f1159010k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________________________________
FORM
10-K
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the
fiscal year ended July 31, 2009
OR
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from ____ to ______
Commission
file number: 0-20008
__________________________________________
FORGENT
NETWORKS, INC.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
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74-2415696
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(State
of other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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108
Wild Basin Road
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Austin,
Texas
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78746
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(512)
437-2700
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(Registrant's
Telephone Number, including Area
Code)
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SECURITIES REGISTERED PURSUANT TO
SECTION 12(b) OF THE ACT: None
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common
Stock, $0.01 par value
__________________________________________
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o No
x
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 (“Exchange
Act”) 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 if disclosure of delinquent filings pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
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
The
aggregate market value of the 26,502,090 shares of the registrant's Common Stock
held by nonaffiliates on January 31, 2009 was approximately $5,830,460. For
purposes of this computation all officers, directors and 5% beneficial owners of
the registrant are deemed to be affiliates. Such determination should not be
deemed an admission that such officers, directors and beneficial owners are, in
fact, affiliates of the registrant.
At
October 23, 2009 there were 31,615,890 shares of the registrant's Common Stock,
$.01 par value, issued and outstanding.
PART I
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PART II
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PART III
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PART IV
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PART
I
GENERAL
Forgent Networks, Inc. a Delaware
corporation d/b/a Asure Software ("Forgent" or the "Company"), is a provider of
web-based workforce management solutions that enable organizations to manage
their office environment as well as their human resource and payroll processes
effectively and efficiently. The Company was incorporated in 1985 and
has principal executive offices located at 108 Wild Basin Road, Austin, Texas
78746. The Company telephone number is (512) 437-2700 and the Company
website is www.asuresoftware.com. The Company
does not intend for information contained on its website to be part of this
Annual Report on Form 10-K (the "Report"). Forgent makes available
free of charge, on or through its website, its annual report on Form 10-K, its
quarterly reports on Form 10-Q, its current reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after the Company electronically
files such material or furnishes it to the Securities and Exchange
Commission.
In
September 2007, the Company announced its name change to “Asure Software” to
reflect the Company’s focus on its software business for its future
growth. As a software and services provider, in October 2007, Forgent
purchased iSarla Inc., a Delaware corporation and application service provider
that offers on-demand software solutions. As a result of the
iEmployee acquisition, the Company currently offers two main product lines in
its software and services business: NetSimplicity and iEmployee. Forgent’s
NetSimplicity product line provides simple and affordable solutions to common
office administration problems. NetSimplicity’s flagship product,
Meeting Room Manager, automates the entire facility scheduling process:
reserving rooms, requesting equipment, ordering food, sending invitations,
reporting on the meeting environment and more. Forgent’s iEmployee
product line helps simplify the HR process and improves employee productivity by
managing and communicating human resources, employee benefits and payroll
information. iEmployee's web-based solutions include Time &
Attendance, Timesheets, Human Resource Benefits, Expenses and others. Additional
business information is contained elsewhere in this Report, including under Item
7 of Part II (Management’s
Discussion and Analysis of Financial Condition and Results of
Operations).
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.
On
January 29, 2009, Forgent’s Board 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. In addition to a new board of directors, the Company is
currently managed by a new Chief Executive Officer, who the new board of
directors believes will be able to implement its strategy for growing the
software business and achieving profitability and positive cash
flows. However, uncertainties and challenges remain and there can be
no assurances that Forgent's current strategy will be successful.
PRODUCTS AND
SERVICES
As Asure Software, Forgent offers
web-based workforce management solutions that enable organizations to manage
their office environment as well as their human resource and payroll processes
effectively and efficiently. The workforce management solutions
include scheduling software, human resource and time and attendance software,
complementary hardware devices to enhance its software products, software
maintenance and support, installation and training and other professional
services. The Company offers its workforce management solutions under
two product lines: NetSimplicity and iEmployee.
