Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
|
For the quarterly period ended
April 30, 2009
|
|
|
OR
|
|
|
o
|
TRANSITION
REPORT
PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period from
to
|
Commission file number: 0-20008
FORGENT NETWORKS, INC.
(Exact Name of
Registrant as Specified in its Charter)
Delaware
|
|
74-2415696
|
(State of other
jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or
organization)
|
|
Identification
No.)
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|
|
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108
Wild Basin Road
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|
|
Austin,
Texas
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78746
|
(Address of
Principal Executive Offices)
|
|
(Zip Code)
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(512) 437-2700
(Registrants Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer or a non-accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer
o
|
|
Accelerated
filer
o
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
x
|
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
On
June 12, 2009, the registrant had outstanding 31,114,915 shares of its Common Stock, $0.01 par value.
Table of
Contents
FORGENT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Amounts in thousands, except per share data)
|
|
APRIL 30,
2009
|
|
JULY 31,
2008
|
|
|
|
(UNAUDITED)
|
|
|
|
ASSETS
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,194
|
|
$
|
12,062
|
|
Short-term investments
|
|
2,915
|
|
2,627
|
|
Accounts receivable, net of allowance for doubtful
accounts of $30 and $41 at April 30, 2009 and July 31, 2008,
respectively
|
|
901
|
|
1,488
|
|
Inventory
|
|
3
|
|
74
|
|
Prepaid expenses and other current assets
|
|
444
|
|
421
|
|
Total Current Assets
|
|
12,457
|
|
16,672
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
695
|
|
907
|
|
Intangible assets, net
|
|
4,144
|
|
4,729
|
|
|
|
$
|
17,296
|
|
$
|
22,308
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,562
|
|
$
|
3,778
|
|
Accrued compensation and benefits
|
|
184
|
|
203
|
|
Lease impairment and advance
|
|
335
|
|
373
|
|
Other accrued liabilities
|
|
465
|
|
384
|
|
Deferred revenue
|
|
1,807
|
|
1,844
|
|
Total Current Liabilities
|
|
6,353
|
|
6,582
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
Deferred revenue
|
|
72
|
|
25
|
|
Lease
impairment and advance
|
|
276
|
|
564
|
|
Other long-term obligations
|
|
183
|
|
217
|
|
Total Long-Term Liabilities
|
|
531
|
|
806
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
Preferred stock, $.01 par value; 10,000 shares
authorized; none issued or outstanding
|
|
|
|
|
|
Common stock, $.01 par value; 40,000 shares
authorized; 32,905 and 32,892 shares issued; 31,115 and 31,102 shares
outstanding at April 30, 2009 and July 31, 2008, respectively
|
|
329
|
|
329
|
|
Treasury stock at cost, 1,790 shares at
April 30, 2009 and July 31, 2008
|
|
(4,815
|
)
|
(4,815
|
)
|
Additional paid-in capital
|
|
270,725
|
|
270,657
|
|
Accumulated deficit
|
|
(255,678
|
)
|
(251,214
|
)
|
Accumulated other comprehensive income
|
|
(149
|
)
|
(37
|
)
|
Total Stockholders Equity
|
|
10,412
|
|
14,920
|
|
|
|
$
|
17,296
|
|
$
|
22,308
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
3
Table of
Contents
FORGENT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Amounts in thousands, except per share data)
|
|
FOR THE
THREE MONTHS ENDED
APRIL 30,
|
|
FOR THE
NINE MONTHS ENDED
APRIL 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(UNAUDITED)
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,402
|
|
$
|
2,707
|
|
$
|
7,615
|
|
$
|
7,316
|
|
Cost
of Sales
|
|
(494
|
)
|
(639
|
)
|
(1,526
|
)
|
(1,598
|
)
|
Gross Margin
|
|
1,908
|
|
2,068
|
|
6,089
|
|
5,718
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative
|
|
2,614
|
|
2,951
|
|
8,844
|
|
8,353
|
|
Research and development
|
|
544
|
|
616
|
|
1,630
|
|
1,547
|
|
Amortization of intangible assets
|
|
149
|
|
149
|
|
448
|
|
340
|
|
Total Operating Expenses
|
|
3,307
|
|
3,716
|
|
10,922
|
|
10,240
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
(1,399
|
)
|
(1,648
|
)
|
(4,833
|
)
|
(4,522
|
)
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME AND (EXPENSES):
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
20
|
|
109
|
|
109
|
|
641
|
|
Foreign currency translation
|
|
(6
|
)
|
2
|
|
93
|
|
(9
|
)
|
Gain on sale of assets
|
|
26
|
|
|
|
276
|
|
|
|
Interest expense and other
|
|
(18
|
)
|
(22
|
)
|
(51
|
)
|
(51
|
)
|
Total Other Income
|
|
22
|
|
89
|
|
427
|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS, BEFORE
INCOME TAXES
|
|
(1,377
|
)
|
(1,559
|
)
|
(4,406
|
)
|
(3,941
|
)
|
Provision for income taxes
|
|
(10
|
)
|
(14
|
)
|
(58
|
)
|
(34
|
)
|
NET LOSS
|
|
$
|
(1,387
|
)
|
$
|
(1,573
|
)
|
$
|
(4,464
|
)
|
$
|
(3,975
|
)
|
|
|
|
|
|
|
|
|
|
|
BASIC AND
DILUTED LOSS PER SHARE:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
$
|
(0.05
|
)
|
$
|
(0.14
|
)
|
$
|
(0.13
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.05
|
)
|
$
|
(0.14
|
)
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
31,113
|
|
30,995
|
|
31,109
|
|
29,667
|
|
Diluted
|
|
31,113
|
|
30,995
|
|
31,109
|
|
29,667
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
4
Table of
Contents
FORGENT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Amounts in thousands)
|
|
FOR THE NINE MONTHS
ENDED APRIL 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
Net loss
|
|
$
|
(4,464
|
)
|
$
|
(3,975
|
)
|
Adjustments to reconcile net loss to net cash used
in operations:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
957
|
|
808
|
|
Amortization of leasehold advance and lease
impairment
|
|
(285
|
)
|
(298
|
)
|
Provision for doubtful accounts
|
|
32
|
|
15
|
|
Share-based compensation
|
|
66
|
|
72
|
|
Foreign currency translation (gain) loss
|
|
(90
|
)
|
1
|
|
Loss on sale of assets
|
|
67
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
487
|
|
386
|
|
Inventory
|
|
71
|
|
|
|
Prepaid expenses and other current assets
|
|
(82
|
)
|
(94
|
)
|
Accounts payable
|
|
(233
|
)
|
(8,207
|
)
|
Accrued expenses and other long-term obligations
|
|
88
|
|
(454
|
)
|
Deferred revenue
|
|
78
|
|
(180
|
)
|
Net cash used in operating activities
|
|
(3,308
|
)
|
(11,926
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
Net purchases of short-term investments
|
|
(276
|
)
|
(1,273
|
)
|
Net purchases of property and equipment
|
|
(254
|
)
|
(284
|
)
|
Change in other assets
|
|
|
|
164
|
|
Acquisition of iSarla, Inc., net of cash
acquired
|
|
|
|
(7,344
|
)
|
Net cash used in investing activities
|
|
(530
|
)
|
(8,737
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Net proceeds from issuance of stock
|
|
2
|
|
14
|
|
Payments on capital leases
|
|
(25
|
)
|
(1
|
)
|
Net cash (used in) provided by financing
activities
|
|
(23
|
)
|
13
|
|
|
|
|
|
|
|
Effect of translation exchange rates
|
|
(7
|
)
|
(62
|
)
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(3,868
|
)
|
(20,712
|
)
|
Cash and cash equivalents at beginning of period
|
|
12,062
|
|
33,524
|
|
Cash and cash equivalents at end of period
|
|
$
|
8,194
|
|
$
|
12,812
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
Issuance of stock for
acquisition of iSarla, Inc.
