LIQUIDITY AND CAPITAL RESOURCES
|
|
For the year ended July 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
22,855
|
|
$
|
11,113
|
|
$
|
13,558
|
|
Cash, cash equivalents and short-term investments
|
|
35,062
|
|
16,206
|
|
17,348
|
|
Cash (used in) provided by operating activities
|
|
19,883
|
|
(1,245
|
)
|
(8,010
|
)
|
Cash provided by (used in) investing activities
|
|
(2,095
|
)
|
1,452
|
|
4,425
|
|
Cash provided by (used in) financing activities
|
|
(455
|
)
|
138
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities was $19.9 million in fiscal year 2007; cash used in operating
activities was $1.2 million in fiscal year 2006; and cash used in operating
activities was $8.0 million in fiscal year 2005. The $19.9 million of cash
provided by operating activities during fiscal year 2007 was due primarily to
$12.2 million in net income and a $7.2 million increase in accounts
payable. During the year ended July 31,
2007, Forgent collected $36.0 million in cash receipts from its intellectual
property licensing business. Management
plans to utilize these cash receipts to pay its legal counsel for services
rendered, to fund the iEmployee acquisition and to further support the growth
of its software operations. As of July
31, 2007, Forgents average days sales outstanding was 10 days, a decrease from
15 days as of July 31, 2006. Forgents
ability to collect its accounts receivables from the intellectual property
licensing segment in the same quarter the licensing revenues are generated
significantly contributes to this low average.
Forgents ability to collect its accounts receivable from the software
and services segment remains consistent during fiscal year 2007 with fiscal
year 2006 and reserves for bad debt remains at approximately 2% of its software
trade accounts receivables.
The
$1.2 million of cash used in operating activities during fiscal year 2006 was
due primarily to $3.6 million in net loss, which was offset by a $2.1 million
increase in accounts payable. During
fiscal year 2006, Forgent collected $11.6 million in accounts receivable from
its intellectual property licensing business.
The $8.0 million of cash used in operating activities during fiscal year
2005 was due primarily to $10.0 million in net loss from continuing operations,
which was offset by $1.5 million of non-cash depreciation and amortization
expenses. During fiscal year 2005,
Forgent collected $4.4 million in accounts receivable from its intellectual
property licensing business. Since
management does not anticipate generating any additional licensing revenues
from the 672 patent or the 746 patent, cash provided by Forgents
intellectual property licensing segment is expected to decrease in future
periods.
Cash
used in investing activities was $2.1 million in fiscal year 2007; cash
provided by investing activities was $1.5 million in fiscal year 2006; and cash
provided by investing activities was $4.4 million in fiscal year 2005. The $2.1 million of cash used in investing
activities during fiscal year 2007 was due primarily to $1.5 million purchase
of short-term investments and $0.5 million purchase of fixed assets. The $1.5 million of cash provided by
investing activities during fiscal year 2006 was due primarily to $1.5 million
in cash received from maturities of short-term investments. The $4.4 million of cash provided by
investing activities during fiscal year 2005 was due primarily to $3.3 million
in cash received from the sale of certain assets, including the ALLIANCE
software suite, and $1.0 million in net sales and maturities of short-term
investments.
Forgent manages its investment portfolio in
order to fulfill corporate liquidity requirements and maximize investment
returns while preserving the quality of the portfolio.
As the Companys cash
balances grew during fiscal 2007, Forgent shifted its investment portfolio to
investments with slightly longer maturities in order to capitalize on the
increases in interest rates. As a
result, Forgent achieved a 93.9% increase in interest income during the year
ended July 31, 2007, as compared to the year ended July 31, 2006.
The Company leases 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
and include escalation clauses. The total amount of base rentals over
the term of the Companys leases is charged to expense on a straight-line
basis, with the amount of the rental expense in excess of the lease payments
recorded as a deferred rent liability. Additionally, the Company used the
proceeds from its loans from Silicon Valley Bank to purchase equipment and fund
operations. During the second fiscal quarter of 2007, Forgent fully repaid its
29
outstanding loans from
Silicon Valley Bank.
As of July 31,
2007, Forgent had $1.0 million available from a credit line from Silicon Valley
Bank, although no debt was outstanding at fiscal year-end. Advances obtained from Silicon Valley Bank
credit line will be notes payables that bear interest at prime plus 0.75% and
require monthly installments over a three-year term. The Silicon Valley Bank credit line expires
on May 1, 2008. If Forgent renews this
source of financing, the Company may not be able to obtain similar terms for
the future credit line. Forgent may
periodically make other commitments and thus become subject to other
contractual obligations. Forgents
future minimum lease payments under all operating and capital leases as of July 31, 2007 are as follows:
|
|
Payments
Due By Period
|
|
|
|
(in
thousands)
|
|
|
|
Total
|
|
Less than
1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
$
|
19,350
|
|
$
|
3,525
|
|
$
|
6,910
|
|
$
|
6,836
|
|
$
|
2,079
|
|
Capital lease obligations
|
|
1
|
|
1
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,351
|
|
$
|
3,526
|
|
$
|
6,910
|
|
$
|
6,836
|
|
$
|
2,079
|
|
Approximately
98.9% of the Companys operating lease obligations relate to its corporate
office facility at Wild Basin in Austin, Texas.
As of July 31, 2007, Forgent had $4.2 million in future minimum lease
payments receivable under non-cancelable sublease arrangements. Additionally, Forgent had a $0.8 million
liability related to impairment charges for the economic value of the lost
sublease rental income at its Austin property.
As a result of the iEmployee
acquisition in October 2007, the Companys lease obligations will increase in
fiscal year 2008. Forgents current operations are not capital
intensive
and the Company purchased minimal fixed assets
during past fiscal years. During fiscal
year 2007, the Company made a one-time purchase for software related to the
barcode scanners utilized with its VAM software. This purchase and payments for leasehold
improvements, primarily for new subtenants and subtenant expansions, account
for approximately 81.3% of Forgents purchased fixed assets during the year
ended July 31, 2007. Management does not
anticipate any significant purchases of fixed assets during fiscal year 2008.
Cash used in financing activities was $0.5 million in
fiscal year 2007; cash provided by financing activities was $0.1 million in
fiscal year 2006; and cash provided by financing activities was $0.3 million in
fiscal year 2005. The $0.5 million of
cash used in financing activities during fiscal year 2007 was due primarily to
the repayment of the Companys notes payables. The $0.1 million of cash
provided by financing activities during fiscal year 2006 was due to $0.2
million in proceeds received from the issuance of the Companys common stock,
which was offset by $0.1 million in net payments related to the Companys notes
payable. The $0.3 million of cash provided by financing activities during
fiscal year 2005 was due primarily to $0.4 million in proceeds received from
the issuance of the Companys common stock.
Forgents stock repurchase program allows the Company
to purchase up to 3.0 million shares of the Companys common stock. The shares repurchased under the program for
the years ended July 31, 2007, 2006 and 2005 are as follows:
|
|
Treasury Stock Repurchased
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
|
|
|
36
|
|
Total cost, including fees
|
|
$
|
|
|
$
|
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
30
The shares repurchased by
month during the last quarter of the fiscal year ended July 31, 2007 are as
follows:
|
|
Issuer
Purchases of Equity Securities
(in thousands except average price)
|
|
|
|
|
|
|
|
Total
Number of
Shares
Repurchased
|
|
Average
Price Paid
per Share
|
|
Total Number of
Shares Purchased
as Part of a
Publicly
Announced Plan
|
|
Maximum
Number of
Shares that may
yet be Purchased
Under the Plans
|
|
May 1, 2007 - May 31, 2007
|
|
0
|
|
$
|
0.00
|
|
0
|
|
1,210
|
|
June 1, 2007 - June 30, 2007
|
|
0
|
|
$
|
0.00
|
|
0
|
|
1,210
|
|
July 1, 2007 - July 31, 2007
|
|
0
|
|
$
|
0.00
|
|
0
|
|
1,210
|
|
Total
|
|
0
|
|
$
|
0.00
|
|
0
|
|
1,210
|
|
As
of July 31, 2007, the Company has repurchased 1,790,401 shares for
approximately $4.8 million. Management
will periodically assess repurchasing additional shares during fiscal year
2008, depending on the Companys cash position, market conditions and other
factors.
As
of July 31, 2007, Forgents principal sources of liquidity consisted of $35.1
million in cash, cash equivalents and short-term investments. Management plans to utilize these cash
balances to fund the iEmployee acquisition, expand its NetSimplicity software
operations by making additional prudent investments, continue exploring
potential opportunities in acquiring a growing and profitable public or
privately held technology business or product line, and may repurchase
outstanding shares.
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 Companys future
business demands may lead to cash utilization at levels greater than recently
experienced due to the iEmployee acquisition, potential other acquisitions and
other factors. Management believes that the Company has sufficient capital and
liquidity to fund and cultivate growth of its current and future operations for
the next 12 months and thereafter.
However, due to uncertainties related to the timing and costs of these
efforts, Forgent may need to raise additional capital in the future. Yet, there is no assurance that the Company
will be able to raise additional capital if and when it is needed.
CRITICAL ACCOUNTING POLICIES
The Companys consolidated
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles and include the accounts of Forgents wholly
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated in the consolidation. Preparation of the consolidated financial
statements in conformity with U.S. generally accepted accounting principles
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 and the
determination of the fair value of its long-lived assets. These estimates could
be materially different under different conditions and assumptions. Additionally, the actual amounts could differ
from the estimates made. Management periodically evaluates estimates used in
the preparation of the financial statements for continued reasonableness.
Appropriate adjustments, if any, to the estimates used are made prospectively
based upon such periodic evaluation.
Management
believes the following represent Forgents 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,
Securities and Exchange Commission Staff
Accounting Bulletin 104,
Revenue
31
Recognition,
and Emerging Issues Task Force Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables.
Intellectual
property licensing revenue is derived from the Companys Patent Licensing
Program, which has generated licensing revenues relating to the Companys
technologies embodied in the 672 patent and the 746 patent. Gross
intellectual property licensing revenue is recognized at the time a license
agreement has been executed and collection has been deemed probable. Related costs are recorded as cost of
sales. The cost of sales in the
intellectual property licensing business relates to
contingent
legal fees incurred on successfully achieving signed agreements, as
well as legal fees incurred based upon legal counsels 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 Companys 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. Revenue from the sale of hardware devices is recognized upon
shipment of the hardware. Forgent sells
multiple elements within a single sale.
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 fiscal years 2007 and 2006, VSOE of fair value for the software,
maintenance, and training and installation services were based on the prices
charged for the software, maintenance and services when sold separately. During fiscal year 2005, VSOE of fair value
for maintenance was based upon the renewal rate specified in each contract;
VSOE of fair value for training and installation services was based on the
prices charged for these services when sold separately; and VSOE of fair value
for the software element was not available and thus, software revenue was
recognized under the residual method.
Under the residual method, the contract value is first allocated to the
undelivered elements (maintenance and service elements) based upon their VSOE
of fair value; the remaining contract value, including any discount, is
allocated to the delivered element. The
establishment of VSOE of fair value for the software element during the year
ended July 31, 2006 did not have a material impact on the Companys
consolidated financial statements.
Revenue allocated to maintenance and technical support
is recognized ratably over the maintenance term (typically one year). Revenue allocated to installation and
training is recognized upon completion of these services. The Companys 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 Companys 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standard
Board (FASB) issued Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities.
Statement
No. 159 provides companies with an option to report selected financial assets
and liabilities at fair value. The standards objective is to reduce both
complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide
additional information that will help investors and other users of financial
statements to more easily understand the effect of the companys choice to use
fair value on its earnings. It also requires companies to display the fair
value of those assets and liabilities for which the company has chosen to use
fair value on the face of the balance sheet. This new statement does not
eliminate disclosure requirements included in other accounting standards,
including requirements for disclosures about fair
32
value measurements
included in Statement No. 157,
Fair Value
Measurements,
and Statement No. 107,
Disclosures about Fair Value of Financial Instruments.
Statement
No. 159 is effective as of the beginning of fiscal years beginning after November 15,
2007. Forgent is currently evaluating the effect that the adoption of Statement
No. 159 will have on its financial position and results of operations.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements.
Statement
No. 157 defines fair value, establishes a framework for measuring fair value in
U.S. generally accepted accounting principles and expands disclosures about
fair value measurements. Statement No. 157 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. Forgent is currently evaluating the effect that the adoption of
Statement No. 157 will have on its financial position and results of
operations.