The
Company’s NetSimplicity line of software products enable corporations,
educational institutions, law firms and healthcare facilities, in the United
States and worldwide, to more effectively manage shared office space, equipment,
assets and resources. Now in its eighth major release, Meeting Room
Manager has evolved into a scheduling solution that enables organizations to
better manage their meeting environment by managing everything related to the
meeting environment, including rooms, catering, A/V, equipment, setup and other
resources and services. MRM has a number of interface options
including a web-based Microsoft Outlook® or a LCD Panel interface. MRM is
marketed both on an in-house installed, perpetual license basis, and on a hosted
subscription, software-as-a-service (“SaaS”) basis. The Company also
offers complementary LCD panels as optional add-ons as a means to access its
scheduling software and book rooms ad hoc via panel interfaces.
The
Company’s iEmployee suite of time and attendance and human resources software
enables small to medium businesses to transition to an online, self-service
human resources process, thereby improving accuracy and reducing administrative
costs. All iEmployee products are offered on a hosted subscription, SaaS
basis, which saves customers the need to install software or maintain hardware
and provides customers a quick and easy way to implement a fully-automated human
resource information system solution. Additionally, iEmployee products are
integrated with leading payroll and benefits providers, allowing customers to
advance to online, self-service HR without significant switching
costs. The Company’s two primary iEmployee products are Time &
Attendance and HR & Benefits.
iEmployee’s
Time & Attendance solution enables organizations to manage hourly time
tracking, project time tracking and paid-time-off in one unified system, thus
eliminating paper timekeeping hassles. It provides automated workflows to
increase manager and employee productivity and automatically enforces company
policies and business rules, eliminating costly time-reporting and calculation
errors. In June 2009, the Company introduced the iEmployee IE-7200 Time
Clock, a hardware time collection device that allows employers to capture
employee time punches through a full range of biometric and card recognition
options. The combination of Time & Attendance and IE-7200 Time Clock
offers customers a comprehensive web and physical time clock time and attendance
system that is affordable and easy to deploy.
iEmployee’s
HR & Benefits solution significantly reduces the HR administrative burden,
eliminates paper and paper processing costs and simplifies compliance with
regulatory statutes. Built on a foundation of effective self-service features
that are easy to use, HR & Benefits can transform the human resource process
from a focus heavily weighted on paperwork to a direct focus on the
employees.
Support and professional services are
another key element of Forgent’s software and services business. As an extension
of its perpetual software product offerings, NetSimplicity offers its customers
maintenance and support contracts that provide ready access to qualified support
staff, software patches and upgrades to the Company’s software products, all
without any additional cost to the customer. At the customer’s
request, the Company provides installation of and training on its products,
add-on software customization, and other professional services.
PRODUCT
DEVELOPMENT
The
technology industry is characterized by continuing improvements in technology,
resulting in the frequent introduction of new products, short product life
cycles, changes in customer needs and continual improvement in product
performance characteristics. To be successful, Forgent must be
cost-effective and timely in enhancing its current software applications,
developing new innovative software solutions that address the increasingly
sophisticated and varied needs of an evolving range of customers, and
anticipating technological advances and evolving industry standards and
practices.
NetSimplicity’s
development team, based in Vancouver, British Columbia, Canada, and the
iEmployee development team, based in Warwick, Rhode Island and Mumbai, India,
are staffed with software developers, quality assurance engineers and support
specialists who work closely with the Company’s customers and the Company’s
sales and marketing teams to build products based on market requirements and
customer feedback.
The
Company’s research and development strategy is to continue to enhance the
functionality of its software products through new releases and new feature
developments. Forgent will also continue to evaluate opportunities
for developing new software so that organizations may further streamline and
automate the tasks associated with administering their
businesses. The Company seeks to simultaneously allow organizations
to improve their productivity while reducing their costs associated with those
business tasks.
Despite
the Company’s best efforts, there can be no assurance that Forgent will complete
its existing and future development efforts or that its new and enhanced
software products will adequately meet the requirements of the marketplace and
achieve market acceptance. Additionally, Forgent may experience
difficulties that could delay or prevent the successful development or
introduction of new or enhanced software products. In the case of
acquiring new or complementary software products or technologies, the Company
may not be able to integrate the acquisitions into its current product
lines. Furthermore, despite extensive testing, errors may be found in
the Company’s new software products or releases after shipment, resulting in a
diversion of development resources, increased service costs, loss of revenue
and/or delay in market acceptance.