|
|
$
|
|
|
$
|
4,987
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
5
Table of
Contents
FORGENT NETWORKS, INC.
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
NOTE 1 - GENERAL AND BASIS OF FINANCIAL STATEMENTS
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission and accordingly, do not include all information and
footnotes required under U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, these interim
financial statements contain all adjustments, consisting of normal, recurring
adjustments, necessary for a fair presentation of the financial position of
Forgent Networks, Inc. (Forgent or the Company) as of April 30,
2009 and July 31, 2008, the results of operations for the three and nine
months ended April 30, 2009 and April 30, 2008, and the cash flows for the nine months ended April 30, 2009
and April 30, 2008. These condensed consolidated financial
statements should be read in conjunction with the Companys audited
consolidated financial statements and notes thereto filed with the Securities
and Exchange Commission in the Companys annual report on Form 10-K/A for
the fiscal year ended July 31, 2008.
The results for the interim periods are not necessarily indicative of
results for a full fiscal year. Certain
reclassifications have been made to prior years financial statement to conform
to the current year presentation.
NOTE 2 - INTANGIBLE ASSETS
Forgent accounted for its historical acquisitions in
accordance with
Financial Accounting Standard Board (FASB)
Statement
No. 141,
Business Combination.
T
he Company recorded intangible assets apart from
goodwill if the assets had contractual or other legal rights or if the assets
could be separated and sold, transferred, licensed, rented or exchanged. Forgents intangible assets relate to its
acquisition of iSarla Inc. and the iEmployee operations.
In accordance with FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets,
Forgent reviews and evaluates its long-lived assets, including intangible
assets with finite lives, for impairment whenever events or changes in
circumstances indicate that their net book value may not be recoverable. The gross carrying amount and accumulated
amortization of the Companys intangible assets as of April 30, 2009 and July 31,
2008 are as follows:
|
|
|
|
April 30, 2009
|
|
|
|
Amortization
|
|
|
|
Accumulated
|
|
|
|
Intangible Asset
|
|
Period (in Years)
|
|
Gross
|
|
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
Developed
Technology
|
|
5
|
|
$
|
915
|
|
$
|
(287
|
)
|
$
|
628
|
|
Customer
Relationships
|
|
8
|
|
2,470
|
|
(485
|
)
|
1,985
|
|
Ceridian
Contract
|
|
8
|
|
1,545
|
|
(303
|
)
|
1,242
|
|
Trade
Names
|
|
5
|
|
288
|
|
(90
|
)
|
198
|
|
Covenant
not-to-compete
|
|
4
|
|
150
|
|
(59
|
)
|
91
|
|
|
|
|
|
$
|
5,368
|
|
$
|
(1,224
|
)
|
$
|
4,144
|
|
|
|
|
|
July 31, 2008
|
|
|
|
Amortization
|
|
|
|
Accumulated
|
|
|
|
Intangible Asset
|
|
Period (in Years)
|
|
Gross
|
|
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
Developed
Technology
|
|
5
|
|
$
|
915
|
|
$
|
(150
|
)
|
$
|
765
|
|
Customer
Relationships
|
|
8
|
|
2,470
|
|
(253
|
)
|
2,217
|
|
Ceridian
Contract
|
|
8
|
|
1,545
|
|
(158
|
)
|
1,387
|
|
Trade
Names
|
|
5
|
|
288
|
|
(47
|
)
|
241
|
|
Covenant
not-to-compete
|
|
4
|
|
150
|
|
(31
|
)
|
119
|
|
|
|
|
|
$
|
5,368
|
|
$
|
(639
|
)
|
$
|
4,729
|
|
6
Table of
Contents
FORGENT NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
Amortization
expense is recorded using the straight-line method over the estimated economic
useful lives of the intangible assets, as noted above. Amortization expense for the three months
ended April 30, 2009 and 2008 were $195 and $195, respectively.
Amortization expense for the nine months ended April 30,
2009 and 2008 were $585 and $445, respectively.
The following table summarizes the estimated
amortization expense relating to the Companys intangible assets for the next
five fiscal years and thereafter as of April 30, 2009:
Fiscal Years
|
|
|
|
Remaining
2009
|
|
$
|
195
|
|
2010
|
|
780
|
|
2011
|
|
780
|
|
2012
|
|
749
|
|
2013
|
|
546
|
|
Thereafter
|
|
1,094
|
|
|
|
$
|
4,144
|
|
NOTE 3 FAIR VALUE MEASUREMENTS
Effective August 1,
2008, Forgent adopted FASB 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. The adoption of Statement No. 157 did not have a
material impact to the Companys consolidated financial statements.
