Effective September 19, 2008, the Company transferred the listing of its common stock from the Nasdaq Global Market Exchange to the Nasdaq Capital Market Exchange. The Company's trading symbol continued to be "ASUR" and the trading of the Company's stock was unaffected by this change. As a result of this transfer, Forgent was provided an additional 180 calendar days, or until February 2, 2009, to regain compliance with the minimum $1.00 share bid price requirement pursuant to Nasdaq Marketplace Rule 4450(a)(5).

Due to the continued unprecedented market conditions, Nasdaq, on several occasions, further suspended the enforcement of its rules requiring a minimum $1.00 share bid price for all Nasdaq-listed companies. Consequently, Forgent's current compliance deadline has been extended until November 17, 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 17, 2009, Nasdaq will provide written notification that the Company's securities will be de-listed from the Capital Market Exchange.

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 management's current plans and expectations, which are believed to be reasonable as of the filing date of this Report, they inherently are subject to certain risks and uncertainties. Additionally, Forgent is under no obligation to update any of the forward-looking statements after the date of this Form 10-K to conform such statements to actual results.

RESULTS OF OPERATIONS

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

                                        FOR THE YEAR ENDED
                                             JULY 31,
                                        2009           2008
Revenues                                  100.0 %       100.0 %
Gross margin                               79.9          78.0
Selling, general and administrative       125.0         110.4
Research and development                   22.6          21.1
Litigation settlement                      21.9            --
Impairment of assets                        6.3          72.6
Amortization of intangible assets           5.9           4.8
Total operating expenses                  181.7         208.9
Other income, net                           3.9           6.3
Net loss                                  (96.9 %)     (124.8 %)

FOR THE YEARS ENDED JULY 31, 2009 AND 2008

Overview

During the year ended July 31, 2009, the Company finalized the integration of its iEmployee operations and continued to implement strategies to maximize efficiencies throughout the Company. As part of its strategy to reduce expenses substantially, Forgent expended significant time and effort to take the Company private. However, a significant number of shareholders disagreed with the Company's plan, and Forgent withdrew its proposal to go private.

As a result of a negative jury verdict regarding the trial with Jenkens & Gilchrist, P.C. in July 2009, Forgent settled the litigation with its former legal counsel in August 2009. Since the litigation with Jenkens has concluded, the related expense was recorded for the year ended July 31, 2009, and the Company has paid Jenkens its settlement amount on August 25, 2009, Forgent no longer has any outstanding issues related to its intellectual property licensing operations. Except for the final settlement payment to Jenkens in August 2009, management does not expect any significant transactions from this previous line of business and fully anticipates focusing its time and efforts on growing its software business in fiscal year 2010 and subsequent fiscal years.

Despite the prolonged economic recession during the year ended July 31, 2009, Forgent continued to generate revenues and grew gross margin from its software business. After assessing its software products and services for potential revenue growth, Forgent sold its Visual Asset Manager software product. Management believes the Company currently retains the more profitable workforce management solutions, which serve as the foundation of the Company's future growth.

During the Company's annual shareholders meeting on August 28, 2009, a new board of directors was elected. In addition to this new board, the Company is currently managed by a new Chief Executive Officer. Under the guidance and direction of its new directors and Chief Executive Officer, Forgent will continue to implement its corporate strategy for growing its software and services business. However, uncertainties and challenges remain and there can be no assurances that Forgent can successfully grow its revenues or achieve profitability and positive cash flows during fiscal year 2010.

Revenues

Consolidated revenues were $10.0 million in fiscal year 2009 and $10.1 million in fiscal year 2008. The decrease was $0.1 million, or 1.4%. Consolidated revenues represent the combined revenues of the Company and its subsidiaries, including sales of the Company's scheduling software, asset management software, time and attendance and human resource software, complementary hardware devices to enhance its software products, software maintenance and support services, installation and training services and other professional services.

During the year ended July 31, 2009, the $0.1 million decrease in total revenues is due primarily to decreases in software license and hardware revenues, offset by increases in software subscription and maintenance revenues.