SALES AND
DISTRIBUTION
Forgent’s software products and
services are sold primarily through a direct web and telesales model, which
enables the Company to sell its software solutions in an efficient,
cost-effective manner. The prospective customer visits one of the Company’s two
product line websites, either NetSimplicity or iEmployee, gathers the needed
product information, and can optionally register for webcasts, product
demonstrations, white papers and the like. At that point, the
prospective customer provides contact information via the website and a sales
representative follows up to provide further information and conclude the
sale. In addition to this direct, inside sales model, the Company
supplements these efforts with its partner programs described
below. By working with these partners, the Company expands the reach
of its direct sales force and gains access to key opportunities in major market
segments worldwide. The Company has two distinct levels of partners
in its Partner Program: Reseller Partners and Referral Partners.
Reseller Partners are companies that
represent the Company in geographies outside the United States and in the
Federal government and companies with complementary offerings to either the
NetSimplicity product line or the iEmployee product line. Reseller
Partners commit to a minimum level of business per year with the Company and
receive a channel discount for that commitment. The Company’s
Reseller Partners outside the United States include: BusinessSolve, Ltd. in the
United Kingdom, Novera in Australia, and Isyd in Germany, all of whom represent
the NetSimplicity product line. The Company also has several Reseller
Partners that represent NetSimplicity software in the Federal government
space. Resellers of iEmployee include Ceridian Corporation in the
United States, a leading provider of human resource outsourcing
solutions.
Referral Partners provide the Company
with the name and particular information about a customer and its needs as a
sales lead. If the Company accepts the sales lead, registers it for a
particular Referral Partner and subsequently makes a sale as a direct result of
such a lead, the Company will pay the Referral Partner a sales lead referral
fee. Currently, the Company has a number of Referral Partners
including PolyVision Corp./Steelcase and e-Innovative Solutions for the
NetSimplicity product line and Oasis Advantage for iEmployee’s Time &
Attendance product.
The
Company also has a "digital signage solutions" partner program, which enables it
to resell digital signage hardware to complement MRM. Partners in this
program include four vendors: Advantech, Tablet Kiosk, the CRE Group and
JANUS Digital Displays. NetSimplicity has experienced successful
customer deployments with each vendor's hardware.
COMPETITION
Forgent’s
NetSimplicity line of scheduling software products has a competitive advantage
in the marketplace by being able to automate business processes that are
otherwise typically performed manually or with the assistance of general-purpose
office software tools such as Microsoft Outlook®, Exchange® or Excel®. MRM
competes with other scheduling software applications offered by companies such
as PeopleCube, Dean Evans and Associates, and Emergingsoft. The principal
competitive advantages of MRM with respect to these other products include MRM’s
broad product capabilities, more customizable user interface, and
price.
Forgent’s
iEmployee line of time and attendance and human resource software has a
competitive advantage in the marketplace by being able to serve organizations
looking for specific point-solutions as well as organizations looking for an
integrated suite of solutions. By being able to compete tactically with
point-solutions and strategically with an integrated suite of solutions,
iEmployee can serve the needs of a broad spectrum of companies. While iEmployee
has the advantage of flexibility, ease-of-use, affordability and speed of
delivery, the Company faces certain challenges with various types of
competitors:
• Vendors with face-to-face sales
contact. In this highly relationship-based sales process, vendors with a
field-based sales team who meets and consults with prospects have an advantage.
iEmployee does not have a field-based approach to sales but focuses instead on
high-touch marketing campaigns and leveraging relationships with channel
partners to build relationships with prospects.
• National payroll processors with
loss-leader products. Large brand and market share vendors (like ADP,
Inc.) can offer equivalent point solutions at little or no cost to prospects
when in a competitive engagement because these loss leader products become
inconsequential next to their core business offerings.