In
June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109
(FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises
financial statements in accordance with Statement No. 109,
Accounting for Income Taxes.
This
interpretation defines the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements.
Additionally, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. Forgent
is adopting FIN48, effective August 1, 2007, and does not believe the adoption
will have a material effect on its consolidated financial statements.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Companys primary market
risk exposure relates to interest rate risk. Forgents interest income is
sensitive to changes in U.S. interest rates.
However, due to the short-term nature of the Companys investments,
Forgent does not consider these risks to be significant.
FOREIGN
CURRENCY EXCHANGE RATE RISK
Currently, the Companys
foreign exchange rate risk is not significant since almost all of the Companys
transactions are denominated in U.S. dollars and due to the relative size of
its international operations. Therefore,
Forgent considers its market risk exposure related to foreign currency exchange
rates on a go-forward basis to be insignificant.
ITEM 8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements and supplementary data required by this Item 8 are
listed in Items 15 (1) and (2) of Part III of this Report (
Exhibits, Financial Statement Schedules
).
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
The
Companys management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be
disclosed in the reports it files under the Securities and Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Such controls include those
designed to ensure that information for disclosure is communicated to
management, including the Chairman of the Board and the Chief Executive Officer
(CEO), as appropriate to allow timely decisions regarding required
disclosure.
The
CEO and Chief Financial Officer, with the participation of management, have
evaluated the effectiveness of the Companys disclosure controls and procedures
as of July 31, 2007. Based on their
evaluation,
33
they have concluded, to the best of their knowledge
and belief, that the disclosure controls and procedures are effective. No changes were made in the Companys
internal controls over financial reporting during the year ended July 31, 2007,
that have materially affected, or are reasonably likely to materially affect,
the Companys internal controls over financial reporting. In making this assessment, management used
the criteria set forth in
Internal
Control-Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Tradeway Commission.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required under this item is
incorporated by reference from the Companys definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal year
2007.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item, is
incorporated by reference from the Companys definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal year
2007.
ITEM 12.
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The information required under this item, with the
exception of the table provided below, is incorporated by reference from the
Companys definitive proxy statement relating to its annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
within 120 days of the end of fiscal year 2007.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides
information as of July 31, 2007 with respect to the shares of the Companys
common stock that may be issued under the Companys existing equity
compensation plans.
|
|
A
|
|
B
|
|
C
|
|
Plan
Category
|
|
Number of Securities
to be Issued upon
Exercise of
Outstanding
Options
|
|
Weighted Average
Exercise Price of
Outstanding
Options
|
|
Number of Securities
Remaining Available
for Future
Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column A)
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plans Approved by Stockholders (1)
|
|
1,169,349
|
(3)
|
$0.81
|
(3)
|
771,909
|
(4)
|
Equity Compensation Plans Not Approved by Stockholders (2)
|
|
-0-
|
|
N/A
|
|
-0-
|
|
Total
|
|
1,169,349
|
|
$0.81
|
|
771,909
|
|
(1)
Consists of the 1989 Stock
Option Plan, the 1992 Director Stock Option Plan, the 1996 Stock Option Plan,
the Restricted Stock Plan and the Employee Stock Purchase Plan.
(2)
All of the Companys equity
compensation plans have been previously approved by the Companys stockholders.
(3)
Excludes purchase rights
accruing under the Companys Restricted Stock Plan and Employee Stock Purchase
Plan which have a combined stockholder approved reserve of 771,909 shares. Under
the Employee Stock Purchase Plan, each eligible employee may purchase up to
2,500 shares per quarter (but in no case can the participant contribute more
than 15% of base pay) of common stock at quarterly intervals on the last day of
the calendar quarter (i.e. March, June, September, and December) each year at a
purchase price per share equal to 85% of the lower of (i) the average
selling price per share of common stock on the first day of the quarter or
(ii) the average selling price per share on the quarterly purchase date.
(4)
Includes shares available
for future issuance under the Companys Restricted Stock Plan and Employee
Stock Purchase Plan. As of July 31,
2007, 706,215 shares of common
stock were available for issuance under the Restricted Stock Plan and 65,694 shares of common stock were
available for issuance under the Employee Stock Purchase Plan.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The information required
under this item is incorporated by reference from the Companys definitive
proxy statement relating to its annual meeting of shareholders, which will be
filed with the Securities and Exchange Commission within 120 days of the end of
fiscal year 2007.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required
under this item is incorporated by reference from the Companys definitive
proxy statement relating to its annual meeting of shareholders, which will be
filed with the Securities and Exchange Commission within 120 days of the end of
fiscal year 2007.
34
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
Financial
Statements and Financial Statements Schedules
(1)
The following financial statements of the Company
are filed as a part of this
Report:
Report of Independent
Registered Public Accounting Firm
Consolidated Financial
Statements
Consolidated
Balance Sheets as of July 31, 2007 and 2006
Consolidated
Statements of Operations for the years ended July 31, 2007, 2006 and 2005
Consolidated Statements
of Changes in Stockholders Equity for the years ended July 31, 2007, 2006 and
2005
Consolidated
Statements of Cash Flows for the years ended July 31, 2007, 2006 and 2005
Notes to Consolidated Financial
Statements
(2)
Financial Statement Schedules
:
All schedules for which provision is made in
the applicable account regulation of the Securities and Exchange Commission are
either not required under the related instructions, are inapplicable or the
required information is included elsewhere in the Consolidated Financial
Statements and incorporated herein by reference.
(b)
Exhibits
The
exhibits filed in response to Item 601 of Regulations S-K are listed in the
Index to the Exhibits.
35
Index To Financial Statements and Financial Statement
Schedules (Item 15(a)(1) of Part IV)
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Forgent Networks, Inc.
We have audited the accompanying consolidated
balance sheets of Forgent Networks, Inc. as of July 31, 2007 and 2006, and the
related consolidated statements of operations, changes in stockholders equity,
and cash flows for each of the three years in the period ended July 31, 2007.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Forgent Networks, Inc. at July 31, 2007 and 2006, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended July 31, 2007, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 2 to the consolidated
financial statements, in fiscal 2006, Forgent Networks, Inc. changed its method
of accounting for stock-based compensation in accordance with guidance provided
in the Statement of Financial Standards No. 123(R), Share-Based Payment.
/s/
Ernst & Young LLP
Austin, Texas
October 19, 2007
F-1
FORGENT NETWORKS, INC.
CONSOLIDATED
BALANCE SHEETS
(Amounts in thousands, except per share data)
|
|
JULY 31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents, including restricted
cash
of $0 and $543 at
July 31, 2007 and 2006, respectively
|
|
$
|
33,524
|
|
$
|
16,206
|
|
Short-term investments
|
|
1,538
|
|
|
|
Accounts receivable, net of allowance for
doubtful
accounts of $21 and
$13 at July 31, 2007 and 2006, respectively
|
|
1,040
|
|
714
|
|
Prepaid expenses and other current assets
|
|
211
|
|
274
|
|
Total
current assets
|
|
36,313
|
|
17,194
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
767
|
|
788
|
|
Intangible
assets, net
|
|
|
|
4
|
|
Other assets
|
|
212
|
|
3
|
|
|
|
$
|
37,292
|
|
$
|
17,989
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,970
|
|
$
|
3,631
|
|
Accrued compensation and benefits
|
|
557
|
|
547
|
|
Other accrued liabilities
|
|
855
|
|
907
|
|
Notes
payable, current portion
|
|
|
|
313
|
|
Deferred revenue
|
|
1,076
|
|
683
|
|
Total current liabilities
|
|
13,458
|
|
6,081
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
Deferred revenue
|
|
28
|
|
11
|
|
Other long-term obligations
|
|
1,186
|
|
1,777
|
|
Total long-term liabilities
|
|
1,214
|
|
1,788
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
Preferred stock, $.01 par value; 10,000 shares
authorized; none
issued or
outstanding
|
|
|
|
|
|
Common stock, $.01 par value; 40,000 shares
authorized; 27,388
and 27,163
shares issued, 25,598 and 25,373 shares outstanding at July 31, 2007 and
2006, respectively
|
|
274
|
|
271
|
|
Treasury stock at cost, 1,790 shares at July
31, 2007 and 2006,
respectively
|
|
(4,815
|
)
|
(4,815
|
)
|
Additional paid-in capital
|
|
265,647
|
|
265,406
|
|
Accumulated deficit
|
|
(238,506
|
)
|
(250,754
|
)
|
Accumulated other comprehensive income
|
|
20
|
|
12
|
|
Total stockholders equity
|
|
22,620
|
|
10,120
|
|
|
|
$
|
37,292
|
|
$
|
17,989
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
FORGENT NETWORKS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
|
|
FOR THE YEAR ENDED JULY 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Intellectual property licensing
|
|
$
|
36,162
|
|
$
|
12,105
|
|
$
|
7,894
|
|
|
Software and services
|
|
4,245
|
|
2,791
|
|
2,012
|
|
|
Total revenues
|
|
40,407
|
|
14,896
|
|
9,906
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES:
|
|
|
|
|
|
|
|
|
Intellectual property licensing
|
|
18,270
|
|
7,057
|
|
6,149
|
|
|
Software and services
|
|
962
|
|
851
|
|
892
|
|
|
Total cost of sales
|
|
19,232
|
|
7,908
|
|
7,041
|
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
21,175
|
|
6,988
|
|
2,865
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
12,008
|
|
10,271
|
|
12,858
|
|
|
Research and development
|
|
611
|
|
618
|
|
318
|
|
|
Amortization of intangible assets
|
|
4
|
|
28
|
|
50
|
|
|
Total operating expenses
|
|
12,623
|
|
10,917
|
|
13,226
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
8,552
|
|
(3,929
|
)
|
(10,361
|
)
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSES) INCOME:
|
|
|
|
|
|
|
|
|
Interest income
|
|
981
|
|
506
|
|
405
|
|
|
Gain on sale of assets
|
|
2,899
|
|
|
|
|
|
|
Foreign currency translation
|
|
(24
|
)
|
(12
|
)
|
(15
|
)
|
|
Interest expense and other
|
|
(66
|
)
|
(76
|
)
|
(24
|
)
|
|
Total other income
|
|
3,790
|
|
418
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE
INCOME TAXES
|
|
12,342
|
|
(3,511
|
)
|
(9,995
|
)
|
|
Provision for income taxes
|
|
(94
|
)
|
(44
|
)
|
(16
|
)
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
12,248
|
|
(3,555
|
)
|
(10,011
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of
income taxes of $0, $0 and
$0 for
the years ended July 31, 2007, 2006 and 2005, respectively
|
|
|
|
|
|
(642
|
)
|
|
Income on disposal, net of income taxes of $0,
$0 and $0 for the
years ended
July 31, 2007, 2006 and 2005, respectively
|
|
|
|
|
|
4,085
|
|
|
INCOME FROM DISCONTINUED OPERATIONS
|
|
|
|
|
|
3,443
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
12,248
|
|
$
|
(3,555
|
)
|
$
|
(6,568
|
)
|
|
|
|
|
|
|
|
|
|
|
BASIC INCOME (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.48
|
|
$
|
(0.14
|
)
|
$
|
(0.40
|
)
|
Income from discontinued operations
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.14
|
|
Net income (loss)
|
|
$
|
0.48
|
|
$
|
(0.14
|
)
|
$
|
(0.26
|
)
|
DILUTED INCOME (LOSS) PER
SHARE:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.47
|
|
$
|
(0.14
|
)
|
$
|
(0.40
|
)
|
|
Income from discontinued operations
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.14
|
|
|
Net income (loss)
|
|
$
|
0.47
|
|
$
|
(0.14
|
)
|
$
|
(0.26
|
)
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
25,515
|
|
25,294
|
|
24,959
|
|
|
Diluted
|
|
26,049
|
|
25,294
|
|
24,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
FORGENT NETWORKS, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Amounts in thousands)
|
|
NUMBER OF
SHARES
OUTSTANDING
|
|
AMOUNT
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
TREASURY
STOCK
|
|
ACCUMULATED
DEFICIT
|
|
OTHER
COMPREHENSIVE
INCOME (LOSS)
|
|
TOTAL
STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 31, 2004
|
|
24,871
|
|
$
|
266
|
|
$
|
264,582
|
|
$
|
(4,726
|
)
|
$
|
(240,631
|
)
|
$
|
9
|
|
$
|
19,500
|
|
Proceeds from stock issued under
employee plans
|
|
342
|
|
3
|
|
438
|
|
|
|
|
|
|
|
441
|
|
Purchase of Treasury Stock
|
|
(36
|
)
|
|
|
|
|
(89
|
)
|
|
|
|
|
(89
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
(6,568
|
)
|
|
|
|
|
Comprehensive loss
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
7
|
|
(6,561
|
)
|
BALANCE AT JULY 31, 2005
|
|
25,177
|
|
269
|
|
265,020