During fiscal year 2009, software license revenues decreased by $1.1 million. New and enhanced product features to Meeting Room Manager ("MRM") were introduced to the market during fiscal year 2009 and appealed to larger customers, which allowed Forgent to increase its sales penetration into the enterprise sector. Increased sales to enterprises is evidenced by the 14.0% increase in Forgent's average sales price during the year ended July 31, 2009 as compared to the prior fiscal year. However, as the economic recession lengthened, Forgent continued to experience customers and prospects reducing or freezing their capital budgets and deferring their projects. These reductions and deferrals largely led to a 38.6% decrease in the number of software license sales. Additionally, in February 2009, Forgent sold its Visual Asset Manager ("VAM") software product to E-Innovative Services Group ("EISG"), LLC in order to focus its NetSimplicity investment on MRM. The Company believes MRM has greater potential for future growth and profitability. Thus, VAM software license revenues decreased by $0.2 million in fiscal year 2009. The decrease in overall MRM sales and the sale of the VAM software product led to the $1.1 million decrease in the Company's software license revenues during the year ended July 31, 2009.

VAM software licenses were often sold with complementary hardware devices, or barcode scanners. As a result of the VAM sale, Forgent's hardware revenues also declined. During the year ended July 31, 2009, hardware revenues decreased by $0.2 million, 88.9% of which is due to the decrease in VAM hardware sales.

The decreases in software license and hardware revenues were offset by a $0.9 million increase in software subscription revenues and a $0.3 million increase in maintenance revenues. In October 2007, the Company acquired iEmployee's time and attendance and human resource software along with its operations. This software, as well as the Company's MRM On Demand software, are delivered to customers under the "SaaS" model, which is software as a service offered on a subscription basis. Since Forgent acquired the iEmployee operations in October 2007, the Company did not generate a full year's worth of revenues from the iEmployee operations during the year ended July 31, 2008. Therefore, approximately 76.6% of the $0.9 million increase in software subscription revenues is due to the Company generating revenues from the iEmployee operations for the entire year in fiscal 2009. Although the Company experienced a decline in its MRM software license sales, Forgent generated an increase in software subscription sales related to its MRM On Demand product, which explains the remaining increase in software subscription revenues. When purchasing MRM On Demand, customers do not need to install or maintain the software on their own servers. Additionally, purchasing an annual subscription may not require as stringent approval requirements as purchasing a perpetual license. Thus, purchasing MRM on a subscription basis is becoming more appealing to customers as they try to meet operational goals while reducing capital expenditures. As of July 31, 2009, this shift in sales from software license to software subscriptions resulted in a $0.2 million increase in Forgent's deferred revenue for MRM On Demand.

Despite the decrease in software license sales during fiscal year 2009, Forgent does continue to sell additional licenses and its cumulative license base continues to grow. As a result, the Company's related maintenance base also continues to grow. Additionally, Forgent proactively contacted and notified its existing customers of upcoming expirations on their maintenance and support contracts. Forgent's growing maintenance base and the continued pursuit of maintenance renewals led to a $0.3 million increase in maintenance revenues during the year ended July 31, 2009.

Although the Company's sales have been concentrated in certain industries, including corporate, education, healthcare, governmental, legal and non-profit, Forgent's customers are widely spread across industries as well as geographies. Forgent currently has distribution partners in the United Kingdom, Australia, and Germany. These partners and the internal sales team generated revenues from international customers, which represent approximately 9.3% and 11.5% of the total revenues during fiscal years 2009 and 2008, respectively. As part of its growth strategy, the Company plans to develop relationships with other strategic partners, who have an established presence in multiple international locations and can efficiently offer Forgent's product and services as complementary solutions to their own offerings. For fiscal year 2010, Forgent will continue to target small and medium businesses and divisions of enterprises in these same industries.

In addition to continuing to develop its workforce management solutions and release new software updates and enhancements, the Company is actively exploring other opportunities to acquire additional products or technologies to complement its current software and services. Forgent also is implementing marketing initiatives, including tailoring its solutions to provide increased value and a simplified purchasing model to targeted customers. As the overall workforce management solutions market continues to experience significant growth related to SaaS products, Forgent will continue to focus on sales of its MRM On Demand and iEmployee SaaS products. Management believes that as the economy starts to recover, Forgent will grow its revenues in fiscal year 2010.

