is currently conducted through the Company’s
      wholly-owned subsidiary, Compression Labs, Inc. Gross intellectual property
      licensing revenue is recognized at the time a license agreement has been
      executed 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 three
      months ended October 31, 2005, 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 three months
      ended October 31, 2004, 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 three months ended October 31, 2005
      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 due
      to
      their short-term nature. 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.





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.





16





**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 under the Securities Exchange Act of 1934) as
      of
      a date within 90 days prior to the filing date of this report. 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 October
      31,
      2005, that have materially affected, or is reasonably likely to materially
      affect, the Company’s internal controls over financial reporting.









17





**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. In the opinion of management, the ultimate disposition of these
      matters, including those discussed below, may have a material adverse effect
      on
      the Company's financial condition or results of operations. 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. Forgent
      has
      since settled with defendants Adobe Systems, Inc., Macromedia, Inc., Onkyo
      Corporation, AudioVox Corporation, Axis Communications, Incorporated and Color
      Dreams, Inc.





In
      three
      separate lawsuits filed in July, August and September of 2004, thefirst 30defendants named above sued CLI and Forgent in the United States District
      Court for Delaware, seeking declaratory relief that the ‘672 patent is not
      infringed, is unenforceable, and is invalid, among other claims for relief.
      Additionally, in July and September 2004, Sun Microsystems, Inc. and Google
      Inc.
      filed suit against CLI and Forgent in the San Jose and Oakland Divisions of
      the
      United States District Court for Northern California, seeking similar
      declaratory relief. Forgent and CLI moved to stay, dismiss or transfer the
      Delaware actions, asserting that all such issues should be heard in the U.S.
      District for the Eastern District, Marshall Division, rather than in Delaware.





On
      September 27, 2004, Sun
      Microsystems Inc., Yahoo! Inc. and Google Inc.filed a motion with the
      Judicial Panel on Multidistrict Litigation (“MDL Panel”) requesting the court to
      transfer the ‘672 Litigation to either the Delaware or California courts, where
      the actions filed by the defendants are pending. In October 2004, the Company
      filed its response opposing transfer of the ‘672 Litigation to Delaware or
      California and the remaining defendants filed a response joining in the motion
      to transfer the ‘672 Litigation to Delaware or California. In February 2005, the
      MDL Panel ordered the eight actions related to the ‘672 Litigation to be
      centralized and transferred to the United States District Court for the Northern
      District of California for pre-trial proceedings.





On
      April
      15, 2005, Microsoft Corporation (“Microsoft”) sued CLI and Forgent in the United
      States District Court for the Northern District of California, seeking
      declaratory relief. On April 21, 2005, the Company initiated litigation against
      Microsoft in the United States District Court for the Eastern District of Texas,
      Marshall Division, seeking monetary damages, among other relief sought, for
      the
      infringement of the ‘672 patent. On June 8, 2005, Forgent filed a notice to
      dismiss its suit against Microsoft in the United States District Court for
      the
      Eastern District of Texas, Marshall Division, without prejudice. On June 9,
      2005, Forgent filed a motion to dismiss or stay the *Microsoft
      Corp. v. Forgent Networks, Inc. and CLI* suit
      in
      the United States District Court for the Northern District of California.
      Forgent will continue to protect its intellectual property rights through
      licensing or litigation against Microsoft.





18





At
      a
      proceeding on May 19, 2005, the United States District Court for the Northern
      District of California set the claims construction hearing date for the ‘672
      Litigation to be on February 13, 2006. The February 13 th date was
      confirmed at a case management proceeding held on October 3, 2005. Also, based
      on the October 3 rd proceeding, Microsoft is subject to the same claims construction schedule.





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.
      The USPTO is currently considering whether to grant or deny the
      petition.





Although
      Forgent is currently unaware of any other suits against CLI and itself regarding
      the ‘672 patent, it is possible that other defendants, and/or other accused
      infringers, could file suits against the Company.





**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. If the FTC proceeds with an
      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. The Company believes
      that CLI has not acted improperly and advised the FTC as such. 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 continues to respond to the FTC as required but 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.





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.