|
|
(4,815
|
)
|
(247,199
|
)
|
16
|
|
13,291
|
|
Proceeds from stock issued under
employee plans
|
|
196
|
|
2
|
|
242
|
|
|
|
|
|
|
|
244
|
|
Stock compensation for
employees and
consultants
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
144
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(3,555
|
)
|
|
|
|
|
Comprehensive loss
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
(4
|
)
|
(3,559
|
)
|
BALANCE
AT JULY 31, 2006
|
|
25,373
|
|
271
|
|
265,406
|
|
(4,815
|
)
|
(250,754
|
)
|
12
|
|
10,120
|
|
Proceeds from stock issued under
employee plans
|
|
225
|
|
3
|
|
89
|
|
|
|
|
|
|
|
92
|
|
Stock compensation for
employees and
consultants
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
148
|
|
Other
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Net income
|
|
|
|
|
|
|
|
|
|
12,248
|
|
|
|
|
|
Comprehensive income
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
8
|
|
12,256
|
|
BALANCE
AT JULY 31, 2007
|
|
25,598
|
|
$
|
274
|
|
$
|
265,647
|
|
$
|
(4,815
|
)
|
$
|
(238,506
|
)
|
$
|
20
|
|
$
|
22,620
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
F-4
FORGENT NETWORKS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
FOR THE YEAR ENDED JULY 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations
|
|
$
|
12,248
|
|
$
|
(3,555
|
)
|
$
|
(10,011
|
)
|
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
515
|
|
1,258
|
|
1,537
|
|
Amortization of leasehold advance and lease
impairments
|
|
(422
|
)
|
(547
|
)
|
(610
|
)
|
Provision for doubtful accounts
|
|
18
|
|
33
|
|
12
|
|
Share-based compensation
|
|
152
|
|
144
|
|
|
|
Foreign currency translation loss (gain)
|
|
23
|
|
(8
|
)
|
5
|
|
Gain on sale/disposal of fixed assets
|
|
|
|
(9
|
)
|
(40
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(329
|
)
|
(343
|
)
|
(84
|
)
|
Prepaid expenses and other current assets
|
|
195
|
|
(324
|
)
|
(56
|
)
|
Accounts payable
|
|
7,169
|
|
2,089
|
|
439
|
|
Accrued expenses and other long term
obligations
|
|
(84
|
)
|
(237
|
)
|
629
|
|
Deferred revenue
|
|
398
|
|
254
|
|
169
|
|
Net cash provided by (used in) operating
activities
|
|
19,883
|
|
(1,245
|
)
|
(8,010
|
)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Cash received
from sale of discontinued operations / assets
|
|
|
|
|
|
3,305
|
|
Purchases of short-term investments
|
|
(1,538
|
)
|
|
|
(1,787
|
)
|
Sales
and maturities of short-term investments
|
|
|
|
1,491
|
|
2,786
|
|
Purchases of property and equipment
|
|
(490
|
)
|
(62
|
)
|
(63
|
)
|
Sales of
property and equipment
|
|
|
|
11
|
|
44
|
|
Collection of notes receivable, net of
issuance
|
|
|
|
|
|
67
|
|
Change
in other assets
|
|
(67
|
)
|
12
|
|
73
|
|
Net cash (used in) provided by investing
activities
|
|
(2,095
|
)
|
1,452
|
|
4,425
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net
proceeds from issuance of stock
|
|
88
|
|
244
|
|
441
|
|
Purchases of treasury stock
|
|
|
|
|
|
(89
|
)
|
Payments
on notes payable and capital leases
|
|
(543
|
)
|
(403
|
)
|
(405
|
)
|
Proceeds
from notes payable
|
|
|
|
297
|
|
401
|
|
Net cash (used in) provided by financing
activities
|
|
(455
|
)
|
138
|
|
348
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED
OPERATIONS:
|
|
|
|
|
|
|
|
Gain on
sale of discontinued operations
|
|
|
|
|
|
(3,305
|
)
|
Net cash
provided by operating activities
|
|
|
|
|
|
2,290
|
|
Net cash
provided by investing activities
|
|
|
|
|
|
1,057
|
|
Net cash
provided by discontinued operations
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Effect of translation exchange rates on cash
|
|
(15
|
)
|
|
|
5
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
17,318
|
|
345
|
|
(3,190
|
)
|
Cash and cash equivalents at beginning of
period
|
|
16,206
|
|
15,861
|
|
19,051
|
|
Cash and cash equivalents at end of period
|
|
$
|
33,524
|
|
$
|
16,206
|
|
$
|
15,861
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
60
|
|
$
|
83
|
|
$
|
58
|
|
Income
taxes paid
|
|
75
|
|
26
|
|
|
|
Stock
compensation for employees and consultants
|
|
148
|
|
144
|
|
|
|
The accompanying notes
are an integral part of these consolidated financial statements
F-5
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
1. THE COMPANY
Forgent Networks, Inc. (Forgent or the Company),
a Delaware
corporation incorporated in 1985,
is a licensor of intellectual
property and a provider of scheduling and asset management software solutions
that enable organizations to schedule and manage their office environment
effectively and efficiently.
Forgents intellectual
property licensing business is derived from the Companys Patent Licensing
Program, which has been focused on generating licensing revenues related to the
Companys U.S. Patent No. 4,698,672 (the 672 patent) and its foreign
counterparts as well as its U.S. Patent No. 6,285,746 (the 746 patent). Since the Company considers the pending
litigations related to these patents to be concluded, management does not
anticipate any additional licensing revenue from these patents. The Companys intellectual property licensing
segment continues to explore its patent portfolio for additional
opportunities. However, the focus of the
Companys future and growth has shifted to its software and services segment.
Forgents software business
includes software products and services from its NetSimplicity product line,
which provides simple and affordable solutions to common office administration
problems. NetSimplicitys flagship
product, Meeting Room Manager, automates the entire facility scheduling
process: reserving rooms, requesting equipment, ordering food, sending
invitations, reporting on the meeting environment and more. The Company also currently markets Visual
Asset Manager, a web-based management tool that enables companies to
efficiently inventory, track and manage their fixed, mobile and IT assets
across the entire organization
.
In September 2007, the Company announced its name
change to Asure Software to reflect the Companys focus on its software and
services segment for its future growth.
In October 2007, Forgent purchased iEmployee, a provider of on-demand
workforce management solutions that help simplify the Human Resource process
and improve employee productivity by managing and communicating human
resources, employee benefits and payroll information.
2. SIGNIFICANT 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,
Securities and Exchange Commission Staff
Accounting Bulletin 104,
Revenue
Recognition,
and Emerging Issues Task Force Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables.
Intellectual
property licensing revenue is derived from the Companys Patent Licensing
Program, which has generated licensing revenues relating to the Companys
technologies embodied in the 672 patent and the 746 patent. Gross
intellectual property licensing revenue is recognized at the time a license
agreement has been executed and collection has been deemed probable. 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 based upon legal counsels 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 Companys 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. Revenue from the sale of hardware devices is recognized upon
shipment of the hardware. Forgent sells
multiple elements within a single sale.
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 fiscal years 2007 and
2006, VSOE of fair value for the software, maintenance, and training and
installation services are based on the prices charged for the software,
maintenance and services when sold separately.
During fiscal year fiscal year 2005, VSOE of fair value for maintenance
was based upon the renewal
F-6
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
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. The establishment of VSOE of fair value for
the software element during the year ended July 31, 2006 did not have a
material impact on the Companys consolidated financial statements.
Revenue allocated to maintenance and technical support
is recognized ratably over the maintenance term (typically one year). Revenue allocated to installation and
training is recognized upon completion of these services. The Companys 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 Companys 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.
BASIS OF PRESENTATION
Forgents
c
onsolidated financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles and include the accounts of the Company and its wholly
owned subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES
Preparation of the consolidated financial statements
in conformity with U.S. generally accepted accounting principles requires
management to
make estimates and assumptions. These estimates are subjective in nature and
involve judgments that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at fiscal year end and the
reported amounts of revenues and expenses during the fiscal year. The more significant estimates made by
management include the valuation allowance for the gross deferred tax assets,
contingency
legal reserves and useful lives of fixed assets . The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the given circumstances. 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and
investments in highly liquid investments with an original maturity of three
months or less when purchased.
All other investments not
considered to be cash equivalents, including highly liquid investments with
maturities greater than three months, are separately classified as short-term
investments.
As of July 31, 2007, the
Company did not have any notes payables, thus, it was not required to hold any
certificates of deposits. As of July 31,
2006, the Company held $543 in certificates of deposit to secure its note
payable to Silicon Valley Bank. This
amount is reported as restricted cash.
F-7
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
SHORT-TERM INVESTMENTS
Short-term investments are carried at market value.
Short-term investments consist of funds invested in U.S. government agency
securities and mature within one year of July 31, 2007. Forgent did not have
any short-term investments as of July 31, 2006.
The carrying amounts of the Companys short-term investments at July 31,
2007 and 2006 are as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
MARKET
|
|
|
|
MARKET
|
|
|
|
COST
|
|
VALUE
|
|
COST
|
|
VALUE
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
1,526
|
|
$
|
1,537
|
|
$
|
|
|
$
|
|
|
|
|
$
|
1,526
|
|
$
|
1,537
|
|
$
|
|
|
$
|
|
|
The Company accounts for investment securities under
Statement of Financial Accounting Standard (SFAS) Statement No. 115,
Accounting for Certain Investments in Debt and Equity
Securities.
Statement No. 115 requires investment securities to be
classified as held-to-maturity, trading or available-for-sale based on the
characteristics of the securities and the activity in the investment portfolio.
At July 31, 2007, all investment securities were classified as
available-for-sale. The Company specifically identifies its short-term
investments and uses the cost of the investments as the basis for recording
unrealized gains and losses as part of other comprehensive income on the
Consolidated Balance Sheet and for recording realized gains and losses as part
of other income and expenses on the Consolidated Statement of Operations. As of
July 31, 2007 and 2006, the Company had $11 and $0 in unrealized losses or
gains on available-for-sale securities, respectively. The Company did not
realize any related losses or gains during the years ended July 31, 2007, 2006
and 2005, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companys financial instruments consist
primarily of cash and cash equivalents, short-term investments, trade accounts
receivable and accounts payable. The
current carrying amounts of these financial instruments approximate their fair
market values
because of the short-term nature of these
instruments.
CREDIT POLICY
The Company reviews potential customers credit
ratings to evaluate customers ability to pay an obligation within the payment
term, which is usually net thirty days.
When payment is reasonably assured and no known barriers exist to
legally enforce the payment, the Company extends credit to customers, which
usually does not exceed 10% of their net worth. An account is placed on Credit
Hold if a placed order exceeds the credit limit and may be placed on Credit
Hold sooner if circumstances warrant.
The Company follows its credit policy consistently and constantly
monitors all of its delinquent accounts for indications of uncollectibility.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts at an
amount estimated to be sufficient to provide adequate protection against losses
resulting from extending credit to the Companys customers. This allowance is based in the aggregate, on
historical collection experience, age of receivables, and general economic
conditions. The allowance for doubtful accounts also considers the need for
specific customer reserves based on the customers payment experience,
credit-worthiness and age of receivable balances.
Forgents
bad debts have not been material and have been within management
expectations. The allowances for
doubtful accounts as of July 31,
F-8
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
2007, 2006 and 2005 are
as follows:
|
|
BALANCE AT
BEGINNING
OF YEAR
|
|
PROVISION FOR
DOUBTFUL
ACCOUNTS
RECEIVABLE
|
|
WRITE-OFF OF
UNCOLLECTIBLE
ACCOUNTS RECEIVABLE
|
|
BALANCE AT
END OF
YEAR
|
|
Year ended July 31, 2007
|
|
13
|
|
18
|
|
(10
|
)
|
21
|
|
Year ended July 31, 2006
|
|
1
|
|
33
|
|
(21
|
)
|
13
|
|
Year ended July 31, 2005
|
|
26
|
|
13
|
(a)
|
(38
|
)(b)
|
1
|
|
(a)
Approximately
$12 of the provision for doubtful accounts receivable was recorded as part of
continuing operations and approximately $1 of the provision for doubtful
accounts receivable was recorded as part of discontinued operations on the
Consolidated Statement of Operations for the year ended July 31, 2005.