Gross Margin

Consolidated gross margins were $8.0 million in fiscal year 2009 and $7.9 million in fiscal year 2008. The increase was $0.1 million, or 1.0%. Consolidated gross margin percentages were 79.9% for fiscal year 2009 and 78.0% for fiscal year 2008.

The cost of sales relates primarily to compensation expenses, hardware expenses and the amortization of the Company's purchased software development costs. These expenses represented approximately 70.3% and 65.4% of the total cost of sales for the years ended July 31, 2009 and 2008, respectively. Compensation expenses and amortization expenses remained relatively constant year over year. Due to the sale of the VAM software product to EISG in February 2009 and the related decline in VAM hardware sales, VAM hardware expenses also declined by $0.1 million. Additionally, prior to the VAM sale Forgent paid EISG for implementation and support services related to its VAM software. As a result of the sale, expenses incurred for these professional services also decreased by $0.1 million. Thus, the $0.2 million decrease in VAM hardware and professional service expenses accounted for 88.1% of the total decrease in cost of sales during the year ended July 31, 2009. Since Forgent fully divested its lower margin producing product from its portfolio, the Company was able to generate a slight increase in its total gross margin as well as its gross margin as a percentage of revenues during fiscal year 2009.

Although the macroeconomic environment continues to present challenges for the Company, Forgent was able to maintain a steady level of revenues on reduced expenses. During fiscal year 2010, Forgent expects to continue proactively managing its cost of sales by maximizing efficiencies throughout the Company. If the economy recovers and/or Forgent is successful in generating additional revenue, management expects gross margins to improve, in terms of total dollars, and to remain relatively consistent in terms of percentage of revenues.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses were $12.5 million in fiscal year 2009 and $11.2 million in fiscal year 2008. The increase was $1.3 million, or 11.8%. SG&A expenses were 125.03% and 110.4% of total revenues for the years ended July 31, 2009 and 2008, respectively.

The $1.3 million increase in SG&A expenses during the year ended July 31, 2009 is due primarily to the increases in legal expenses related to the Company's efforts to go private and to litigate against Jenkens & Gilchrist, P.C. ("Jenkens"), Forgent's former legal counsel, and the increase in reserves related to its receivable from Wild Basin.

On January 29, 2009, Forgent announced its plan to take the Company private. Due to concerns including the loss of liquidity and reduced requirements for regular financial reporting and disclosure, a group of shareholders led by Red Oak Fund, LP ("Red Oak") opposed the Go-Private effort. As shareholder vote counts indicated a majority of shareholders also opposed the Go-Private effort, the Board canceled the special meeting and withdrew its proposal to go private. Subsequently, Red Oak nominated a slate of board directors, who were elected to replace Forgent's prior Board during the Company's annual shareholders meeting on August 28, 2009. As a result of these activities, Forgent incurred $0.7 million in legal expenses related to its efforts to privatize the Company, including the legal expenses required for the proxy contest related to its Board of Directors. No such expenses were incurred during fiscal year 2008. Additionally, during fiscal year 2009, the Company prepared for its trial with Jenkens, which started on July 20, 2009 (also see "Litigation Settlement" discussion below). To litigate against Jenkens, the Company incurred $0.5 million, or $0.2 million more in legal expenses, during fiscal year 2009 than during fiscal year 2008. The proxy contest and the Jenkens litigation have been concluded. With the exception of approximately $1.0 million in legal and proxy-related expenses expected to be incurred in the first quarter of fiscal year 2010, no other significant related legal expenses are expected to be incurred in fiscal year 2010.

In accordance with the lease agreement for Forgent's corporate offices in Austin, Texas, Wild Basin One & Two, Ltd. ("Wild Basin"), Forgent's landlord, previously paid the Company certain net profit interest payments. However, during the fourth fiscal quarter, Wild Basin communicated to Forgent that it needed to accumulate additional reserves, in excess of the reserves currently remitted as required by Wild Basin's loan agreement. Due to these additional reserves, Wild Basin is unable to remit any net profit interest payments to Forgent. Accordingly, the Company recorded a 100% reserve against its receivable from Wild Basin, the related $0.5 million expense was included in SG&A expenses for the year ended July 31, 2009. Forgent is actively in discussions with Wild Basin and will continue efforts to collect its receivable as stipulated under the terms of its lease agreement.