• Single application vendors.
Vendors that offer similar point-solutions like Time & Attendance,
Employee/Manager Self-Service, Paystubs, etc. can be perceived as better meeting
an immediate and specific need.
Since the
market for the Company’s products and services is subject to rapid technological
change and since there are relatively low barriers to entry in the workforce
management software market, the Company may encounter new entrants or
competition from vendors in some or all aspects of its two product lines.
Competition from these potential market entrants may take many forms. Some of
the Company’s competitors, both current and future, may have greater financial,
technical and marketing resources than the Company and therefore, may be able to
respond quicker to new or emerging technologies and changes in customer
requirements. As a result, they may compete more effectively on price
and other terms. Additionally, those competitors may devote greater
resources in developing products or in promoting and selling their products to
achieve greater market acceptance. Forgent is actively taking
measures to effectively address its competitive challenges. However,
there can be no assurance that the Company will be able to achieve or maintain a
competitive advantage with respect to any of the competitive
factors.
MARKETING
The
Company’s software and services business has a large roster of more than 3,500
domestic and international customers. The consistent growth of the customer base
relies on the development and implementation of a comprehensive integrated
marketing plan. Although the Company’s customers include many Fortune
500 companies and that base continues to grow, the marketing plan is primarily
aimed at reaching small and medium-sized businesses and divisions of enterprise
organizations throughout the United States, Europe and
Asia/Pacific. The integrated elements of Forgent’s marketing plan
include a mix of demand generation, public relations and other corporate
communications activities to ensure a consistent and accurate flow of
information to and from prospects, customers and other key
stakeholders. In terms of ongoing demand generation activities, the
Company focuses its efforts primarily on search engine marketing including
search engine optimization, pay per click advertising and social
media. Additional marketing mix elements include outbound e-mail
marketing, lead nurturing, targeted trade shows and industry focused print
advertising.
TRADEMARKS
Due to its name change to the use of
the d/b/a Asure Software, the Company has registered the "Asure Software"
trademark with the U.S. Patent and Trademark Office (the “USPTO”). As
a result of the iEmployee acquisition in October 2007, the Company holds the
“iEmployee” trademark.
EMPLOYEES
As of
October 15, 2009, the Company had a total of 75 employees, 22 of whom reside in
India, in the following departments:
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NUMBER
OF
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FUNCTION
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EMPLOYEES
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Research
and development
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23 |
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Sales
and marketing
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19 |
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Customer
service and technical support
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25 |
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Finance,
human resources and administration
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8 |
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Total
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75 |
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The size
and composition of Forgent's workforce is continually evaluated and adjusted.
The Company also occasionally hires contractors to support its sales and
marketing, information technology and administrative functions. None
of the Company’s employees are represented by a collective bargaining
agreement. Forgent has not experienced any work stoppages and
considers its relations with its employees to be good.
The future performance of the Company
depends largely on its ability to continually and effectively attract, train,
retain, motivate and manage highly qualified and experienced technical, sales,
marketing and managerial personnel. Forgent's future development and
growth depend on the efforts of key management personnel and technical
employees. Forgent uses incentives, including competitive compensation and stock
option plans to attract and retain well-qualified employees. However, there can
be no assurance that the Company will continue to attract and retain personnel
with the requisite capabilities and experience. The loss of one or more of
Forgent's key management or technical personnel could have a material and
adverse effect on its business and operating results.
EXECUTIVE
OFFICER
Patrick Goepel, age 47, was
elected to the Company’s Board of Directors at its August 28, 2009 Annual
Meeting of Shareholders. Mr. Goepel was subsequently appointed as
Interim Chief Executive Officer on September 15, 2009. Prior to his
appointment, Mr. Goepel served as Chief Operating Officer of Patersons Global
Payroll and oversaw its human relations function. Previously, he was the
President and Chief Executive Officer of Fidelity Investment's Human
Resource Services Division from 2006 - 2008, President and Chief Executive
Officer of Advantec from 2005 - 2006 and Executive Vice President of Business
Development and US Operations at Ceridian from 1994 - 2005. A former board
member of iEmployee, Mr. Goepel currently serves on the board of directors of
Patersons and Allover Media.