(b)
Approximately
$29 of the write-offs relates to the Companys continuing operations and
approximately $9 of the write-offs relate to the Companys discontinued
operations.
CONCENTRATION OF CREDIT RISK
The Company grants credit to customers in the
ordinary course of business. Although concentrations of credit risk related to
the intellectual property licensing segment were relatively high due to the
limited number of customers and the large dollar amounts of the license
agreements, concentrations of credit risk with respect to the Companys trade
accounts receivable related to its on-going software business are limited due
to the large number of customers
, including third-party
resellers,
and their dispersion across several industries and geographic areas.
The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. The Company requires advanced payments or secured
transactions when deemed necessary.
PROPERTY AND EQUIPMENT
Property and equipment, including software, furniture
and equipment, are recorded at cost less accumulated depreciation. Internal
support equipment is video teleconferencing equipment used internally for
purposes such as sales and marketing demonstrations, Company meetings, testing,
troubleshooting customer problems and engineering, and is recorded at
manufactured cost, if the Company manufactured the asset or is recorded at
cost, if purchased. Depreciation is recorded using the straight-line method
over the estimated economic useful lives of the assets, which range from two to
five years.
Property and equipment also
includes leasehold improvements and capital leases, which are recorded at cost
less accumulated amortization.
Amortization of leasehold improvements and capital leases is recorded
using the straight-line method
over the shorter of the lease
term or over the life of the respective assets, as applicable.
Gains or losses
related to retirements or disposition of fixed assets are recognized in the
period incurred.
Repair and maintenance costs are expensed as
incurred. The Company periodically reviews the estimated economic useful lives
of its property and equipment and makes adjustments, if necessary, according to
the latest information available.
IMPAIRMENT OF GOODWILL, INTANGIBLE ASSETS AND
LONG-LIVED ASSETS
Goodwill and other intangible
assets
with indefinite lives
are not required to be
amortized
under SFAS Statement No. 142,
Goodwill
and Other Intangible Assets,
and accordingly, the Company
reviews its
goodwill for possible impairment on an annual basis, or whenever specific events
warrant. Events that may create an impairment review include, but are not
limited to: significant and sustained decline in the Companys stock price or
market capitalization, significant underperformance of operating units and
significant changes in market conditions and trends. Forgent uses a two-step
process and
a discounted cash flow model
to evaluate its
assets for impairment.
If the carrying amount of the goodwill or asset
exceeds its implied fair value, an impairment loss is recognized in an amount
equal to the excess during that fiscal period.
Intangible assets that are not deemed to have indefinite lives are
amortized over their useful lives and are tested for impairment in accordance
with SFAS Statement No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets.
F-9
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
In accordance with Statement
No. 144, Forgent reviews and evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that their net
book value may not be recoverable. When such factors and circumstances
exist, including those noted above, the Company compares the assets carrying
amounts against the estimated undiscounted cash flows to be generated by those
assets over their estimated useful lives. If the carrying amounts are
greater than the undiscounted cash flows, the fair values of those assets are
estimated by discounting the projected cash flows. Any excess of the carrying amounts over the
fair values are recorded as impairments in that fiscal period.
ADVERTISING
COSTS
The Company expenses advertising
costs as they are incurred. Advertising
expenses were $16, $20 and $76 for the years ended July 31, 2007, 2006 and
2005, respectively, and are recorded as part of sales and marketing expenses on
the Consolidated Statements of Operations.
LEASE
OBLIGATIONS
Forgent recognizes its lease
obligations with scheduled rent increases over the term of the lease on a
straight-line basis. Accordingly, the total amount of base rentals over the
term of the Companys leases is charged to expense on a straight-line method,
with the amount of rental expense in excess of lease payments recorded as a
deferred rent liability. As of July 31, 2007 and 2006, the Company
had deferred rent liabilities of $58 and $62, respectively, all of which are
classified in other long-term liabilities. The Company also recognizes capital
lease obligations and records the underlying assets and liabilities on its
Consolidated Balance Sheets. As of July 31, 2007 and 2006, Forgent had $1 and
$0 in capital lease obligations, respectively.
FOREIGN
CURRENCY TRANSLATION
The
financial statements of the Companys foreign subsidiaries are measured using
the local currency as the functional currency. Accordingly, the assets and
liabilities of these foreign subsidiaries are translated at current exchange
rates at each balance sheet date. Translation adjustments arising from the translation
of net assets located outside of the United States into United States dollars
are recorded in accumulated other comprehensive income (loss) as a separate
component of stockholders equity. Income and expenses from the foreign
subsidiaries are translated using monthly average exchange rates. Net gains and
losses resulting from foreign exchange transactions are included in other
income and expenses and were not significant in fiscal years 2007, 2006 and
2005.
INCOME TAXES
The Company accounts for income taxes
using the
liability method
under SFAS Statement No. 109,
Accounting for Income Taxes,
which
requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements
. Under the liability method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse.
Deferred tax assets are
reduced by a valuation allowance when it is more likely than not that some
component or all of the deferred tax assets will not be realized.
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 companys equity
instruments or that may be settled by the issuance of such equity instruments.
Under this standard, companies may not account for stock-based compensation
transactions using the intrinsic-value method in accordance with APB Opinion
No. 25,
Accounting for Stock Issued
to Employees.
Instead,
companies are required to account for such transactions using a fair-value
method and recognize the related expense in the Consolidated Statement of
Operations.
The Company adopted
Statement No. 123R effective beginning August 1, 2005 using the modified
prospective application transition method. The modified prospective application
method requires that companies recognize compensation expense on stock-based
payment awards that are modified, repurchased or cancelled after
F-10
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
the effective date. Additionally,
compensation cost of the portion of awards for which the requisite service has
not been rendered that are outstanding as of August 1, 2005 shall be
recognized as the requisite service is rendered.
The impact of adopting
Statement No. 123R was an increase of $55 in selling, general and
administrative expenses for the year ended July 31, 2006 and an increase of $55
in loss from operations, loss before income taxes and net loss for the year
ended July 31, 2006. The adoption of Statement No. 123R had no impact on basic
and diluted net loss per share for the year ended July 31, 2006.
The weighted average
estimated grant date fair value, as defined by Statement No. 123R, for options
granted under the companys stock option plan during the year ended July 31,
2006 was $1.41 per share. The weighted
average estimated grant date fair value, as defined by Statement No. 123 for
options granted under the companys stock option plan during the year ended
July 31, 2005 was $1.37 per share.
During the year ended July
31, 2005, the Company had compensation expense for stock options 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 loss and net loss per share would have been reduced to the pro forma
amounts indicated in the following table:
|
|
2005
|
|
Net loss
|
|
|
|
Net loss, as reported
|
|
$
|
(6,568
|
)
|
Add: Stock-based employee compensation
expense included in reported net earnings (loss, net of related tax effects)
|
|
4
|
|
Deduct: Stock-based employee compensation expense
determined under fair value-based method for all awards, net of related
tax effects
|
|
(1,158
|
)
|
Net loss, pro forma
|
|
$
|
(7,722
|
)
|
|
|
|
|
|
|
|
|
Basic loss per common share:
|
|
|
|
As reported
|
|
$
|
(0.26
|
)
|
Pro forma
|
|
$
|
(0.31
|
)
|
|
|
|
|
Diluted loss per common share:
|
|
|
|
As reported
|
|
$
|
(0.26
|
)
|
Pro forma
|
|
$
|
(0.31
|
)
|
The fair value of each award
granted from Forgents stock option plans during the years ended July 31, 2006
and 2005 were estimated at the date of grant using the Black-Scholes option
pricing model, assuming no expected dividends and the weighted average
assumptions noted below. No options
were granted during the year ended July 31, 2007.
|
|
2007
|
|
2006
|
|
2005
|
|
Expected volatility (based on historical data)
|
|
N/A
|
%
|
73.70
|
%
|
79.09
|
%
|
Expected life in years
|
|
N/A
|
|
5.05
|
|
5.73
|
|
Risk-free interest rate
|
|
N/A
|
%
|
4.69
|
%
|
3.90
|
%
|
Fair value per award
|
|
$
|
N/A
|
|
$
|
1.41
|
|
$
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2007, $34 of
unrecognized compensation costs related to non-vested option grants is expected
to be recognized over the course of the following 2.5 years.
On
August 1, 2006, the Companys Board of Directors approved the repricing of all
employee stock options with an exercise price greater than $0.385 (the average
of the high and low for August 1, 2006). The new exercise price is $0.385. 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 $88 based on the incremental fair value of
the new options versus the fair value of the old options for the nine months
ended April 30, 2007.
F-11
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
Previously,
on
September 14, 2005 the Companys Board of Directors approved the repricing of
all employee stock options with an exercise price greater than $1.42 (the
average of the high and low for September 14, 2005), most of which were fully
vested. The new exercise price was $1.42. The Board of Directors determined
that the repricing was the most cost effective way to motivate employees with
options that had exercise prices greater than the current fair market
value. The repricing resulted in a
charge of $65 for the year ended July 31, 2006 based on the incremental fair
value of the new options versus the fair value of the old options.
The Company issued 224
shares of common stock related to exercises of stock options granted from its
Stock Option and Stock Purchase Plans for the year ended July 31, 2007. The
Company did not issue any shares of restricted common stock from its Restricted
Stock Plan for the year ended July 31, 2007.
COMPREHENSIVE INCOME
In accordance with the
disclosure requirements of SFAS Statement No. 130,
Reporting Comprehensive Income,
the Companys
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 income for the year ended July 31, 2007 is $12,256. Comprehensive loss for the years ended July
31, 2006 and 2005 are $3,559 and $6,561, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting
Standard Board (FASB) issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities.
Statement No. 159 provides companies with an option to report
selected financial assets and liabilities at fair value. The standards
objective is to reduce both complexity in accounting for financial instruments
and the volatility in earnings caused by measuring related assets and
liabilities differently. The standard
requires companies to provide additional information that will help investors
and other users of financial statements to more easily understand the effect of
the companys choice to use fair value on its earnings. It also requires
companies to display the fair value of those assets and liabilities for which
the company has chosen to use fair value on the face of the balance sheet. This
new statement does not eliminate disclosure requirements included in other
accounting standards, including requirements for disclosures about fair value
measurements included in Statement No. 157,
Fair
Value Measurements,
and Statement No. 107,
Disclosures about Fair Value of Financial
Instruments.
Statement No. 159 is effective as of the beginning of
fiscal years beginning after November 15, 2007. Forgent is currently
evaluating the effect that the adoption of Statement No. 159 will have on its
financial position and results of operations.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements.
Statement
No. 157 defines fair value, establishes a framework for measuring fair value in
U.S. generally accepted accounting principles and expands disclosures about
fair value measurements. Statement No. 157 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. Forgent is currently evaluating the effect that the adoption of
Statement No. 157 will have on its financial position and results of
operations.
In
June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109
(FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises
financial statements in accordance with Statement No. 109,
Accounting for Income Taxes.
This
interpretation defines the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements.
Additionally, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. Forgent
is adopting FIN48, effective August 1, 2007, and does not believe the adoption
will have a material effect on its consolidated financial statements.
3. LITIGATION SETTLEMENTS
Forgent was in legal
proceedings with multiple companies in the United States District Court for the
Eastern District of Texas, Tyler Division (the 746 Litigation), regarding
the infringement of its 746 patent. In
April 2007,
Forgent
entered into settlement and license agreements with nine of the defendants:
Cable One, Inc.; Charter Communications, Inc.; Comcast Corporation;
Comcast STB Software DVR, LLC; Coxcom, Inc.; Digeo, Inc.; Motorola, Inc.;
Scientific-Atlanta, Inc.; and Time Warner Cable, Inc. These
defendants were dismissed from
F-12
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
the 746 Litigation with prejudice.
Under these agreements, Forgent granted the defendants a patent license
and the defendants
paid
the Company a total of $20,000. Additionally,
all parties agreed to release all claims against each other.
Effective May 13, 2007, the
Company reached an agreement in principle to settle the 746 Litigation with
respect to one of the remaining defendants: DIRECTV, Inc. (DIRECTV), and the
parties signed a Settlement and License Agreement on June 25, 2007. Pursuant to this agreement Forgent granted
DIRECTV a patent license; DIRECTV paid the Company $8,000; and the parties
agreed to release all claims against each other. The $28,000 was recorded as intellectual
property licensing revenue on the Consolidated Statement of Operations for the
year ended July 31, 2007.