Due to the unexpected significant legal expenses during the year ended July 31, 2009, Forgent's mandatory 10% pay reduction for all of its personnel, which was implemented on March 1, 2009, continues to be enforced in fiscal year 2010. Management will continue to assess the Company's financial results as it considers when to lift this reduction in pay. Additionally, Forgent terminated approximately 25% of its workforce effective August 7, 2009. Although the severance expense incurred and recorded for the year ended July 31, 2009 was less than $0.1 million, 58.3% of which were SG&A expenses, Forgent anticipates savings in total compensation expenses of approximately $1.7 million in fiscal year 2010 related to this reduction in force. Throughout its operations, Forgent continues to evaluate any unnecessary SG&A expenses and plans to further reduce expenses as appropriate.

Research and Development

Research and development ("R&D") expenses were $2.2 million in fiscal year 2009 and $2.1 million in fiscal year 2008. The increase was $0.1 million, or 5.4%. R&D expenses were 22.6% and 21.1% of total revenues for the years ended July 31, 2009 and 2008, respectively.

Approximately 91.2% of the $0.1 million 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 year of R&D expenses related to the iEmployee product line during the year ended July 31, 2008.

During fiscal year 2009, Forgent continued to improve and enhance its workforce management solutions - particularly its Time & Attendance software from the iEmployee product line and its Meeting Room Manager ("MRM") software from its NetSimplicity product line. During the year ended July 31, 2009 enhancements to the Time & Attendance included an additional application programming interface for time collection, which expands the software's interoperability with various time clocks in addition to Forgent's Easy Touch Time Clock. Additionally, the Company implemented a new line of clocks that contains several forms of data collection including magnetic stripe, barcode, proximity and biometric readers. The expanded interoperability and new line of clocks expanded Time & Attendance's capabilities to meet various customers' requirements by increasing the customers' choices when selecting hardware devices. Forgent also added functionality to its Time & Attendance software by developing an automated calculation of the time off accruals and a new flexible pay schedule that allows customers to specify start and end dates and times for multiple different pay periods.

Throughout the year ended July 31, 2009, Forgent continued to develop MRM and released a few minor versions that enhanced the Microsoft Outlook Plug-in, Web and Interactive LCD interfaces, allowed assigned delegates the ability to schedule meetings on behalf of others, and provided more sophisticated conflict resolution options for scheduling recurring meetings via Microsoft OutlookŪ. Forgent's R&D efforts related to its NetSimplicity product line culminated in August 2009 when the Company released MRM, Version 8.0. Under this next generation of the Company's room and resource scheduling solution, customers have the benefit of a bi-directional Outlook Plug-in. Meetings and resources scheduled through Microsoft Outlook are synchronized to the Web client, thus allowing users to create, manage and update information from the Web client, given the appropriate privileges. Customers can now delegate scheduling responsibilities to individuals without requiring access to Microsoft Outlook.

Forgent's development efforts for future releases and enhancements are driven by feedback received from its existing and potential customers and by gauging marketing trends. Management believes it has the appropriate development team to design and further improve its workforce management solutions.

Litigation Settlement

After Forgent terminated Jenkens, the Company's former legal counsel, Forgent entered into a Resolution Agreement with Jenkens in December 2004. In July 2007, Jenkens filed a complaint against Forgent and Compressions Labs, Inc., alleging a breach of contract. Under the Resolution Agreement, the Company believed Jenkens was entitled to $1.4 million for all fees and expenses related to certain settlements received from licensing the Company's intellectual property. Jenkens interpreted the Resolution Agreement on broader terms and initially believed it was entitled to $2.8 million. As of July 31, 2007, Forgent accrued $2.1 million for Jenkens' contingency fees related to these settlements. The Company recorded the contingency fees as part of cost of sales on its Consolidated Statement of Operations for the year ended July 31, 2007 in order to properly match the expenses to the related licensing revenues. The $2.1 million accrual remained as part of Forgent's current liabilities through fiscal year 2009.