Statement
No. 157 establishes a three-tier fair value hierarchy, which is based on
the reliability of the inputs used in measuring fair values. These tiers
include:
Level
1:
|
Quoted
prices in active markets for
identical
assets or liabilities;
|
Level
2:
|
Quoted
prices in active markets for
similar
assets or liabilities; quoted prices in markets that are not active for identical
or similar assets or liabilities; and model-driven valuations whose
significant inputs are observable; and
|
Level 3:
|
Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities.
|
The following
table presents the fair value hierarchy for the Companys financial assets
(cash equivalents and short-term investments) measured at fair value on a
recurring basis as of April 30, 2009:
|
|
|
|
Fair Value Measure at April 30, 2009
|
|
|
|
Total
|
|
Quoted
|
|
Significant
|
|
|
|
|
|
Carrying
|
|
Prices
|
|
Other
|
|
Significant
|
|
|
|
Value at
|
|
in Active
|
|
Observable
|
|
Unobservable
|
|
|
|
April 30,
|
|
Market
|
|
Inputs
|
|
Inputs
|
|
Description
|
|
2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Money
Market Funds
|
|
$
|
8,194
|
|
$
|
8,194
|
|
$
|
|
|
$
|
|
|
Short-term
investments available for sale
|
|
2,915
|
|
2,915
|
|
|
|
|
|
Total
|
|
$
|
11,109
|
|
$
|
11,109
|
|
$
|
|
|
$
|
|
|
In February 2007,
the 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 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
7
Table of Contents
FORGENT NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
Measurements,
and Statement No. 107,
Disclosures
about Fair Value of Financial Instruments.
Forgent adopted Statement No. 159,
effective August 1, 2008, and elected not to measure any additional
financial instruments at fair value.
Therefore, the adoption of Statement No. 159 did not have a
material impact to the Companys consolidated financial statements.
NOTE 4 SALE OF ASSETS
In
February 2009, Forgent sold certain assets associated with its Visual
Asset Manager (VAM) software product to E-Innovative Services Group, LLC (EISG),
the Companys key partner in providing a complete asset management solution to
its customers. EISG agreed to pay
Forgent quarterly royalty payments equal to 20% of all net revenue generated by
EISGs sales of the VAM products, or any products derived from any of the
acquired assets, up to a total sum of $1,000.
EISG also agreed to assume all contractual obligations related to the
Companys VAM maintenance and support agreements. By divesting its VAM software product and
services, Forgent can focus its investment on NetSimplicitys scheduling
software, Meeting Room Manager, which the Company believes has the greater
potential for the Companys future growth and profitability. Forgents iEmployee operations were not
affected by this sale. As a result of
the VAM sale, the Company recorded a gain of $26 during the third fiscal
quarter, which is included in other income on the Consolidated Statement of
Operations.
NOTE 5 - COMPREHENSIVE INCOME (LOSS)
In accordance with the
disclosure requirements of FASB 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. The following
table presents the Companys comprehensive loss and its components for the
three and nine months ended April 30, 2009 and 2008:
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
|
Ended April 30,
|
|
Ended April 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,387
|
)
|
$
|
(1,573
|
)
|
$
|
(4,464
|
)
|
$
|
(3,975
|
)
|
Foreign
currency loss
|
|
(9
|
)
|
(73
|
)
|
(124
|
)
|
(61
|
)
|
Unrealized
(loss) gain on short-term investments
|
|
(4
|
)
|
(9
|
)
|
12
|
|
4
|
|
Comprehensive Loss
|
|
$
|
(1,400
|
)
|
$
|
(1,655
|
)
|
$
|
(4,576
|
)
|
$
|
(4,032
|
)
|
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In April 2008, the
FASB issued FSP 142-3
,
Determination of the Useful Life of Intangible Assets.
FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets.
This new guidance applies prospectively to
intangible assets that are acquired individually or with a group of other
assets in business combinations and asset acquisitions. FSP 142-3 is effective
for fiscal years beginning after December 15, 2008 and early adoption is
prohibited. Forgent does not expect that
the adoption of FSP 142-3 during fiscal year 2010 will have a material impact
on the useful lives of its intangible assets, or on its financial position or
results of operations.
In December 2007,
the FASB issued Statement No. 141(R),
Business Combinations.
Statement No. 141(R) establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquiree and the goodwill acquired in the business
combination. The statement also
establishes disclosure requirements which will enable users to evaluate the
nature and financial effects of the business combination. Statement No. 141(R) is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. As such, the Company will adopt
these provisions for any business combination after August 1, 2009. The adoption of Statement No. 141(R) may
have an impact on Forgents accounting for future business combinations once
adopted.
8
Table of Contents
FORGENT NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
NOTE
7 SHARE BASED COMPENSATION
Share based compensation for the Companys
stock option, restricted stock and stock purchase plans for the three and nine
months ended April 30, 2009 was $13
and $65, respectively. Share
based compensation for the Companys stock option, restricted stock and stock
purchase plans for the three and nine months ended April 30, 2008 was $0 and $72, respectively.
The
Company issued 4 and 13 shares
of common stock related to its Stock Option, Restricted Stock, and Stock
Purchase Plans for the three and nine months ended April 30, 2009,
respectively. The Company issued 140 and 396 shares of common stock
related to its Stock Option, Restricted Stock, and Stock Purchase Plans for the
three and nine months ended April 30, 2008, respectively.
NOTE 8 - 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.
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 no more than $1.4 million pursuant to the
Resolution Agreement as a result of the amounts received by Forgent in the past
litigation. Jenkens interprets the
Resolution Agreement on broader terms and believes it is entitled to $3.4
million, including attorneys fees and interest.
On March 3, 2008, Forgent and Jenkens
appeared before the Court regarding a hearing on a motion for summary judgment
filed by Jenkens. On May 20, 2008,
the Court granted Jenkens motion and ordered Forgent to pay Jenkens $2.8
million for past recoveries and other amounts including attorneys fees and
interest. Forgent asked the Court to
reconsider its order and, on September 3, 2008, the Court reconsidered its
prior ruling and denied Jenkens motion and held that language from the
contract in dispute was ambiguous and the issue would be submitted to a jury.
On May 20, 2009, Jenkens submitted a second
motion for summary judgment. Forgent
responded to this motion on June 3, 2009 and both parties appeared before
the Court regarding this motion on June 10, 2009. The Court has not ruled on Jenkens second
motion.
T
he trial date
for this litigation has been rescheduled to commence on July 13,
2009. M
anagement
currently cannot predict how long it ultimately will take to resolve the
Jenkens lawsuit. Until the Jenkens
litigation is finalized, the related amounts charged by Jenkens pursuant to the
Resolution Agreement may be adjusted in a future period and could have a
material impact to the Companys consolidated financial statements.
Litigation with Wild Basin
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 claimed Wild Basin was in breach
of contract relating to Forgents lease agreement by unreasonably withholding
and delaying its consent to Forgents lease assignment to a third party. Forgent sought to recover all damages as a
result of the delay in closing its pending assignment and amounts not
distributed in the past, among other damages.
The trial for this
litigation commenced on September 22, 2008. Prior to the conclusion of the trial, Forgent
and Wild Basin reached a settlement agreement, effective September 25,
2008. This settlement agreement
requires,
9
Table of Contents
FORGENT NETWORKS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data unless otherwise noted)
among other terms, that Wild Basin consent to
Forgents lease assignment. In return,
Forgent paid Wild Basin $75 thousand in November 2008. Both parties agreed to mutually release
claims against each other.