In May 2007, the jury
deliberating over the 746 Litigation
found the four asserted claims of
the 746 patent to be invalid. This
finding was
in favor of EchoStar
Technologies Corporation and Echosphere L.L.C. (collectively EchoStar), the
two remaining defendants in the 746 Litigation. On August 9, 2007, the Court ordered Forgent
to remit $90 to EchoStar for reimbursement of certain litigation costs. This payment was made on August 23,
2007. As a result, Forgent considers the
746 Litigation to be concluded. The
Company is not actively pursuing additional 746 license agreements and
therefore does not anticipate any additional licensing revenues from its 746
patent.
Forgent was in legal proceedings with multiple
companies in the United States District Court for the Northern District of
California (the 672 Litigation) regarding the infringement of its 672
patent. In October 2006, Forgent signed
a Patent License and Settlement Agreement with the remaining defendants in the 672
Litigation.
Under this agreement, Forgent granted the
defendants a patent license and the defendants paid Forgent $8,000. Additionally, all parties agreed to release
all claims against each other. The
$8,000 was recorded as intellectual property licensing revenue on the
Consolidated Statement of Operations for the year ended July 31, 2007. As a result, Forgent considers the 672 Litigation to be
concluded. The Company is not actively
pursuing additional 672 license agreements and the 672 patent expired in
October 2006 in the United States.
Therefore, Forgent does
not anticipate any additional licensing revenues from its 672 patent.
4. SALE OF
ASSETS
In
November 2006, Forgent sold certain patents and applications associated with
videoconferencing and related fields and technology, together with related
goodwill, rights and documentation, to Tandberg Telecom AS (Tandberg) for
$3,150. Upon closing, Forgent received $2,900 of the purchase price, all
of which was recorded as a gain on sale of assets. The purchase price remaining balance of $250
will be held in escrow for two years for indemnity claims. Following this
sale, Forgent maintained several other patents and patent applications in its
portfolio.
5.
INTELLECTUAL
PROPERTY LEGAL CONTRACTS
In April 2006, Forgent
engaged Hagans Burdine Montgomery Rustay & Winchester (Hagans) and
Bracewell & Giuliani, L.L.P. (Bracewell) to provide legal services
related to the 746 Litigation. Hagans
and Bracewell replaced Godwin Gruber, LLP (Godwin) and Hagans served as the
lead counsel on the 746 Litigation. In
December 2006, Forgent signed an amendment to the Legal Services Fee Agreement
with Hagans and Bracewell. This
amendment increased the contingency fee payable to Hagans and Bracewell from
30% (15% to each law firm) of all license and litigation proceeds related to
the 746 patent and other patents, net of expenses, to 37.5% (20% to Hagans and
17.5% to Bracewell). Additionally,
effective September 1, 2006, all related expenses, including consultant fees,
travel expenses, document production expenses, etc. were allocated as follows:
25% to Forgent, 50% to Hagans, and 25% to Bracewell, until such total expenses
reached $2,500. Prior to the amendment, Forgent was liable for all related
expenses. During the third fiscal
quarter of 2007, the $2,500 threshold was exceeded and Forgent was liable for
all subsequent expenses. In addition to
Hagans and Bracewell, Forgent was also liable for contingency fees to The Roth
Law Firm, P.C. for 10% of the 746 and other patents litigation proceeds, net
of expenses, and to Jenkens & Gilchrist, P.C. (Jenkens) for 10% of all
gross license and litigation proceeds related to the 746 patent.
After Forgent terminated Jenkens, the Company entered
into a Resolution Agreement with Jenkens in December 2004. Under the Resolution Agreement, the Company
believes Jenkens is entitled to $1,400 for all related fees and expenses
related to the settlements from the 746 Litigation. Jenkens interprets the Resolution Agreement
on broader terms and believes it is entitled to $2,800. In July 2007, Jenkens filed a complaint
against the Company in the District Court of Dallas County, Texas, alleging a
breach of contract, and is seeking a declaratory judgment. Forgent disputes Jenkens claims and is
seeking relief through the court system. Management currently
F-13
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
cannot predict how long it
may take to resolve the Jenkens lawsuit.
However, once the Jenkens litigation is finalized, the related
contingency fees and expenses may be adjusted in a future period and could have
a material impact to the Companys consolidated financial statements.
In October 2005, Forgent
engaged Susman Godfrey, LLP (Susman) to replace Godwin and serve as lead
counsel in the 672 Litigation. Forgent
agreed to pay Susman 33% of all net proceeds received from licensing and
litigation once Forgent received $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. As a result of the Resolution
Agreement entered into with Jenkens in December 2004, the Companys liability
to Jenkens was 10% of future gross licensing and litigation proceeds related to
the 672 patent.
Legal
expenses for contingency fees and legal counsels time incurred are recorded as
part of cost of sales from Forgents intellectual property licensing business
on the Consolidated Statements of Operations.
Cost of sales for the intellectual property licensing business for the
years ended July 31, 2007, 2006 and 2005 were $18,270, $7,057 and $6,149,
respectively. Other legal expenses
incurred related to the Patent Licensing Program are recorded as part of
operating expenses on the Consolidated Statements of Operations. Other related legal expenses for the years
ended July 31, 2007, 2006 and 2005 were $3,192, $2,034 and $3,467,
respectively.
6.
DISCONTINUED OPERATIONS
During fiscal year 2005,
Forgent sold assets related to its ALLIANCE software business and fully
divested this business as of July 31, 2005.
In November 2004, the Company sold certain patents and other
intellectual property and documentation related to the management and
scheduling, planning and execution of audio, video and web conferencing to
Tandberg Telecom AS (Tandberg), a wholly owned subsidiary of Tandberg
ASA. Included in this sale was Forgents
ALLIANCE software suite. Additionally,
the Company licensed certain patents to Tandberg and released Tandberg from and
agreed not to assert claims related to Forgents retained patents and
intellectual property. Forgent received
$3,750 in cash upon closing in November 2004.
This transaction allowed the Company to simplify its operations and
generate additional cash to be utilized in Forgents on-going core
operations. Based on the estimated fair
values of the items sold and licensed patents, the sale was recorded as $346 in
intellectual property licensing revenues from continuing operations and $3,303
in gain, net of expenses, from discontinued operations on the Companys
Consolidated Statement of Operations for the year ended July 31, 2005.
As part of divesting its ALLIANCE product line,
Forgent entered into a Separation Agreement and Full and Final Release of
Claims with Kenneth A. Kalinoski, former Vice President Development and Chief
Technology Officer who served as the leader of the ALLIANCE development
operations. Pursuant to the terms of the Agreement, Mr. Kalinoskis employment
relationship with the Company was terminated, effective May 1, 2005. Additionally, Forgent notified its ALLIANCE
customers that the Company would no longer provide maintenance and support
services for the ALLIANCE software after May 31, 2005. Upon the disposal of the ALLIANCE business,
Forgent recorded $231 in losses from discontinued operations for the year ended
July 31, 2005. Forgent did not conduct
any business related to its ALLIANCE operations during fiscal years 2007 or
2006.
In
July 2003, Forgent sold
substantially all of the assets of its
videoconferencing hardware services business (Services Business), based in
King of Prussia, Pennsylvania, to an affiliate of Gores Technology Group (Gores),
a privately held international acquisition and management firm. During fiscal year 2005, the Company recorded
$1,013 in income from the disposal of its Services Business, which resulted
from the final cash payment received from Gores in January 2005 related to the
sale of the Services Business.
As a result of the termination of the ALLIANCE
operations and the sale of the Services Business, the Company has presented
these businesses as discontinued operations on the accompanying consolidated
financial statements. The operating results of the ALLIANCE operations and
Services Business included in the Consolidated Statements of Operations for the
fiscal year ended July 31, 2005 are as follows:
|
|
2005
|
|
|
|
|
|
Revenues from unaffiliated customers
|
|
$
|
198
|
|
Loss from discontinued operations
|
|
(642
|
)
|
Gain on disposal of discontinued operations
|
|
4,085
|
|
|
|
|
|
|
F-14
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
7. LOAN IMPAIRMENT
During
fiscal year 2002, Forgent sold the operations and certain assets, including the
VTEL name, of its videoconferencing equipment business (Products business),
which designed, manufactured and sold multi-media visual communication
products. The sale was made to VTEL
Products Corporation (VTEL), a privately held company created by the former
Vice-President of Manufacturing of the Products business and two other senior
management members of the Products business. As a result of the sale, the
Company received a 90-day subordinated promissory note, bearing interest at an
annual rate of five percent, for $967, and a 5-year subordinated promissory
note, bearing interest at an annual rate of five percent, for $5,000. VTEL did
not remit payment on its first subordinated promissory note as stipulated in
the sales agreement. As a result of this default and due to the uncertainty in
collecting the two outstanding notes from VTEL, the Company fully reserved the
outstanding balances of both notes from VTEL as of July 31, 2002. During the years ended July 31, 2007, 2006
and 2005, Forgent did not recorded any interest income related to the VTEL
notes.
On July
24, 2007, Forgent agreed to accept 267 shares of VTEL Common Stock in
consideration necessary to retire in full the outstanding obligations and
indebtedness from VTEL. Therefore, as of
July 31, 2007, the $5,780 remaining balance for the two outstanding notes, and
the related reserves, were written off.
The new shares, which were received, effective September 19, 2007, are
in addition to the 1,045 shares that Forgent originally received during the
sale in fiscal year 2002. Forgents
total 1,312 shares of VTEL Common Stock represent 19.9% of VTELs fully diluted
equity. Due to the financial uncertainty
of VTELs future, the Company has valued the VTEL shares at $0.
The outstanding loan balance and
the related reserve for loan losses as of July 31, 2007 and 2006 are as
follows:
|
|
JULY 31,
|
|
|
|
2007
|
|
2006
|
|
Loan balance
|
|
$
|
|
|
$
|
5,780
|
|
Reserve for loan losses
|
|
|
|
(5,780
|
)
|
|
|
$
|
|
|
$
|
|
|
8. PROPERTY AND EQUIPMENT
Property and equipment and
related depreciable useful lives are composed of the following:
|
|
JULY 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Software: 3-5 years
|
|
$
|
3,168
|
|
$
|
2,930
|
|
Furniture and equipment: 2-5 years
|
|
2,433
|
|
2,095
|
|
Internal support equipment: 2-4 years
|
|
696
|
|
577
|
|
Capital leases: lease term or life of the asset
|
|
3
|
|
401
|
|
Leasehold improvements: lease term or life of the improvement
|
|
2,276
|
|
2,193
|
|
|
|
8,576
|
|
8,196
|
|
Less accumulated depreciation
|
|
(7,809
|
)
|
(7,408
|
)
|
|
|
$
|
767
|
|
$
|
788
|
|
The amortization of the capital leases is recorded as
depreciation expense on the Consolidated Statements of Operations. Depreciation
and amortization expenses relating to property and equipment were approximately
$505, $1,229 and $1,312 for the years ended July 31, 2007, 2006 and 2005,
respectively.
F-15
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
9. NOTES PAYABLE
Notes
payable at July 31, 2007 and 2006 consist of the following:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Notes payable to Silicon Valley Bank in monthly installments through
April 2009, bearing interest at prime plus 0.75%
|
|
$
|
|
|
$
|
543
|
|
Less: current maturities
|
|
|
|
(313
|
)
|
|
|
|
|
|
|
Long-term notes payable
|
|
$
|
|
|
$
|
230
|
|
The notes payable to Silicon Valley Bank were secured
by a certificate of deposit equal to the $543 balance as of July 31, 2006. During
the second fiscal quarter of 2007, Forgent fully repaid its outstanding loans
from Silicon Valley Bank. As of
July 31, 2007, Forgent had $1,000 available from a credit line from Silicon
Valley Bank. Advances obtained from the
Silicon Valley Bank credit line will be notes payable that bear interest at
prime plus 0.75% and require monthly installments over a three-year term. The Silicon Valley Bank credit line expires
on May 1, 2008. If Forgent renews this
source of financing, the Company may not be able to obtain similar terms for
the future credit line.
10. STOCKHOLDERS EQUITY
SHARE REPURCHASE PROGRAM
During fiscal years 2007, 2006
and 2005, the Company repurchased 0, 0 and 36 shares of its Common Stock for
$0, $0 and $89 respectively. These purchased shares remained in treasury as of
the end of fiscal year 2007.