**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.





19





**Forgent
      is largely dependent on its Patent Licensing Program and if 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 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. See Part II, Item 1 “Legal Proceedings” for information regarding the
      Federal Trade Commission’s non-public investigation associated with the
      Company’s Patent Licensing Program. 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.





**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.





**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.





20





**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.





**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,
      which results 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.





21





**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 ‘672 Litigation and the ‘746 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.




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.





22





**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.





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





23





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





On
      August
      18, 2005, an annual meeting of the stockholders was held in Austin, Texas,
      whereby the stockholders voted on the following proposals:





1.
            Proposal
                to elect six directors to the board of directors to hold office until
                the
                next annual meeting of stockholders or until their respective successors
                are duly elected and qualified. The stockholders approved the proposal
                by
                the following vote:





**Nominees**
            **For**
            **Withheld**Richard
                N. Snyder
            17,948,000
            5,501,393Richard
                J. Agnich
            19,279,740
            4,169,653Kathleen
                A. Cote
            19,288,230
            4,161,163Lou
                Mazzucchelli
            19,284,540
            4,164,853Ray
                R. Miles
            18,821,556
            4,627,837James
                H. Wells
            19,289,280
            4,160,113





2.
            Proposal
                to ratify the Audit Committee’s appointment of Ernst & Young LLP,
                independent accountants, as the Company’s independent auditors for the
                year ending July 31, 2005. The stockholders approved the proposal
                by the
                following vote:





**For**
            **Against**
            **Abstain**22,708,977
            693,222
            47,194





3.
            Proposal
                to consider and act upon a proposal to approve an amendment to the
                Company’s 1992 Director Stock Option Plan to increase the number of shares
                of the Company’s common stock issuable under the 1992 Director Stock
                Option Plan upon the exercise of stock options granted pursuant to
                the
                1992 Director Stock Option Plan from 250,000 to 500,000. The stockholders
                did not approve the proposal by the following
                vote:


**For**
              **Against**
              **Abstain**4,339,921
              5,456,981
              63,906





4.
            Proposal
                to transact such other business as may properly come before the meeting
                or
                any adjournment thereof. The stockholders approved the proposal by
                the
                following vote:





**For**
            **Against**
            **Abstain**17,157,687
            6,116,898
            174,808





**ITEM
      5. OTHER INFORMATION**





None





**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).








24








4.2
            Rights
                Agreement dated as of July 10, 1996 between VTEL Corporation and
                First
                National Bank of Boston, which includes the form of Certificate of
                Designations for Designating Series A Preferred Stock, $.01 par value,
                the
                form of Rights Certificate, and the Summary of Rights to Purchase
                Series A
                Preferred Stock (incorporated by reference to Exhibit 4.1 to the
                Company's
                Current Report on Form 8-K dated July 10, 1996).10.31
            Legal
                Services Fee Agreement, effective October 26, 2005, by and among
                Forgent
                Networks, Inc., Compression Labs, Inc. and Susman Godfrey LLP
                (incorporated by reference to Exhibit 10.31 of the Company’s annual report
                on Form 10-K for the year ended July 31, 2005).31.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.








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.December
                14, 2005
            By:
            /s/ RICHARD
              N. SNYDERRichard
              N. SnyderChief
              Executive Officer




December
                14, 2005
            By:
            /s/ JAY
              C. PETERSONJay
              C. PetersonChief
                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 July 10, 1996 between VTEL Corporation and
                First
                National Bank of Boston, which includes the form of Certificate of
                Designations for Designating Series A Preferred Stock, $.01 par value,
                the
                form of Rights Certificate, and the Summary of Rights to Purchase
                Series A
                Preferred Stock (incorporated by reference to Exhibit 4.1 to the
                Company's
                Current Report on Form 8-K dated July 10, 1996).10.31
            Legal
                Services Fee Agreement, effective October 26, 2005, by and among
                Forgent
                Networks, Inc., Compression Labs, Inc. and Susman Godfrey LLP
                (incorporated by reference to Exhibit 10.31 of the Company’s annual report
                on Form 10-K for the year ended July 31, 2005).31.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.











27