After
Forgent and Wild Basin participated in mediation on November 11, 2008 to
finalize the terms of the settlement agreement, Wild Basin consented to Forgents
lease assignment and the documents were submitted to Wild Basins lender for
final approval. Although the lender
granted its final approval on February 11, 2009, the third party is
currently having difficulties obtaining the required financing due to the
tightened capital markets. Forgent
continues to negotiate with this third party and is working with other
interested third parties. However, there
is no assurance that Forgent will be successful in assigning its lease
agreement.
NOTE 9 SUBSEQUENT EVENT
On June 1, 2009, the
Company announced that its Board of Directors unanimously voted to cancel the
Special Meeting of Stockholders scheduled for June 2, 2009. The
meeting was originally called for the purpose of allowing the stockholders to
vote on two separate proposals to amend the Companys Restated Certificate of
Incorporation to effect a reverse/forward stock split (the Reverse/Forward
Stock Split) of the Companys common stock, which was expected to allow
Forgent to become a privately-held company. While there was substantial
stockholder support for the Reverse/Forward Stock Split proposals, the Board of
Directors determined that, based on the total number of stockholder proxies
received prior to the announcement, the proposals would not receive sufficient
votes to pass due to concerns about the loss of liquidity. Therefore, the
Board of Directors decided to cancel the meeting in order to save the
associated expenses. Since the stockholders prefer Forgent to remain as a
publicly traded company, management is proceeding with its alternative
long-term plan for the Companys future growth.
Forgent will hold its annual stockholders meeting on July 30, 2009
10
Table of
Contents
ITEM 2.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following review of
Forgents financial position as of April 30, 2009 and July 31, 2008,
and for the three and nine months ended April 30, 2009 and 2008, should be
read in conjunction with the Companys 2008 Annual Report on Form 10-K/A
filed with the Securities and Exchange Commission.
Forgents internet website address is
http://www.asuresoftware.com. The Companys annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 are available through the
investor relations page of the Companys internet website free of charge
as soon as reasonably practicable after they are electronically filed, or
furnished to, the Securities and Exchange Commission. Forgents internet
website and the information contained therein or connected thereto are not
intended to be incorporated into this Quarterly Report on Form 10-Q.
On February 4,
2008, Forgent received a Nasdaq deficiency letter indicating that, for 30
consecutive business days, the bid price per share of the Companys common
stock closed below the minimum $1.00 per share requirement. Since Forgent was unable to regain compliance
through improving its operating results, the Company applied for a transfer
listing on the Nasdaq Capital Market, which Nasdaq approved, effective September 19,
2008. The Companys trading symbol
continued to be ASUR and the trading of the Companys stock was unaffected by
this change.
Due to the continued
unprecedented market conditions, on March 23, 2009, Nasdaq further
suspended the enforcement of its rules requiring a minimum $1.00 share bid
price for all Nasdaq-listed companies until July 20, 2009. Consequently, Forgents compliance deadline
has further been extended until November 3, 2009. Forgent continues to strive for improved
operations and will explore all opportunities to regain compliance. If the Company cannot achieve compliance with
the minimum share price requirement by November 3, 2009, Nasdaq will
provide written notification that the Companys securities will be de-listed from
the Capital Market Exchange.
On June 1,
2009, the Company announced that its Board of Directors unanimously voted to
cancel the Special Meeting of Stockholders scheduled for June 2,
2009. The meeting was originally called for the purpose of allowing the
stockholders to vote on two separate proposals to amend the Companys Restated
Certificate of Incorporation to effect a reverse/forward stock split (the Reverse/Forward
Stock Split) of the Companys common stock, which was expected to allow
Forgent to become a privately-held company. While there was substantial
stockholder support for the Reverse/Forward Stock Split proposals, the Board of
Directors determined that, based on the total number of stockholder proxies
received prior to the announcement, the proposals would not receive sufficient
votes to pass due to concerns about the loss of liquidity. Therefore, the
Board of Directors decided to cancel the meeting in order to save the
associated expenses. Since the stockholders prefer Forgent to remain as a
publicly traded company, management is proceeding with its alternative
long-term plan for the Companys future growth.
Forgent will hold its annual stockholders meeting on July 30, 2009
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
Certain statements
in this Report represent forward-looking statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause actual
results of operations, levels of activity, economic performance, financial
condition or achievements to be materially different from future results of
operations, levels of activity, economic performance, financial condition or
achievements as expressed or implied by such forward-looking statements.
Forgent
has attempted to identify these forward-looking statements with the words believes,
estimates, plans, expects, anticipates, may, could and other
similar expressions. Although these forward-looking statements reflect
managements current plans and expectations, which are believed to be
reasonable as of the filing date of this report, they inherently are subject to
certain risks and uncertainties.
Additionally, Forgent is under no obligation to update any of the
forward-looking statements after the date of this Form 10-Q to conform
such statements to actual results.
11
Table of
Contents
RESULTS OF OPERATIONS
The
following table sets forth for the fiscal periods indicated the percentage of
revenues represented by certain items in Forgents Condensed Consolidated
Statements of Operations:
|
|
FOR THE THREE
MONTHS ENDED
APRIL 30,
|
|
FOR THE NINE
MONTHS ENDED
APRIL 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
Gross margin
|
|
79
|
|
76
|
|
80
|
|
78
|
|
Selling, general and administrative
|
|
109
|
|
109
|
|
116
|
|
114
|
|
Research and development
|
|
23
|
|
23
|
|
21
|
|
21
|
|
Amortization of intangible assets
|
|
6
|
|
5
|
|
6
|
|
5
|
|
Total operating expenses
|
|
138
|
|
137
|
|
143
|
|
140
|
|
Other income, net
|
|
1
|
|
3
|
|
6
|
|
8
|
|
Net loss
|
|
58
|
%
|
58
|
%
|
59
|
%
|
54
|
%
|
THREE AND NINE MONTHS ENDED APRIL 30, 2009 and 2008
Revenues
Revenues for the three months ended April 30, 2009 were $2.4
million, a decrease of $0.3 million, or 11%, from the $2.7 million reported for
the three months ended April 30, 2008. Revenues for the nine months ended April 30,
2009 were $7.6 million, an increase of $0.3 million, or 4%, from the $7.3
million reported for the nine months ended April 30, 2008.