On July 20, 2009, the trial with Jenkens commenced. As the result of the jury verdict in July 2009 to award Jenkens approximately $4.6 million in damages, attorney's fees and interest, Forgent entered into a settlement agreement with Jenkens, effective August 20, 2009. Under the settlement agreement, Forgent agreed to pay Jenkens $4.3 million and the parties agreed to release all claims against each other. Based on the settlement amount, the Company accrued an additional $2.2 million as of July 31, 2009. Since the Company was no longer licensing its intellectual property and had no related licensing revenues in fiscal year 2009, this additional $2.2 million expense was recorded as part of operating expenses on the Consolidated Statement of Operations for the year ended July 31, 2009. Forgent paid Jenkens $4.3 million on August 25, 2009 and the Company considers this litigation to be concluded.

Impairment of assets

During the year ended July 31, 2009, the current rental market in Austin, Texas continued to show depressed leasing rates. Based on this factor and the uncertainty in collecting its net profit interest payments from Wild Basin, management analyzed the discounted cash flows related to its Wild Basin property lease and subleases over the remainder of the lease term. Although Forgent continues to actively sublease the vacated space, the rates on the new subleases are less than originally anticipated due to the current market rates. Management calculated the economic value of the lost sublease rental income and recorded an additional impairment charge of $0.6 million to the Company's Consolidated Statement of Operations for the year ended July 31, 2009.

In accordance with Financial Accounting Standard Board ("FASB") Statement No. 142, "Goodwill and Other Intangible Assets," Forgent reviewed its goodwill for possible impairment on an annual basis, or whenever specific events warrant. Due to its depressed stock price and the market conditions during the fourth fiscal quarter of 2008, Forgent determined that the decline in its market capitalization may not be temporary. Due to the decline in its market capitalization, the Company was required to perform an impairment analysis on its goodwill. To evaluate its goodwill for impairment, Forgent used a two-step process. Under the first step, Forgent determined that the estimated fair value of the Company, as represented by its market capitalization, was less than its net book value, thus requiring the completion of the second step of the impairment analysis. As part of the second step, Forgent allocated the estimated fair value of the Company, as represented by its market capitalization, to its assets and liabilities, excluding goodwill, based upon the individual estimated fair values. As a result of its allocation process, the Company determined that goodwill had an implied fair value of $0. An impairment loss is measured as the excess of the book value of the goodwill over the implied fair value of the goodwill. As a result of the impairment analysis, Forgent recorded a non-cash $7.4 million goodwill impairment related to its acquisition of iEmployee to its Consolidated Statement of Operations for the year ended July 31, 2008. This impairment had no impact to the Company's tangible net book value or liquidity.

Amortization of intangible assets

Amortization expenses were $0.6 million in fiscal year 2009 and $0.5 million in fiscal year 2008. The increase was $0.1 million, or 21.8%. Amortization expenses were 5.9% and 4.8% of total revenues for the years ended July 31, 2009 and 2008, respectively. Upon acquiring the iEmployee business in October 2007, Forgent recorded several intangible assets, which are being amortized over their estimated useful lives. The amortization expenses during the years ended July 31, 2009 and 2008 relate entirely to these acquired intangible assets (see Note 5, in the accompanying financial statements).

Other Income

Other income was $0.4 million in fiscal year 2009 and $0.6 million in fiscal year 2008. The decrease was $0.2 million, or 39.5%. Other income was 3.9% and 6.3% of total revenues for the years ended July 31, 2009 and 2009, respectively.

The decrease in other income during the year ended July 31, 2009 was due primarily to the decrease in interest income, resulting from the reduction in interest rates and cash and short-term investment balances during fiscal year 2009 as compared to fiscal year 2008. The $0.6 million decrease in interest income was offset by $0.3 million in gain related to the sale of assets to Tandberg Telecom AS ("Tandberg"). As a result of this sale 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 Company's Consolidated Statement of Operations for the year ended July 31, 2009.

Income Taxes

At July 31, 2009, the Company had federal net operating loss carryforwards of approximately $163.8 million, R&D credit carryforwards of approximately $4.7 . . .