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.
Forgent leases approximately 137,000
square feet in Austin, Texas for use as its headquarters, including its sales
and marketing operations. The lease expires in March
2013. Due to the downsizing of the Company on account of past
divestitures and restructurings, Forgent has existing unoccupied leased space,
which it has actively subleased. Management has calculated the economic value of
the lost sublease rental income and recorded impairment charges to the
Consolidated Statement of Operations. As of July 31, 2009, Forgent
had $0.8 million recorded as a liability on the Consolidated Balance Sheet
related to these impairment charges at its Austin
property. Currently, the Company occupies approximately 18,000 square
feet, subleases approximately 94,000 square feet and anticipates continuing to
sublease the remaining under-utilized space.
Forgent also leases approximately 4,000
square feet of office space in Vancouver, British Columbia,
Canada. The Canadian facility provides office space for sales and
development efforts. For additional development efforts and for customer
support, the Company currently leases approximately 5,000 square feet in
Warwick, Rhode Island and approximately 2,000 square feet in Mumbai,
India.
Management believes that the leased
properties described above are adequate to meet Forgent's current operational
requirements and can accommodate further physical expansion of office space as
needed.
ITEM
3. LEGAL
PROCEEDINGS
Forgent was 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”), Forgent’s former legal counsel, filed a complaint
against Forgent and Compressions Labs, Inc., in the District Court of Dallas
County, Texas. In its complaint, Jenkens alleged a breach of contract
and sought a declaratory judgment. Forgent disputed Jenkens’ claims
and also sought 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 believed Jenkens
was entitled to $1.4 million for contingency fees and expenses related to the
settlements from the litigation regarding the Company’s DVR
patents. Jenkens interpreted the Resolution Agreement on broader
terms and believed it was entitled to more, including attorneys’ fees and
interest.
The trial with Jenkens commenced on
July 20, 2009. The jury ruled in favor of Jenkens and awarded Jenkens
approximately $4.6 million in damages, attorney’s fees and
interest. On August 20, 2009, Forgent and Jenkens entered into a
settlement agreement. Under the agreement, Forgent agreed to pay
Jenkens $4.3 million and the parties agreed to release all claims against each
other. Forgent paid Jenkens the settlement amount on August 25, 2009
and as a result, the Company considers this litigation to be
concluded.
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 Forgent’s lease agreement by unreasonably
withholding and delaying its consent to Forgent’s lease assignment to a third
party. On October 19, 2007, Forgent amended its petition to include
claims of fraud and breach of fiduciary duty against Wild Basin. On
June 5, 2008, Forgent amended its petition to request the Court make declaratory
judgments on several issues in the case and to include as a breach of contract
claim its claim for withholding amounts that should have been distributed by
Wild Basin in the past pursuant to the lease. 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 consents to Forgent’s lease assignment. In return, Forgent
paid Wild Basin $75 thousand in November 2008. Both parties agreed to
mutually release claims against each other.
While
Forgent was significantly delayed in obtaining Wild Basin’s consent to its lease
assignment, the identified third party encountered difficulties obtaining the
required financing due to the tightened capital
markets. Forgent continues to work with Wild Basin regarding
its breach of contract claim that Wild Basin withheld amounts that should have
been distributed to Forgent. Forgent will renew its litigation against Wild
Basin regarding this matter, only if necessary.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 28, 2009, an annual meeting
of the stockholders was held in Austin, Texas, whereby the stockholders voted on
the following proposals:
1.