Consolidated revenues represent the combined revenues of the Company and
its subsidiaries, including sales of the Companys
scheduling
software, asset management software, human resource and time and attendance
software
, complementary hardware devices to enhance its
software products, software maintenance and support services, installation and
training services and other professional services.
During the three months ended April 30,
2009, revenues decreased $0.3 million, approximately 84% of which was due to
the decrease in software license revenues.
As a result of the protracted economic recession, Forgent continued to
experience customers and prospects reducing or freezing their capital budgets
and deferring their projects. These
reductions and deferrals largely led to the decrease in the Companys software
license revenues during the third fiscal quarter.
During the nine months ended April 30, 2009,
revenues increased $0.3 million due primarily to an increase in software
subscription revenues, which more than offset the decrease in software license
revenues, and an increase in maintenance revenues. Software subscription revenues increased by
$0.9 million during the nine months ended April 30, 2009 due primarily to
the Company generating revenues from the iEmployee operations for the entire
nine month period in fiscal 2009. Since
Forgent acquired the iEmployee operations in October 2007, the Company did
not generate a full nine months worth of revenues from the iEmployee
operations during the nine months ended April 30, 2008. The $0.9 million increase in software
subscription revenues was offset by a $0.8 million decrease in software license
revenues caused by the economic recession during the nine months ended April 30,
2009. Despite the decrease in software license sales in fiscal 2009, Forgent
does continue to sell additional licenses and its cumulative license base
continues to grow. As a result, the
Companys related maintenance base also continues to grow, leading to a $0.3
million increase in maintenance revenues during the nine months ended April 30,
2009.
In addition to continuing to develop its workforce
management solutions and releasing new software updates and enhancements, Forgent is conducting several sales and marketing
campaigns with the goal of increasing sales during the fourth fiscal
quarter. Forgent will also
continue targeting small and medium businesses and divisions of enterprises and
employing targeted vertical marketing programs, as appropriate. Although
the macroeconomic environment continues to present challenges for the Company
to grow its revenues, management believes that Forgent is operating in a growth
market and that sales will grow in the future as the economy starts to recover.
12
Gross
Margin
Gross
margin for the three months ended April 30, 2009 was $1.9 million, a
decrease of $0.2 million, or 8%, from the $2.1 million reported for the three months
ended April 30, 2008. Gross margin for the nine months ended April 30,
2009 was $6.1 million, an increase of $0.4 million, or 6%, from the $5.7
million reported for the nine months ended April 30, 2008. Gross margin as a percentage of revenues were 79% and 76% for
the three months ended April 30, 2009 and 2008, respectively. Gross margin as a percentage of total revenues were 80% and 78% for the nine months
ended April 30, 2009 and 2008, respectively.
Forgents
cost of sales relates primarily to compensation expenses, hardware
expenses and the amortization of the Companys purchased software. These expenses represented approximately 67%
and 68% of the total cost of sales for the three months ended April 30,
2009 and 2008, respectively. Since
Forgents total cost of sales is relatively fixed, any decrease in revenues
will directly impact the Companys gross margin negatively. Thus, the $0.2 million decrease in gross
margin during the three months ended April 30, 2009, is due primarily to
the decrease in revenues. In terms of
gross margin as a percentage of revenue, the change in product mix during the
third fiscal quarter of 2009 led gross margin to increase from 76% during the
three months ended April 30, 2008 to 79% during the three months ended April 30,
2009.
A
s
decreases in revenues negatively impact gross margin, increases in revenues
positively impact gross margin. Thus,
the $0.4 million increase in gross margin during the nine months ended April 30,
2009 is due primarily to the $0.3 million increase in revenues. The $0.1 million decrease in cost of sales
during the nine months ended April 30, 2009 also contributed to the
increase in gross margin. This decrease
in cost of sales resulted from a change in product mix and led gross margin as
a percentage of revenue to increase from 78% during the nine months ended April 30,
2008 to 80% during the nine months ended April 30, 2009. For
future periods, Forgent expects
gross margins will remain relatively consistent with the gross margins for the nine
months ended April 30, 2009, in terms of percentage of revenues.
Selling, General and
Administrative
Selling,
general and administrative (SG&A) expenses for the three months ended April 30,
2009 were $2.6 million, a decrease of $0.3 million, or 11%, from the $2.9
million reported for the three months ended April 30, 2008. SG&A
expenses for the nine months ended April 30, 2009 were $8.8 million, an
increase of $0.5 million, or 6%, from the $8.3 million reported for the nine
months ended April 30, 2008. SG&A expenses as a percentage of revenues were 109% and 109% for the three months ended
April 30, 2009 and 2008, respectively.
SG&A expenses as a
percentage of revenues were 116% and 114% for the nine months ended April 30,
2009 and 2008, respectively.
During the three months
ended April 30, 2009, SG&A expenses decreased $0.3 million,
approximately 83% of which is due to decreases in compensation and marketing
expenses. Effective March 1, 2009,
Forgent implemented a mandatory 10% pay reduction for its personnel between March 2009
and July 2009. This pay reduction
decreased compensation expenses by approximately $0.2 million during the third
fiscal quarter. Additionally, in efforts
to further trim overhead costs, Forgents marketing program budget was cut,
decreasing marketing expenses by $0.1 million during the three months ended April 30,
2009.
During the nine months
ended April 30, 2009, SG&A expenses increased $0.5 million,
approximately 71% of which is due to an increase in legal expenses. In fiscal 2009, Forgent incurred significant
legal expenses preparing for trial and litigating against Wild Basin One &
Two, Ltd. (Wild Basin), thus increasing legal expenses by $0.4 million during
the nine months ended April 30, 2009.
Although a tentative settlement agreement was reached on September 25,
2008 prior to the conclusion of the trial and although Wild Basins
lender granted its final approval on February 11,
2009, the third party is currently having difficulties obtaining the required
financing due to the tightened capital markets.
Forgent continues to negotiate with this third party and is working with
other interested third parties. However,
there is no assurance that Forgent will be successful in assigning its lease
agreement. Additionally, Forgent
incurred $0.1 million in legal expenses related to its efforts to privatize the
Company. No such expenses were incurred during the nine
months ended April 30, 2008. As stated previously in this Quarterly
Report, Forgent cancelled its special stockholders meeting scheduled for June 2,
2009 and the Company will remain as a publicly traded company.
In accordance with the
lease agreement, Wild Basin pays Forgent certain net profit interest
payments. During the third fiscal
quarter, Wild Basin submitted financial data to Forgent which indicated Wild
Basins
13
Table of Contents
intention not to
make such payment. Consequently, the
Company recorded a 50% reserve against its receivable from Wild Basin. The related $0.2 million expense was offset
by reductions in other various SG&A expenses resulting from managements
concentrated efforts to further reduce overhead expenses. If not for the reserve against the Wild Basin
receivable, Forgents operating results for the three and nine months ended April 30,
2009 would have been improved by $0.2 million, or almost $0.01 per share. As of April 30, 2009, Forgents net
receivable from Wild Basin was $0.2 million.