STOCK AND STOCK OPTION PLANS
Forgent has three stock option plans, the 1989 Stock
Option Plan (the 1989 Plan), the 1996 Stock Option Plan (the 1996 Plan) and
the 1992 Director Stock Option Plan (the 1992 Plan). The 1989 Plan and the
1996 Plan both provide for the issuance of non-qualified and incentive stock
options to employees and consultants of the Company. Stock options are
generally granted at the fair market value at the time of grant, and the
options generally vest ratably over 48 months and are exercisable for a period
of ten years beginning with date of grant. Effective June 1999 the 1989 Plan
expired and effective April 2006, the1996 Plan expired, whereby the Company can
no longer grant options under the plans; however, options previously granted
remain outstanding. The 1992 Plan provides for the issuance of stock options to
non-employee directors at the fair market value at the time of grant. Such
options vest ratably over 36 months and are exercisable for a period of ten
years beginning with the date of the grant. Total compensation expense
recognized in the Consolidated Statements of Operations for stock based awards
was $26, $144 and $4 for fiscal years ending July 31, 2007, 2006 and 2005.
As of July 31, 2007, Forgent had reserved shares of
common stock for future issuance under the 1989, 1992 and 1996 Plans as
follows:
Options outstanding
|
|
1,169
|
|
Options available for future grant.
|
|
4
|
|
Shares reserved.
|
|
1,173
|
|
F-16
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
The following table summarizes activity under all
Plans for the years ended July 31, 2007, 2006 and 2005.
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
SHARES
|
|
WEIGHTED
AVERAGE
EXERCISE
PRICE
|
|
SHARES
|
|
WEIGHTED
AVERAGE
EXERCISE
PRICE
|
|
SHARES
|
|
WEIGHTED
AVERAGE
EXERCISE
PRICE
|
|
Outstanding at the beginning of the year
|
|
1,373
|
|
$
|
1.64
|
|
1,557
|
|
$
|
2.70
|
|
2,274
|
|
$
|
2.71
|
|
Granted
|
|
0
|
|
N/A
|
|
44
|
|
2.22
|
|
101
|
|
1.98
|
|
Exercised
|
|
(200
|
)
|
0.38
|
|
(160
|
)
|
1.41
|
|
(302
|
)
|
1.32
|
|
Canceled
|
|
(4
|
)
|
0.38
|
|
(68
|
)
|
1.90
|
|
(516
|
)
|
3.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
1,169
|
|
$
|
0.81
|
|
1,373
|
|
$
|
1.64
|
|
1,557
|
|
$
|
2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at the end of the year
|
|
1,148
|
|
$
|
0.82
|
|
1,364
|
|
$
|
1.63
|
|
1,472
|
|
$
|
2.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the year
|
|
|
|
$
|
N/A
|
|
|
|
$
|
1.41
|
|
|
|
$
|
1.37
|
|
|
|
OPTIONS OUTSTANDING
|
|
OPTIONS EXERCISABLE
|
|
RANGE OF EXERCISE PRICES
|
|
NUMBER
OUTSTANDING AT
JULY 31, 2007
|
|
WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (YEARS)
|
|
WEIGHTED-
AVERAGE
EXERCISE
PRICE
|
|
NUMBER
EXERCISABLE AT
JULY 31, 2007
|
|
WEIGHTED-
AVERAGE
EXERCISE
PRICE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.38$0.38
|
|
946
|
|
5.21
|
|
$
|
0.38
|
|
924
|
|
$
|
0.38
|
|
1.112.67
|
|
136
|
|
5.81
|
|
1.71
|
|
137
|
|
1.71
|
|
3.613.61
|
|
50
|
|
2.38
|
|
3.61
|
|
50
|
|
3.61
|
|
3.823.82
|
|
25
|
|
4.51
|
|
3.82
|
|
25
|
|
3.82
|
|
6.386.38
|
|
12
|
|
0.38
|
|
6.38
|
|
12
|
|
6.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.38$6.38
|
|
1,169
|
|
5.09
|
|
$
|
0.81
|
|
1,148
|
|
$
|
0.82
|
|
Generally, options are
exercisable immediately upon grant. However, stock issued upon exercise of a
stock option is subject to repurchase by the Company at the exercise price
until the option vesting period has elapsed. At July 31, 2007, options to purchase 1,148 shares were vested. At July 31,
2007, no unvested options had been exercised. The total number of vested or
expected to vest shares at July 31, 2007 were 1,159 with a weighted average exercise price of $0.81
,
weighted average remaining contractual life of 5 years and aggregate intrinsic value of $35. The total intrinsic value of options
exercised during the years ended July 31, 2007, 2006 and 2005 were $148, $231 and $154
,
respectively.
EMPLOYEE STOCK PURCHASE PLAN
On April 29, 1993, Forgent adopted an Employee Stock
Purchase Plan (Employee Plan), which enables all employees to acquire Forgent
stock under the plan. The Employee Plan authorizes the issuance of up to 1,350
shares of Forgents Common Stock. The Employee Plan allows participants to
purchase shares of the Companys Common Stock at a price equal to the lesser of
(a) 85% of the fair market value of the Common Stock on the date of the grant
of the option or (b) 85% of the fair market value of the Common Stock at the
time of exercise. Common Stock issued under the Employee Plan totaled
27 shares, 18 shares and 43 shares,
respectively, for the years ended July 31, 2007, 2006 and 2005.
RESTRICTED STOCK PLAN
On December 17, 1998, the
Company adopted a restricted stock plan (the 1998 Plan). The 1998 Plan
authorizes the issuance of up to one million shares of Forgents Common Stock
to be used to reward, incent and retain employees. During fiscal year 2007 and
2006 the Company issued 0 and 94
shares
under the 1998 Plan with a
F-17
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
weighted-average
grant date fair market value of $0.00 and
$0.84
and recognized $39 and
$24 in related expense, respectively. No
restricted stock was issued during fiscal year 2005.
A summary of the status of nonvested shares as of
July 31, 2007 and 2006, and changes during the year ended July 31, 2007 and
2006, are presented below:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
WEIGHTED-
AVERAGE
GRANT
DATE
FAIR
VALUE
|
|
SHARES
|
|
WEIGHTED-
AVERAGE
GRANT
DATE
FAIR
VALUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONVESTED
SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at August 1
|
|
60
|
|
$
|
0.71
|
|
|
|
$
|
|
|
Granted
|
|
|
|
$
|
|
|
94
|
|
$
|
0.84
|
|
Vested
|
|
(58
|
)
|
$
|
0.66
|
|
(26
|
)
|
$
|
1.00
|
|
Forfeited
|
|
(2
|
)
|
$
|
1.73
|
|
(8
|
)
|
$
|
1.73
|
|
Nonvested at July 31
|
|
|
|
$
|
|
|
60
|
|
$
|
0.71
|
|
As of July 31, 2007, there was no un-vested shares
granted under the Plan. The total fair
value of shares vested during the years ended July 31, 2007, 2006 and 2005 were
$39, $24 and $0, respectively.
MODIFICATIONS TO OPTIONS
On
June 21, 2005, the Board of Directors of the Company approved the acceleration
of all unvested employee options. The
acceleration was done to increase employee morale and to reduce the option
expense in future periods due to the Companys adoption of SFAS Statement No.
123R,
Share-Based Payment.
11. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution 401(k)
plan that is available to substantially all employees. The plan may be amended
or terminated at any time by the Board of Directors. The Company, although not
required to, has provided matching contributions to the plan of $21, $28 and $17 for the years ended
July 31, 2007, 2006 and 2005, respectively. These contributions were recorded
as expenses in the Consolidated Statements of Operations.
12. REVENUE CONCENTRATION
Due
to the limited number of licensees in the Companys Patent Licensing Program,
Forgent experienced a concentration in its revenue sources.
The revenue concentration resulting from
Forgents intellectual property licensing segment for the years ended July 31,
2007, 2006 and 2005 are as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Percentage of Total Revenue
|
|
69.3
|
%
|
33.2
|
%
|
55.5
|
%
|
Number of Customers
|
|
3
|
|
2
|
|
2
|
|
All cash receipts related to these customers have
been collected and the Company does not anticipate any additional intellectual
property licensing revenue from these companies. Additionally, since the 672
Litigation and the 746 Litigation are concluded and management does not expect
additional significant license royalties, Forgent does not anticipate such
revenue concentration in the future.
13. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of
basic and diluted earnings (loss) per common share for the years ended July 31,
2007, 2006 and 2005. Approximately 224
options, 1,373
options and 1,557
options in
F-18
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
fiscal
years 2007, 2006 and 2005, respectively, were not included in the computation
of the dilutive stock options because
the effect of such options would be antidilutive.
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
25,515
|
|
25,294
|
|
24,959
|
|
Effect of dilutive stock options
|
|
534
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
26,049
|
|
25,294
|
|
24,959
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share from continuing operations
|
|
$
|
0.48
|
|
$
|
(0.14
|
)
|
$
|
(0.40
|
)
|
Basic earnings per share from discontinued operations
|
|
|
|
|
|
0.14
|
|
Basic (loss) earnings per share total
|
|
$
|
0.48
|
|
$
|
(0.14
|
)
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share from continuing operations
|
|
$
|
0.47
|
|
$
|
(0.14
|
)
|
$
|
(0.40
|
)
|
Diluted earnings per share from discontinued operations
|
|
|
|
|
|
0.14
|
|
Diluted (loss) earnings per share total
|
|
$
|
0.47
|
|
$
|
(0.14
|
)
|
$
|
(0.26
|
)
|
14. FEDERAL INCOME TAXES
The components of the provision for income taxes
attributable to continuing operations are as follows for the years ended July
31, 2007, 2006 and 2005:
|
|
2007
|
|
2006
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
54
|
|
$
|
|
|
$
|
|
|
State
|
|
18
|
|
|
|
|
|
Foreign
|
|
22
|
|
44
|
|
16
|
|
Total current
|
|
94
|
|
44
|
|
16
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94
|
|
$
|
44
|
|
$
|
16
|
|
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Companys deferred taxes at July 31, 2007 and 2006
are as follows:
|
|
2007
|
|
2006
|
|
DEFERRED TAX ASSETS:
|
|
|
|
|
|
Current deferred tax assets
|
|
|
|
|
|
Deferred revenue
|
|
$
|
87
|
|
$
|
39
|
|
Other
|
|
7
|
|
51
|
|
|
|
94
|
|
90
|
|
Valuation allowance
|
|
(94
|
)
|
(90
|
)
|
Net current deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets
|
|
|
|
|
|
Net operating losses
|
|
53,565
|
|
54,394
|
|
Research and development credit carryforwards
|
|
5,157
|
|
5,263
|
|
Reserve on investment
|
|
|
|
1,988
|
|
Minimum tax credit carryforwards
|
|
388
|
|
280
|
|
Fixed assets
|
|
1,091
|
|
2,295
|
|
|
|
|
|
|
|
|
|
F-19
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Charitable contributions
|
|
1
|
|
1
|
|
Impaired assets
|
|
268
|
|
384
|
|
Stock compensation
|
|
44
|
|
30
|
|
Other
|
|
1
|
|
78
|
|
|
|
60,515
|
|
64,713
|
|
Valuation allowance
|
|
(60,515
|
)
|
(64,713
|
)
|
Net noncurrent deferred tax assets
|
|
|
|
|
|
Net current deferred tax asset
|
|
|
|
|
|
Net noncurrent deferred tax asset
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
At July 31, 2007, the Company
had federal net operating loss carryforwards of approximately $156,323,
research and development credit carryforwards of approximately $4,988 and
alternative minimum tax credit carryforwards of approximately $388. The net
operating loss and research and development credit carryforwards will expire in
varying amounts from 2008 through 2026, if not utilized. Minimum tax credit
carryforwards carry forward indefinitely.
As a result of various acquisitions by the Company in
prior years, utilization of the net operating losses and credit carryforwards
may be subject to a substantial annual limitation due to the change in
ownership provisions of the Internal Revenue Code of 1986, as amended. The
annual limitation may result in the expiration of net operating losses before
utilization.
Due to the uncertainty
surrounding the timing of realizing the benefits of its favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax asset.
Accordingly, no deferred tax benefits have been recorded for the tax
years ended July 31, 2007, 2006 and 2005. The valuation allowance decreased by
approximately $4,194 during the year ended July 31, 2007, primarily due to
operations. Approximately $7,447 of the valuation allowance relates to tax
benefits for stock option deductions included in the net operating loss
carryforward which, when realized, will be allocated directly to contributed
capital to the extent the benefits exceed amounts attributable to book deferred
compensation expense.