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Proposal
to elect six directors to the board of directors to hold office until the
next annual meeting of stockholders or until their respective successors
are duly elected and qualified. The stockholders approved the
proposal by the following vote:
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Nominees
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For
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Withheld
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Richard
N. Snyder
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5,267,418
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1,003,879
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Richard
J. Agnich
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5,486,274
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785,023
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Nancy
L. Harris
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5,483,316
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787,981
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Lou
Mazzucchelli
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5,485,274
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786,023
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Ray
R. Miles
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5,486,274
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785,023
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James
H. Wells
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5,432,323
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838,974
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Cornelius
Ferris
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10,869,345
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2,048,334
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Patrick
Goepel
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12,883,529
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34,150
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Robert
Graham
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10,866,945
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2,050,734
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Adrian
Pertierra
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10,865,645
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2,052,034
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David
Sandberg
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12,877,458
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40,221
|
Jeffrey
Vogel
|
10,866,945
|
2,050,734
|
On
September 3, 2009, Mr. Ferris announced his resignation from the Board of
Directors of the Company. Mr. Ferris informed the Board that his
existing duties and responsibilities were recently substantially and
unexpectedly expanded and required that he spend significant time in
Canada. Given such existing responsibilities and obligations, Mr.
Ferris informed the Company that he did not believe his schedule would permit
him to adequately fulfill his responsibilities as a member of the Board of
Directors of the Company. Mr. Ferris' resignation did not involve any
disagreement with the Company. The Board of Directors of the Company
has not determined as of yet whether it will appoint a successor member to fill
the resulting vacancy in the Board of Directors.
2.
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Proposal
to ratify the Audit Committee’s appointment of Ernst & Young LLP
(“E&Y”), independent accountants, as the Company’s independent
auditors for the year ending July 31, 2009. The stockholders
rejected the proposal by the following
vote:
|
For
|
Against
|
Abstain
|
8,964,322
|
10,122,040
|
102,614
|
Although
the stockholders did not ratify the Audit Committee’s appointment of E&Y as
the Company’s independent auditors for the year ending July 31, 2009, a
significant amount of audit work had already been completed as of August 28,
2009. Therefore, management decided it was financially prudent to
allow E&Y to complete the audit for the year ending July31,
2009. The Company will consider alternative options for fiscal year
2010.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
MARKET
INFORMATION
The common stock of the Company is
currently trading in the NASDAQ Capital Market System under the symbol
"ASUR". The following table sets forth the high and low sales prices
for the Company’s common stock for each full fiscal quarter of 2009 and
2008:
|
|
FISCAL
YEAR
|
|
|
FISCAL
YEAR
|
|
|
|
2009
|
|
|
2008
|
|
|
|
HIGH
|
|
|
LOW
|
|
|
HIGH
|
|
|
LOW
|
|
1st
Quarter
|
|
$ |
0.45 |
|
|
$ |
0.15 |
|
|
$ |
1.49 |
|
|
$ |
0.65 |
|
2nd
Quarter
|
|
$ |
0.33 |
|
|
$ |
0.11 |
|
|
$ |
1.39 |
|
|
$ |
0.65 |
|
3rd
Quarter
|
|
$ |
0.20 |
|
|
$ |
0.10 |
|
|
$ |
0.90 |
|
|
$ |
0.29 |
|
4th
Quarter
|
|
$ |
0.32 |
|
|
$ |
0.12 |
|
|
$ |
0.57 |
|
|
$ |
0.28 |
|
DIVIDENDS
The Company has not paid cash dividends
on its common stock during fiscal years 2009 and 2008, and presently intends to
continue a policy of retaining earnings for reinvestment in its business, rather
than paying cash dividends.
HOLDERS
As of October 30, 2009, there were
approximately 1,055 stockholders of record
of the Company’s common stock.
SECURITIES AUTHORIZED FOR
ISSUANCE UNDER EQUITY COMPENSATION PLANS
See "Equity Compensation Plan
Information" under Item 12 of Part III of this Report (Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters).
RECENT SALES OF UNREGISTERED
SECURITIES
None.
ISSUER PURCHASES OF EQUITY
SECURITIES
None.
ITEM
6. SELECTED
FINANCIAL DATA
The Company is a smaller reporting
company as defined by Rule 12-b-2 of the Exchange Act and is not required to
provide the information required under this item.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 Outlook®.
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 million and alternative
minimum tax credit carryforwards of approximately $0.2 million. The net
operating loss and R&D credit carryforwards will expire in varying amounts
from 2009 through 2029, if not utilized. Minimum tax credit carryforwards carry
forward indefinitely.