Forgent will continue to work with Wild Basin in efforts to collect its
receivable in full.
Despite
budget cuts from its marketing programs, Forgent is conducting campaigns
emphasizing the benefits that can be gained through use of the Companys
products, including increased worker productivity and operational savings which
are particularly important benefits during difficult economic times. Also, as the Company prepares for its trial
with Jenkens & Gilchrist, P.C., which is currently scheduled for July 13,
2009, Forgent expects that it will continue to incur potentially significant
legal expenses. Throughout its
operations, Forgent continues
to evaluate any unnecessary SG&A
expenses and expects to further reduce expenses.
Research
and Development
Research
and development (R&D) expenses for the three months ended April 30,
2009 were $0.5 million, a decrease of $0.1 million, or 12%, from the $0.6
million reported for the three months ended April 30, 2008. R&D
expenses for the nine months ended April 30, 2009 were $1.6 million, an
increase of $0.1 million, or 5%, from the $1.5 million reported for the nine
months ended April 30, 2008. R&D expenses as a percentage of revenues were 23% and 23% for the three months ended April 30,
2009 and 2008, respectively. R&D
expenses as a percentage of revenues were
21% and 21% for the nine months ended April 30, 2009 and 2008,
respectively.
During
the three months ended April 30, 2009, R&D expenses decreased $0.1
million. Approximately 83% of
this decrease is due to a decrease in
compensation expenses. In addition to
the mandatory 10% pay reduction for its personnel, effective March 1,
2009,
Forgent released all non-vital personnel in May 2008 after the
Company fully integrated the iEmployee R&D workforce into the existing
R&D team in fiscal 2008. The
combination of these events led to the decrease in compensation expenses during
the three months ended April 30, 2009.
During the nine months ended April 30, 2009, R&D expenses
increased $0.1 million.
Approximately 110% of this increase resulted from an increase in R&D expenses
related to the iEmployee operations. Since
the iEmployee operations were acquired in October 2007, Forgent did not
incur a full nine months of R&D expenses related to the iEmployee product
line during the nine months ended April 30, 2008.
During
the third fiscal quarter of 2009, Forgent continued concentrating its R&D
efforts on enhancing its Time & Attendance and MRM products. The Company implemented a new line of clocks
to integrate with its Time & Attendance product. This new line of clocks includes several
forms of data collection including magnetic stripe, barcode, proximity and
biometric readers, thereby expanding Time & Attendances capabilities
to meet various customers requirements.
Forgent also added functionality to its Time & Attendance
software by developing a new flexible pay schedule that allows customers to
specify start and end dates, as well as start and end times, for multiple
different pay periods. In response to growing interest in Arabic countries,
Forgent developed a low-cost prototype of its MRM software, which is currently
being tested for market demand in these countries. In order to support its customers who use
SunGard Higher
Education Banner®, a widely used collegiate course scheduling solution
, Forgent developed
enhancements to its MRM software to dramatically reduce data import time, thus
significantly saving administrative time.
Forgent
continues to solicit and receive feedback regarding its products and services
from its existing and potential customers.
A
s the Company
designs and further improves its workforce management solutions through new
releases and new feature developments, management
will attempt to maintain R&D expenses at reasonable levels in terms of
percentage of revenue.
Amortization of intangible assets
Amortization expenses
for
the three months ended April 30, 2009 were $0.1 million, which was the
same amount as the $0.1 million reported for the three months ended April 30,
2008.
Amortization
expenses
for the nine months ended April 30,
2009 were $0.4 million, an increase of $0.1 million, or 32%, from the $0.3
million reported for the nine months ended April 30, 2008.
Amortization
expenses
as a percentage of revenues were 6% and
5% for the three months ended April 30, 2009 and 2008, respectively.
Amortization expenses
as
a percentage of revenues
14
Table of Contents
were 6% and 5% for the nine months ended April 30,
2009 and 2008, respectively.
Upon acquiring the iEmployee business in October 2007, Forgent
recorded several intangible assets, which are being amortized over their
appropriate useful lives. The
amortization expenses during the three and nine months ended April 30,
2009 and 2008 relate entirely to these acquired intangible assets.
Other
Income and Expenses
Other
income and expenses for the three months ended April 30, 2009 were $22.1
thousand, a decrease of $66.5 thousand, or 75%, from the $88.6 thousand
reported for the three months ended April 30, 2008. Other income and
expenses for the nine months ended April 30, 2009 were $0.4 million, a
decrease of $0.2 million, or 27%, from the $0.6 million reported for the nine
months ended April 30, 2008. Other income and expenses as a percentage of revenues were 1% and 3% for
the three months ended April 30, 2009 and 2008, respectively. Other income and expenses as a percentage of revenues were 6% and 8% for
the nine months ended April 30, 2009 and 2008, respectively.
As a result of the sale of assets to Tandberg Telecom
AS (Tandberg) in November 2006, $0.3 million was held in escrow for two
years for indemnity claims. No such
claims were made by Tandberg during the two years to reduce the escrow
amount. In November 2008, Forgent
received the funds from the escrow account in full. These funds were recorded as gain on sale of
assets on the Companys Consolidated Statement of Operations for the nine
months ended April 30, 2009.
Net Loss
Forgent
incurred a net loss of $1.4 million, or $0.04
per share, during the three months ended April 30, 2009,
compared to a net loss of $1.6 million, or $0.05 per share, during the three
months ended April 30, 2008. Forgent incurred a net loss of $4.5 million,
or $0.14
per share, during the
nine months ended April 30, 2009 compared to a net loss of $4.0 million,
or $0.14 per share, during the nine months ended April 30, 2008. Net loss
as a percentage of revenues were 58% and 58% for the three months ended April 30,
2009 and 2008, respectively. Net loss as a percentage of revenues were 59% and
54% for the nine months ended April 30, 2009 and 2008, respectively.
Forgents primary goal is to achieve profitability as soon as possible.
During the 2009 fiscal year, the Companys
management and board of directors unanimously proposed privatization as a
possible means to advancing toward this goal. Although there was
substantial stockholder support for the Companys proposal, Forgent cancelled
the special stockholder meeting schedule for June 2, 2009 to vote on the
privatization due primarily to stockholders concerns over the loss of
liquidity. As a result, management and the board of directors are
proceeding with Forgents alternative long-term plan for the Companys future
growth.