Undistributed earnings of the
Companys foreign subsidiaries are considered permanently reinvested and,
accordingly, no provision for U.S. federal or state income taxes has been
provided thereon.
The
Companys provision for income taxes attributable to continuing operations
differs from the expected tax expense amount computed by applying the statutory
federal income tax rate of 34% to income before income taxes for the years
ended July 31, 2007, 2006 and 2005 primarily as a result of the following:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Computed at statutory rate
|
|
$
|
4,197
|
|
$
|
(1,194
|
)
|
$
|
(3,398
|
)
|
State taxes, net of federal benefit
|
|
61
|
|
(14
|
)
|
(299
|
)
|
AMT
|
|
54
|
|
|
|
|
|
Foreign losses not benefited
|
|
|
|
14
|
|
34
|
|
Permanent items
|
|
32
|
|
15
|
|
3
|
|
R&D and AMT credits generated
|
|
(50
|
)
|
|
|
|
|
Change in state rate
|
|
(196
|
)
|
4,636
|
|
|
|
Tax carryforwards not benefited
|
|
(4,004
|
)
|
(3,413
|
)
|
3,676
|
|
|
|
$
|
94
|
|
$
|
44
|
|
$
|
16
|
|
15. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS & OTHER OBLIGATIONS
Forgent leases 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 and include escalation clauses. The total amount of
base rentals over the term of the Companys leases is charged to expense on a
straight-line basis, with the amount of the rental expense in excess of the
lease payments recorded as a deferred rent liability. Additionally, the Company used the proceeds
from its loans from Silicon Valley Bank to purchase
F-20
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
equipment
and fund operations. During the second fiscal quarter of 2007, Forgent
fully repaid its outstanding loans from Silicon Valley Bank. As of July 31, 2007, Forgent had
$1,000 available from a credit line from Silicon Valley Bank, although no debt
was outstanding at fiscal year-end. Advances obtained from the Silicon Valley
Bank credit line will be notes payable that bear interest at prime plus 0.75%
and require monthly installments over a three-year term. The Silicon Valley
Bank credit line expires on May 1, 2008.
If Forgent renews this source of financing, the Company may not be able
to obtain similar terms for the future credit line. Forgent may periodically make other
commitments and thus become subject to other contractual obligations.
Future minimum lease payments
under all operating and capital leases as of July 31, 2007 are as follows:
FISCAL YEAR ENDING:
|
|
OPERATING
LEASE
OBLIGATIONS
|
|
CAPITAL
LEASE
OBLIGATIONS
|
|
|
|
|
|
|
|
2008
|
|
$
|
3,525
|
|
$
|
1
|
|
2009
|
|
3,478
|
|
|
|
2010
|
|
3,432
|
|
|
|
2011
|
|
3,418
|
|
|
|
2012
|
|
3,418
|
|
|
|
Thereafter
|
|
2,079
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
19,350
|
|
$
|
1
|
|
|
|
|
|
|
|
Less amount representing
interest
|
(0
|
)
|
Net present value of
future minimum payments
|
1
|
|
|
|
|
Less current portion of
obligations
|
(1
|
)
|
Long-term portion of
obligations
|
$
|
|
|
Total
rent expense from continuing operations under all operating leases for the
years ended July 31, 2007, 2006 and 2005 was $2,013, $2,014 and $1,874,
respectively. During the years ended July 31, 2007, 2006 and 2005, the Company
received $1,760, $1,986 and $1,699, respectively, in rental income under
sub-leasing arrangements. The rental income offset against rental expense in
the Consolidated Statements of Operations. Approximately 98.9% of Forgents
operating lease obligations relates to its corporate office facility at Wild
Basin in Austin, Texas. As of July 31,
2007, future minimum lease payments receivable under non-cancelable sublease
arrangements totaled $4,200 for all future years and sub-tenant deposits
totaled $201. As a result of the
iEmployee acquisition in October 2007, the Companys lease obligations will
increase in fiscal year 2008.
As of July 31, 2007, the
Company had a $486 liability remaining on its books related to a Tenant
Improvement Allowance that was paid to the Company by the landlord for its Wild
Basin property in Austin, Texas. The
liability is amortized monthly as a reduction in rental expense over the life
of the lease on a straight-line basis.
Approximately $399 of this liability is reported as part of long-term
liabilities on the Companys Consolidated Balance Sheet.
As of July 31, 2007, Forgent
had a $782 liability related to impairment charges for the economic value of
the lost sublease rental income at its property in Austin, Texas. The liability is amortized monthly as a reduction
in rental expense based on the difference between the actual subtenant rental
income and the expected subtenant rental income. Approximately $468 of this liability is
reported as part of long-term liabilities on the Companys Consolidated Balance
Sheet. Additionally, Forgent recorded
$58 as of July 31, 2007 as the lease escalation liability for its Austin, Texas
property.
CONTINGENCIES
Forgent is the defendant or
plaintiff in various actions that arose in the normal course of business.
With the
exception of the proceedings described below, none of the pending legal
proceedings to which the Company is a party are material to the Company.
F-21
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
Litigation with Jenkens &
Gilchrist, P.C.
On July 16, 2007, Jenkens &
Gilchrist, P.C. (Jenkens), Forgents former legal counsel, filed a complaint
against Forgent and Compressions Labs, Inc., in the District Court of Dallas
County, Texas. In its complaint, Jenkens
alleges a breach of contract and is seeking a declaratory judgment. Forgent disputes Jenkens claims and is
seeking relief through the court system.
After Forgent terminated Jenkens, the Company entered
into a Resolution Agreement with Jenkens in December 2004. Under the Resolution Agreement, the Company
believes Jenkens is entitled to $1,400 for all related fees and expenses
related to the settlements from the 746 Litigation. Jenkens interprets the Resolution Agreement
on broader terms and believes it is entitled to $2,800. Management currently cannot predict how long
it may take to resolve the Jenkens lawsuit.
However, once the Jenkens litigation is finalized, the related
contingency fees and expenses may be adjusted in a future period and could have
a material impact to the Companys consolidated financial statements.
Litigation with Hill Partners
On September 6, 2007, Forgent
filed a petition against Wild Basin One & Two, Ltd. (Wild Basin) in the
District Court of Travis County, Texas.
The petition claims Wild Basin is in breach of contract relating to
Forgents lease agreement by unreasonably withholding and delaying its consent
to a pending lease assignment.
On October
19, 2007, Forgent amended its petition to include claims of fraud and breach of
fiduciary duty against Wild Basin.
Forgent
is seeking to recover all damages as a result of the delay in closing its
pending assignment, among other damages.
16. SEGMENT
INFORMATION
Currently, the Company
operates in two distinct segments: intellectual property licensing and software
and services.
During the fiscal years ended
July 31, 2007, 2006 and 2005, Forgents intellectual property licensing
business focused on generating licensing revenues relating to the Companys
technologies embodied in the 672 patent
and its foreign counterparts as well as in
the 746 patent. In October 2006,
the Company settled with the remaining defendants in the 672 Litigation and
does not anticipate generating additional licensing revenues from the 672
patent going forward. Between April 2007
and August 2007, Forgent settled with all of the defendants in the 746
Litigation and does not anticipate generating additional licensing revenues
from the 746 patent going forward. See
Item 3 of
Part I of this Report
(
Legal
Proceedings)
for more detail.
Forgents software and
services business provides customers with scheduling and asset management
software as well as software maintenance and support, installation and training
services and hardware devices. The ALLIANCE operations, which were included in
the software and services segment during fiscal year 2005, are accounted for as
discontinued operations in the consolidated financial statements.
In order to evaluate the
intellectual property licensing and software and services segments as
stand-alone businesses, the Company records all unallocated corporate operating
expenses in the Corporate segment.
The accounting
policies of Forgents reportable segments are the same as those described in
Note 2.
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 Companys Chief Executive Officer and Chief Financial Officer do not
evaluate the segments based on these criteria.
The table below presents
segment information about revenue from unaffiliated customers, gross margins,
and operating (loss) income for the years
ended July 31, 2007, 2006 and 2005:
F-22
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
|
|
INTELLECTUAL
PROPERTY LICENSING
|
|
SOFTWARE & SERVICES
|
|
CORPORATE
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended July 31, 2007
|
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated customers
|
|
$
|
36,162
|
|
$
|
4,245
|
|
$
|
|
|
$
|
40,407
|
|
Gross margin
|
|
17,892
|
|
3,283
|
|
|
|
21,175
|
|
Income (loss) from operations
|
|
12,917
|
|
(1,235
|
)
|
(3,130
|
)
|
8,552
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended July 31, 2006
|
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated customers
|
|
$
|
12,105
|
|
$
|
2,791
|
|
$
|
|
|
$
|
14,896
|
|
Gross margin
|
|
5,048
|
|
1,940
|
|
|
|
6,988
|
|
Income (loss) from operations
|
|
1,458
|
|
(1,864
|
)
|
(3,523
|
)
|
(3,929
|
)
|
|
|
|
|
|
|
|
|
|
|
For the year ended July 31, 2005
|
|
|
|
|
|
|
|
|
|
Revenues from unaffiliated customers
|
|
$
|
7,894
|
|
$
|
2,012
|
|
$
|
|
|
$
|
9,906
|
|
Gross margin
|
|
1,745
|
|
1,120
|
|
|
|
2,865
|
|
Income (loss) from operations
|
|
(3,134
|
)
|
(2,136
|
)
|
(5,091
|
)
|
(10,361
|
)
|
Segment revenues by major source for the years ended
July 31, 2007, 2006 and 2005 are as follows:
|
|
FOR THE YEAR ENDED JULY 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Intellectual Property Licensing
|
|
|
|
|
|
|
|
672 patent
|
|
$
|
8,162
|
|
$
|
12,105
|
|
$
|
7,894
|
|
746 patent
|
|
28,000
|
|
|
|
|
|
|
|
$
|
36,162
|
|
$
|
12,105
|
|
$
|
7,894
|
|
|
|
|
|
|
|
|
|
Software & Services
|
|
|
|
|
|
|
|
Software license
|
|
$
|
2,355
|
|
$
|
1,805
|
|
$
|
1,570
|
|
Hosting services
|
|
132
|
|
1
|
|
|
|
Maintenance & support services
|
|
1,092
|
|
695
|
|
389
|
|
Hardware devices
|
|
353
|
|
66
|
|
|
|
Professional services & other
|
|
313
|
|
224
|
|
53
|
|
|
|
$
|
4,245
|
|
$
|
2,791
|
|
$
|
2,012
|
|
Revenue and long-lived assets related to operations
in the United States and foreign countries for the three
F-23
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
fiscal years ended July 31,
2007 are presented below.
|
|
FOR THE YEAR ENDED JULY 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Revenue from unaffiliated customers:
|
|
|
|
|
|
|
|
United States
|
|
$
|
35,378
|
|
$
|
10,477
|
|
$
|
8,999
|
|
Foreign
|
|
5,029
|
|
4,419
|
|
907
|
|
|
|
$
|
40,407
|
|
$
|
14,896
|
|
$
|
9,906
|
|
|
|
|
|
|
|
|
|
Long-lived assets at the end of year:
|
|
|
|
|
|
|
|
United States
|
|
$
|
959
|
|
$
|
783
|
|
$
|
1,996
|
|
Foreign
|
|
20
|
|
12
|
|
21
|
|
|
|
$
|
979
|
|
$
|
795
|
|
$
|
2,017
|
|
17. QUARTERLY INFORMATION (UNAUDITED)
The following tables contain selected unaudited
consolidated statements of operations and earnings (loss) per share data for
each quarter during fiscal years 2007 and 2006.
|
|
FOR THE THREE MONTHS ENDED
|
|
|
|
31-Oct-06
|
|
31-Jan-07
|
|
30-Apr-07
|
|
31-Jul-07
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
9,096
|
|
$
|
1,045
|
|
$
|
20,978
|
|
$
|
9,288
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin from operations
|
|
$
|
5,246
|
|
$
|
850
|
|
$
|
10,190
|
|
$
|
4,889
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,749
|
|
$
|
1,298
|
|
$
|
6,046
|
|
$
|
2,155
|
|
Basic income per share
|
|
$
|
0.11
|
|
$
|
0.05
|
|
$
|
0.24
|
|
$
|
0.08
|
|
Diluted income per share
|
|
$
|
0.11
|
|
$
|
0.05
|
|
$
|
0.23
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE THREE MONTHS ENDED
|
|
|
|
31-Oct-05
|
|
31-Jan-06
|
|
30-Apr-06
|
|
31-Jul-06
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,647
|
|
$
|
4,351
|
|
$
|
2,538
|
|
$
|
4,360
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin from operations
|
|
$
|
1,366
|
|
$
|
2,073
|
|
$
|
1,178
|
|
$
|
2,371
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,382
|
)
|
$
|
(480
|
)
|
$
|
(1,431
|
)
|
$
|
(262
|
)
|
Basic loss per share
|
|
$
|
(0.05
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
(0.01
|
)
|
Diluted loss per share
|
|
$
|
(0.05
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
(0.01
|
)
|
18. SUBSEQUENT EVENTS (UNAUDITED)
On October 5, 2007, Forgent
purchased iSarla Inc., a Delaware corporation and application service provider
that offers on-demand workforce management solutions that help simplify the
Human Resource process and improve employee productivity by managing and
communicating human resources, employee benefits and payroll information.
iSarla Inc. conducts its business under the trade name iEmployee and provides hosted application services,
including Time & Attendance, Timesheets, Human Resource Benefits, Expenses
and other solutions. iEmployee is a
profitable business with a high volume of recurring revenues. The acquisition expands Forgents current
target markets, significantly augments the Companys product and service
offerings to customers, and increases revenues from its software and services
segment considerably.