As a result of various acquisitions by
the Company in prior years, utilization of the net operating losses and credit
carryforwards may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses before
utilization.
Due to the uncertainty surrounding the
timing of realizing the benefits of its favorable tax attributes in future tax
returns, the Company has placed a valuation allowance against its net deferred
tax asset. Accordingly, no deferred tax benefits have been recorded
for the tax years ended July 31, 2009 and 2008. During the year ended
July 31, 2009, the valuation allowance increased by approximately $640 due
primarily to operations. Approximately $7,425 of the valuation
allowance relates to tax benefits for stock option deductions included in the
net operating loss carryforward which, when realized, will be allocated directly
to contributed capital to the extent the benefits exceed amounts attributable to
book deferred compensation expense.
Undistributed
earnings of the Company’s foreign subsidiaries are considered permanently
reinvested and, accordingly, no provision for U.S. federal or state income taxes
has been provided thereon.
Net
Loss
Net loss was $9.7 million and $12.7
million in fiscal years 2009 and 2008, respectively. The decrease in
net loss was $3.0 million, or 23.4%. Net loss as a percentage of
total revenues was 96.9% and 124.8% for the years ended July 31, 2009 and 2008,
respectively. The $3.0 million decrease in net loss during the year
ended July 31, 2009 was due primarily to the $6.8 million decrease in the
impairment charge, offset by the $2.2 million litigation settlement expense and
the $1.3 million increase in SG&A expenses.
LIQUIDITY AND CAPITAL
RESOURCES
|
|
For
the year ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
1,158 |
|
|
$ |
10,090 |
|
Cash,
cash equivalents and short-term investments
|
|
|
9,714 |
|
|
|
14,689 |
|
Cash
used in operating activities
|
|
|
(4,618 |
) |
|
|
(13,313 |
) |
Cash
used in investing activities
|
|
|
(3,019 |
) |
|
|
(8,120 |
) |
Cash
(used in) provided by financing activities
|
|
|
(38 |
) |
|
|
8 |
|
Cash used in operating activities was
$4.6 million in fiscal year 2009 and cash used in operating activities was $13.3
million in fiscal year 2008. The $4.6 million of cash used in operating
activities during fiscal year 2009 was due primarily to $9.7 million in net
loss, offset by a $2.5 million increase in accounts payable, $1.2 million in
depreciation and amortization expenses and a $0.6 million non-cash impairment
charge. The $13.3 million of cash used in operating activities during
fiscal year 2008 was due primarily to $12.7 million in net loss and an $8.2
million decrease in accounts payable, offset by a $7.4 million non-cash
impairment charge.
At the end of July 2009, the trial with
Jenkens was concluded with the jury awarding Jenkens approximately $4.6 million
in damages, attorney’s fees and interest. On August 20, 2009, Forgent
entered into a settlement agreement with Jenkens and subsequently paid Jenkens
$4.3 million on August 25, 2009. During the year ended July 31, 2008,
Forgent paid its legal counsel $7.4 million in contingency fees related to its
‘746 patent’s settlement and license agreements. Since the litigation
with Jenkens concluded in early fiscal year 2010 and Forgent has paid Jenkens
its settlement amount, management does not expect any additional large swings in
sources or uses of cash from operations related to its intellectual property
licensing business in the future.
During fiscal year 2009, Forgent
experienced some customers delaying payment due to the current economic
environment. Therefore, Forgent diligently focused on its collection
efforts during the year ended July 31, 2009, which accounted for the decrease in
its average days sales outstanding. Average days sales outstanding was 32 days
as of July 31, 2009, a decrease from 36 days as of July 31, 2008.
Management
continues to closely monitor all of its cash sources and uses as it manages its
operations through the current recession. In fiscal year 2010, the
Company will pay approximately $1.0 million in legal and proxy-related expenses
related to the proxy contest in fiscal year 2009. Management does not
expect any other significant one-time cash outflow and believes the Company has
sufficient funds available on hand to meet its current operational needs for the
next 12 months.