Uncertainties and challenges
remain, especially during this macroeconomic environment downturn, and there
can be no assurance that the Company can successfully grow its revenues or
achieve profitability during the remainder of fiscal year 2009.
LIQUIDITY AND CAPITAL RESOURCES
|
|
FOR THE NINE
|
|
|
|
MONTHS ENDED
|
|
|
|
APRIL 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Working
capital
|
|
$
|
6,104
|
|
$
|
11,449
|
|
Cash,
cash equivalents and short-term investments
|
|
11,109
|
|
16,122
|
|
Cash
used in operating activities
|
|
(3,308
|
)
|
(11,926
|
)
|
Cash
used in investing activities
|
|
(530
|
)
|
(8,737
|
)
|
Cash
(used in) provided by financing activities
|
|
(23
|
)
|
13
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities was $3.3
million for the nine months ended April 30, 2009 due primarily to a $4.5
million net loss, which was offset by $0.7 million in total non-cash
depreciation and amortization expenses and a $0.5 million decrease in accounts
receivable. Cash used in operating activities
was $11.9 million for the nine
15
Table of Contents
months
ended April 30, 2008 due primarily to a $4.0 million net loss and a $8.2
million decrease in accounts payable. During the three months ended April 30,
2009, Forgents average days sales outstanding was 33 days, a decrease from 39
days for the three months ended April 30, 2008. Due to some customers delaying payment as a
result of the current economic environment, Forgent diligently focused on its
collection efforts during the third fiscal quarter, which accounted for the
decrease in its average days sales outstanding.
Management will continue to closely monitor all of its cash sources and
uses as it manages its operations through the current recession.
Cash used in investing
activities was $0.5 million for the nine months ended April 30, 2009 due
to $0.3 million in net purchases of short-term investments and $0.3 million in
net purchases of property and equipment.
Cash used in investing activities was $8.7 million for the nine months
ended April 30, 2008 due primarily to $7.3 million paid in cash related to
the iEmployee acquisition and $1.3 million in net purchases of short-term
investments. Forgent manages its
investments portfolio in order to fulfill corporate liquidity requirements and
maximize investment returns while preserving the quality of the portfolio. Approximately 43% of Forgents purchased
fixed assets during the nine months ended April 30, 2009 related to
leasehold improvements for the Companys subtenants. The other purchases were spread across the
Companys four facilities.
Forgents current
operations are not capital intensive and management does not anticipate any significant capital expenditures
during the remainder of fiscal 2009.
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. Despite
the additional lease obligations acquired with the iEmployee operations,
approximately $13.7 million, or 96% of the Companys total operating lease
obligations, relate to its corporate office facility at Wild Basin in Austin,
Texas. As of April 30, 2009,
Forgent had $5.0 million in
future minimum lease payments receivable under non-cancelable sublease
arrangements. Additionally, Forgent had
a $0.2 million liability related to impairment charges for the economic value
of the lost sublease rental income related to its Austin property. Forgent may periodically make other
commitments and thus become subject to other contractual obligations.
Cash
used in financing activities was $23.0 thousand for the nine months ended April 30,
2009. Cash provided by financing activities was $13.0 thousand for the nine
months ended April 30, 2008.
Management believes it currently has sufficient
cash and short-term investments on hand to fund its operations during the next twelve
months and beyond without needing to obtain long-term financing. Therefore, the Company does not anticipate
that it will be affected by any credit shortage in the current economic
business environment. Forgents stock
repurchase program allows the Company to purchase up to three million shares of
the Companys common stock. No shares were repurchased during the nine months
ended April 30, 2009 and 2008. As
of April 30, 2009, Forgent had repurchased 1,790,401 shares for
approximately $4.8 million and had the authority to repurchase approximately
1.2 million additional shares.
Management will periodically assess repurchasing additional shares in
fiscal year 2009, depending on the Companys cash position, market conditions
and other factors.
As of April 30, 2009, Forgents principal source of liquidity
consisted of $11.1 million in cash, cash equivalents and short-term
investments. Management is focused on
growing its software operations and thus plans to utilize its cash balances to
fund its operations and may possibly repurchase outstanding shares. Although Forgent is currently not actively
exploring prospects in acquiring a public or privately held technology business
or product line, the Company will consider a potential opportunity if the right
opportunity presents itself.
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. Management believes
that the Company has sufficient capital and liquidity to fund and cultivate the
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.
Additionally, Forgent currently
does not meet Nasdaqs minimum
$1.00 share bid price requirement. The
Company continues to strive for improved operations and will explore all
opportunities to regain compliance.
However, if Forgent is unable to comply with this requirement by November 3,
2009, the Companys common stock will be de-listed from the Nasdaq Capital
Market Exchange. If the Companys
securities are de-listed, Forgents ability to raise additional capital will be
significantly limited.
16
Table of Contents
CRITICAL ACCOUNTING POLICIES
The
Companys condensed 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 condensed 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.
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
quarter end and the reported amounts of revenues and expenses during the fiscal
quarter.
The more significant estimates made by management include the valuation
allowance for the gross deferred tax asset, contingency legal reserves, lease
impairment, useful lives of fixed assets, the determination of the fair value
of its long-lived assets, and the fair value of assets acquired and
liabilities assumed during the iEmployee acquisition. 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.
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 license 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.
The Company recognizes software subscription revenue in accordance with EITF
Issue No. 00-3,
Application of AICPA
Statement of Position 97-2 to Arrangements That Include the Right to Use
Software Stored on Another Entitys Hardware
and EITF Issue No. 00-21.
R
evenue
consists of software license, software subscription 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. For
software license arrangements, the Company allocates the total fee to the
various elements based on the relative fair values of the elements specific to
the Company. For software subscription
arrangements, the Company recognizes the total contract value ratably over the
contract term, beginning when the customer is able to utilize the software.
The Company determines
the fair value of each element in the arrangement based on vendor-specific
objective evidence (VSOE) of fair value.
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.
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 the Companys products as
such services can be provided by a third party or the customers themselves.
For
instances in which VSOE cannot be determined for undelivered elements, and
these undelivered elements do not provide significant customization or
modification of its software product, Forgent recognizes the entire contract
amount ratably over the period during which the services are expected to be
performed.
17
Table of Contents
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 Condensed Consolidated Statements of Operations when the
service is completed and over the terms of the arrangements, primarily ranging
from one to three years.
Impairment
of Goodwill, Intangible Assets and Long-Lived Assets
Goodwill
and other intangible assets
with indefinite lives
are not required
to be amortized
under Financial Accounting Standard Board (FASB)
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 FASB Statement No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller
reporting company as defined by Rule 12b-2 under the Exchange Act and is
not required to provide the information required under this item.