F-24
FORGENT NETWORKS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data or otherwise noted)
In consideration for the acquisition, Forgent paid approximately
$12,712, including $6,602
in cash, 5,095 shares of its Common Stock,
totaling approximately $4,987
and represent approximately 19.9% of the Company, based on common shares
outstanding, and transaction cost of approximately $1,123. Upon closing, $990
in cash and 764 shares totaling $748 of the purchase price were held in escrow
for representations and warranties. The
purchase agreement did not include provisions for any other contingent
payments, options or
commitments. The Company will include
results of operations from the iEmployee business starting in the first fiscal
quarter of 2008.
The business combination was
accounted for under FASB Statement No. 141,
Business
Combinations.
The
application of purchase accounting under Statement No. 141 requires the total
purchase price to be allocated to the fair value of assets acquired and
liabilities assumed based on their fair values at the acquisition date, with
amounts exceeding fair value being recorded as goodwill. Due to the proximity of this acquisition to
the Companys filing of this Annual Report on Form 10-K, the Company is
currently in the process of obtaining information to assess the fair value of
the assets acquired and the liabilities assumed. Forgent has 12 months from the closing of the
acquisition to finalize these valuations.
F-25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
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.
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FORGENT NETWORKS, INC.
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October 29, 2007
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By
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/s/ RICHARD N. SNYDER
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Richard
N. Snyder
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Chief
Executive Officer
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Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Signature
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Title
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Date
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/s/ RICHARD N.
SNYDER
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Chief Executive Officer
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October 29, 2007
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Richard N. Snyder
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Chairman of the Board
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(Principal Executive Officer)
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/s/ JAY C.
PETERSON
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Chief Financial Officer
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October 29, 2007
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Jay C. Peterson
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Vice-President Finance and Treasurer (Principal
Financial Officer and Principal Accounting Officer)
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/s/ RICHARD J.
AGNICH
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Director
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October 29, 2007
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Richard J. Agnich
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/s/ KATHLEEN A.
COTE
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Director
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October 29, 2007
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Kathleen A. Cote
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/s/ LOU
MAZZUCCHELLI
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Director
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October 29, 2007
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Lou Mazzuccheli
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/s/ RAY R. MILES
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Director
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October 29, 2007
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Ray R. Miles
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/s/ JAMES H.
WELLS
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Director
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October 29, 2007
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James H. Wells
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INDEX TO
EXHIBITS
EXHIBIT
NUMBER
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DOCUMENT
DESCRIPTION
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2.1
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Agreement
and Plan of Merger and Reorganization dated as of January 6, 1997 by and
among VTEL, VTEL-Sub, Inc. and CLI (incorporated by reference to the Exhibit
99.1 of VTELs Report on Form 8-K dated January 6, 1997).
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3.1
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Restated
Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Companys quarterly report on Form 10-Q for the three months ended October
31, 2004).
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3.2
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Restated
Bylaws (incorporated by reference to Exhibit 3.2 to the Companys quarterly
report on Form 10-Q for the three months ended October 31, 2004).
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4.1
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Specimen
Certificate for the Common Stock (incorporated by reference to Exhibit 4.1 to
the Companys Registration Statement on Form S-1, File No. 33-45876, as
amended).
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4.2
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Rights
Agreement, dated as of December 19, 2005 between Forgent Networks, Inc. and
American Stock Transfer & Trust Company, which includes the form of
Series A Preferred Stock, $.01 par value, the form of Rights Certificate, and
the Summary of Rights (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated December 19, 2005).
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10.2
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VideoTelecom
Corp. 1989 Stock Option Plan, as amended (incorporated by reference to
Exhibit 4.1 to the Companys Registration on Form S-8, File No. 33-51822).
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10.3
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Form
of VideoTelecom Corp. Nonqualified Stock Option Agreement (incorporated by
reference to Exhibit 10.16 to the Companys Registration Statement on Form
S-1, File No. 33-45876, as amended).
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10.4
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Form
of VideoTelecom Corp. Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.17 to the Companys Registration Statement on Form
S-1, File No. 33-45876, as amended).
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10.8
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VideoTelecom
Corp. 1992 Director Stock Option Plan (incorporated by reference to Exhibit
4.1 to the Companys Registration on Form S-8, File No. 33-51822).
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10.9
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VideoTelecom
Corp. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1
to the Companys Registration on Form S-8, File No. 33-51822).
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10.12
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Amendment
to the VideoTelecom Corp. 1989 Stock Option Plan and the 1992 Director Stock
Option Plan (the terms of which are incorporated by reference to the
Companys 1996 Definitive Proxy Statement).
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10.13
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The
VTEL Corporation 1996 Stock Option Plan (the terms of which are incorporated
by reference to the Companys 1995 Definitive Proxy Statement).
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10.14
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Amendment
to the VTEL Corporation 1996 Stock Option Plan (the terms of which are
incorporated by reference to the Companys Joint Proxy Statement filed on
April 24, 1997).
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10.18
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Lease
Agreement, dated January 30, 1998, between 2800 Industrial, Inc., Lessor and
VTEL Corporation, Lessee (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the three months ended April 30,
1998).
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10.19
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First
Amendment, dated March 11, 1998, to Lease Agreement dated January 30, 1998,
between 2800 Industrial, Inc., Lessor and VTEL Corporation, Lessee
(incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q for the three months ended April 30, 1998).
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10.20
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The
VTEL Corporation 1998 Restricted Stock Plan (the terms of which are
incorporated by reference to the Companys 1998 Definitive Proxy Statement).
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10.25
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Change-in
Control Agreements with members of senior management of the Company
(incorporated by reference to Exhibit 10.25 of the
Companys Quarterly Report on Form 10-Q for the three months ended January
31, 2005).
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10.25(a)
*
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Nancy
L. Harris
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10.26
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Resolution
Agreement dated December 21, 2004, by and between Forgent Networks, Inc.,
Compression Labs, Inc. and Jenkens & Gilchrist
, a Professional Corporation (incorporated by
reference to Exhibit 10.26 of the Companys Quarterly Report on Form 10-Q for
the three months ended January 31, 2005).
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10.27
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Agreement
dated January 11, 2005 but entered into and executed January 13, 2005 by and
between Forgent Networks, Inc., Compression Labs, Inc. and Godwin Gruber, LLP
(incorporated by reference
to Exhibit 10.27 of the Companys Quarterly Report on Form 10-Q for the three
months ended January 31, 2005).
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10.28
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Agreement
dated January 19, 2005, by and between Forgent Networks, Inc., Compression
Labs, Inc. and The Roth Law Firm, P.C.
(incorporated by reference to Exhibit 10.28 of the
Companys Quarterly Report on Form 10-Q for the three months ended January
31, 2005).
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10.29
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Settlement
Agreement, dated April 28, 2005, by and among Forgent Networks, Inc., Forgent
Networks Canada, Inc., Network Simplicity Software, Inc., Extreme Ease
Software, Inc., and James Dean (incorporated by reference to Exhibit 10.29 of
the Companys report on Form 8-K dated May 4, 2005).
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10.30
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Amended
and Restated Agreement, effective May 1, 2005, by and among Forgent Networks,
Inc., Compression Labs, Inc., and Godwin Gruber, LLP (incorporated by
reference to Exhibit 10.30 of the Companys report on Form 8-K dated May 25,
2005).
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10.31
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Separation
Agreement
and Full and Final Release of Claims, dated May
24, 2005, by and among Forgent Networks, Inc. and Ken Kalinoski (incorporated
by reference to Exhibit 10.31 of the Companys report on Form 8-K dated May
31, 2005).
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10.32
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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 10.32 of the Companys annual report on Form 10-K for
the year ended July 31, 2005).
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10.33
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Legal
Services Fee Agreement, effective April 14, 2006, by and among Forgent
Networks, Inc., Hagans, Bobb & Burdine, P.C. and Bracewell &
Giuliani, L.L.P
(incorporated
by reference to Exhibit 10.33 of the Companys Quarterly Report on Form 10-Q
for the three months ended April 31, 2006).
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10.34
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Amended
Restricted Stock Plan, effective May 23, 2006
(incorporated by reference to Exhibit 10.34 of the
Companys Quarterly Report on Form 10-Q for the three months ended April 31,
2006).
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10.35
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Patent
License and Settlement Agreement, effective October 25, 2006, by and among
Forgent Networks, Inc., ACER, Incorporated, Agfa-Gevaert N.V., BancTec, Inc.,
Canon Inc., Concord Camera Corp., Creative Technology, Ltd., Dell Inc.,
Eastman Kodak Company and Creo, Inc., FUJIFILM Holdings Corporation, Fujitsu
Limited, Gateway, Inc., Hewlett Packard Company, International Business
Machines Corporation, Kyocera Corporation, Matsushita Electric Industrial
Co., Ltd., Microsoft Corporation, Mitsubishi Electric Corporation, Palm,
Inc., Ricoh Company, Ltd., Sun Microsystems, Inc., Thomson, Inc., TiVo Inc.,
and Toshiba Corporation
(incorporated
by reference to Exhibit 10.35 of the Companys Annual Report on Form 10-K for
the year ended July 31, 2006)
.
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10.36
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Second
Asset Purchase Agreement, effective November 21, 2002, between Forgent
Networks, Inc. and Tandberg Telecom AS
(incorporated by reference to Exhibit 10.36 of the
Companys Quarterly Report on Form 10-Q for the three months ended October
31, 2006)
.
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10.37
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Amended
Legal Services Fee Agreement, effective September 1, 2006, by and among
Forgent Networks, Inc., Hagans, Burdine, Montgomery, Rustay & Winchester,
P.C. and Bracewell & Giuliani, L.L.P.
(incorporated by reference to Exhibit 10.37 of the
Companys Quarterly Report on Form 10-Q for the three months ended October
31, 2006).
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10.38
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Forgent
Networks, Inc. Incentive Bonus Plan
(incorporated by reference to Exhibit 10.38 of the
Companys Quarterly Report on Form 10-Q for the three months ended October
31, 2006)
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10.39
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Settlement
and Patent License Agreement, effective April 25, 2007, by and among Forgent
Networks, Inc., Motorola, Inc, and Digeo, Inc.
(incorporated by reference to Exhibit 10.38 of the
Companys Quarterly Report on Form 10-Q for the three months ended April 30
2007).
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10.40
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Settlement
and License Agreement, effective April 25, 2007, between Forgent Networks,
Inc. and Cisco Systems, Inc.
(incorporated by reference to Exhibit 10.39 of the Companys
Quarterly Report on Form 10-Q for the three months ended April 30 2007).
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10.41**
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Settlement
and License Agreement, effective May 13, 2007, between Forgent Networks, Inc.
and DIRECTV, Inc.
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21.1
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List
of Subsidiaries
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23.1
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Consent
of Independent Registered Public Accounting Firm
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31.1
|
|
Certification
pursuant to Section 302 of Sarbanes-Oxley Act of 2002
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31.2
|
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Certification
pursuant to Section 302 of Sarbanes-Oxley Act of 2002
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32.1
|
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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32.2
|
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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* Management
contract
** File
herewith; confidential treatment has been requested for certain portions of the
Exhibit.
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