ITEM 4. 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 April 30, 2009. Based on their evaluation, 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 quarter ended April 30, 2009, 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 Treadway Commission.
18
Table of
Contents
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Forgent is the defendant or plaintiff in various actions that arose in
the normal course of business.
With the exception of the
proceedings described below, none of the pending legal proceedings to which the
Company is a party are material to the Company.
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 no more than $1.4 million pursuant to the
Resolution Agreement as a result of the amounts received by Forgent in the past
litigation. Jenkens interprets the
Resolution Agreement on broader terms and believes it is entitled to $3.4
million, including attorneys fees and interest.
On March 3, 2008, Forgent and Jenkens
appeared before the Court regarding a hearing on a motion for summary judgment
filed by Jenkens. On May 20, 2008,
the Court granted Jenkens motion and ordered Forgent to pay Jenkens $2.8
million for past recoveries and other amounts including attorneys fees and
interest. Forgent asked the Court to
reconsider its order and, on September 3, 2008, the Court reconsidered its
prior ruling and denied Jenkens motion and held that language from the
contract in dispute was ambiguous and the issue would be submitted to a jury.
On May 20, 2009, Jenkens submitted a second
motion for summary judgment. Forgent
responded to this motion on June 3, 2009 and both parties appeared before
the Court regarding this motion on June 10, 2009. The Court has not ruled on Jenkens second
motion.
T
he trial date
for this litigation has been rescheduled to commence on July 13,
2009. M
anagement
currently cannot predict how long it ultimately will take to resolve the
Jenkens lawsuit. Until the Jenkens
litigation is finalized, the related amounts charged by Jenkens pursuant to the
Resolution Agreement may be adjusted in a future period and could have a
material impact to the Companys consolidated financial statements.
Litigation with Wild Basin
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 claimed Wild Basin was in breach
of contract relating to Forgents lease agreement by unreasonably withholding
and delaying its consent to Forgents lease assignment to a third party. Forgent sought to recover all damages as a
result of the delay in closing its pending assignment and amounts not
distributed in the past, among other damages.
The trial for this
litigation commenced on September 22, 2008. Prior to the conclusion of the trial, Forgent
and Wild Basin reached a settlement agreement, effective September 25,
2008. This settlement agreement
requires, among other terms, that Wild Basin consent to Forgents lease
assignment. In return, Forgent paid Wild
Basin $75 thousand in November 2008.
Both parties agreed to mutually release claims against each other.
After
Forgent and Wild Basin participated in mediation on November 11, 2008 to
finalize the terms of the settlement agreement, Wild Basin consented to Forgents
lease assignment and the documents were submitted to Wild Basins lender for
final approval. Although the lender
granted its final approval on February 11, 2009, the third party is
currently having difficulties obtaining the required financing due to the
tightened capital markets. Forgent
continues to negotiate with this third party and is working with other
interested third parties. However, there
is no assurance that Forgent will be successful in assigning its lease
agreement.
19
ITEM 1A. RISK FACTORS
The Company is a smaller reporting company as defined by Rule 12b-2
of the Exchange Act and is not required to provide the information required
under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 1, 2009, the
Company announced that its Board of Directors unanimously voted to cancel the
Special Meeting of Stockholders scheduled for June 2, 2009. The
meeting was originally called for the purpose of allowing the stockholders to
vote on two separate proposals to amend the Companys Restated Certificate of
Incorporation to affect a reverse/forward stock split (the Reverse/Forward
Stock Split) of the Companys common stock, which would allow Forgent to
become a privately-held company. While there was substantial stockholder
support for the Reverse/Forward Stock Split proposals, the Board of Directors
determined that, based on the total number of stockholder proxies received
prior to the announcement, the proposals would not receive sufficient votes to
pass due to concerns about the loss of liquidity. Therefore, the Board of
Directors decided to cancel the meeting in order to save the associated
expenses. Since the stockholders prefer Forgent to remain as a publicly
traded company, management is proceeding with its alternative long-term plan
for the Companys future growth. Forgent
will hold its annual stockholders meeting on July 30, 2009
ITEM 5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
Exhibits:
2.2
|
Agreement
and Plan of Merger, dated as of September 11, 2007 by and among Forgent
Networks, Inc., Cheetah Acquisition Company, Inc. and iSarla Inc.
(incorporated by reference to Exhibit 2.2 to the Companys quarterly
report on Form 10-Q for the three months ended October 31, 2007).
|
|
|
3.1
|
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).
|
|
|
3.2
|
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).
|
|
|
4.1
|
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).
|
|
|
4.2
|
Rights Agreement, dated
as of December 19, 2005, between Forgent Networks, Inc. and
American Stock Transfer & Trust Company, which includes the form of
Series A Preferred Stock, $0.01 par value, the form of Rights
Certificate, and the Summary of Rights
(incorporated by reference
to Exhibit 4.1 to the Companys Current Report on Form 8-K dated
December 19, 2005).
|
|
|
31.1*
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2*
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
20
Table of Contents
32.1*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2*
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
* Filed herewith
21
Table of Contents
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
FORGENT
NETWORKS, INC.
|
|
|
|
|
Date:
June 15, 2009
|
By:
|
/s/
RICHARD N. SNYDER
|
|
|
Richard
N. Snyder
|
|
|
Chief
Executive Officer
|
|
|
|
Date: June 15, 2009
|
By:
|
/s/
JAY C. PETERSON
|
|
|
Jay
C. Peterson
|
|
|
Chief
Financial Officer
|
22
Table of
Contents
INDEX TO
EXHIBITS
EXHIBIT
|
|
|
NUMBER
|
|
DESCRIPTION
|
|
|
|
2.2
|
|
Agreement
and Plan of Merger, dated as of September 11, 2007 by and among Forgent
Networks, Inc., Cheetah Acquisition Company, Inc. and iSarla Inc.
(incorporated by reference to Exhibit 2.2 to the Companys quarterly
report on Form 10-Q for the three months ended October 31, 2007).
|
|
|
|
3.1
|
|
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).
|
|
|
|
3.2
|
|
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).
|
|
|
|
4.1
|
|
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).
|
|
|
|
4.2
|
|
Rights Agreement, dated
as of December 19, 2005, between Forgent Networks, Inc. and
American Stock Transfer & Trust Company, which includes the form of
Series A Preferred Stock, $0.01 par value, the form of Rights
Certificate, and the Summary of Rights
(incorporated by reference
to Exhibit 4.1 to the Companys Current Report on Form 8-K dated
December 19, 2005).
|
|
|
|
31.1
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
23
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