Cash used in investing activities was
$3.0 million in fiscal year 2009 and cash used in investing activities was $8.1
million in fiscal year 2008. The $3.0 million of cash used in
investing activities during fiscal year 2009 was due primarily to $2.7 million
in net purchases of short-term investments. The $8.1 million of cash used in
investing activities during fiscal year 2008 was due primarily to $7.4 million
paid to acquire the iEmployee business. The Company manages its
investment portfolio in order to fulfill corporate liquidity requirements and
maximize investment returns while preserving the quality of the
portfolio. Due to the declining interest rates during fiscal year
2009, Forgent invested more of its available cash balances in short-term
investments to maximize the return on these assets.
Forgent’s
current operations are not capital intensive and the Company purchased $0.3
million and $0.3 million in fixed assets during the years ended July 31, 2009
and 2008, respectively. Approximately 35.1% of Forgent’s purchased
fixed assets during the year ended July 31, 2009 related to leasehold
improvements for the Company’s subtenants. The other purchases were
spread across the Company’s four facilities. Approximately 45.3% of
Forgent’s purchased fixed assets during the year ended July 31, 2008 related to
leasehold improvements for the Company’s expanded sales force and for one
subtenant. The present management team is currently assessing its
capital needs at the Company’s four sites. Currently, management does not
anticipate significant capital expenditures during fiscal year
2010.
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 Company’s 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 $12.9 million, or 96.6% of the Company’s
total operating lease obligations, relate to its corporate office facility at
Wild Basin in Austin, Texas. As of July 31, 2009, Forgent had $4.6
million in future minimum lease payments receivable under non-cancelable
sublease arrangements. Additionally, Forgent had a $0.8 million
liability related to impairment charges for the economic value of the lost
sublease rental income at its Austin property. Forgent may
periodically make other commitments and thus become subject to other contractual
obligations.
Cash used
in financing activities was $38 thousand in fiscal year 2009 and cash provided
by financing activities was $8 thousand in fiscal year 2008. Forgent
currently does not have any notes payable.
Forgent’s stock repurchase program
allows the Company to purchase up to 3.0 million shares of the Company’s common
stock. During the years ended July 31, 2009 and 2008, Forgent did not
repurchase any shares under this program. The shares repurchased by
month during the last quarter of the fiscal year ended July 31, 2009 are as
follows:
|
|
Issuer
Purchases of Equity Securities
(in
thousands except average price)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number
of
Shares
Repurchased
|
|
|
Average
Price
Paid
per
Share
|
|
|
Total
Number of
Shares
Purchased
as
Part of a
Publicly
Announced
Plan
|
|
|
Maximum
Number
of
Shares
that may
yet
be Purchased
Under
the Plans
|
|
May
1, 2009 - May 31, 2009
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
1,210 |
|
June
1, 2009 - June 30, 2009
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
1,210 |
|
July
1, 2009 - July 31, 2009
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
1,210 |
|
Total
|
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
1,210 |
|
As of
July 31, 2009, the Company has repurchased 1,790,401 shares for approximately
$4.8 million under its stock repurchase program. Management will
periodically assess repurchasing additional shares during fiscal year 2010,
depending on the Company's cash position, market conditions and other
factors.
As of July 31, 2009, Forgent's
principal sources of liquidity consisted of $9.7 million in cash, cash
equivalents and short-term investments. Management plans to utilize
these cash balances by paying Jenkens $4.3 million, paying $1.0 million in legal
and proxy-related expenses, continuing to invest in its software operations and
making additional prudent investments to progress the business towards
profitability. There is no assurance that the Company will be able to
limit its cash consumption and preserve its cash balances, and it is possible
that the Company's 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 growth of its current
and future operations for the next 12 months and thereafter. However,
due to uncertainties related to the timing and costs of these efforts, Forgent
may need to raise additional capital in the future. Yet, there is no
assurance that the Company will be able to raise additional capital if and when
it is needed.
CRITICAL ACCOUNTING
POLICIES
The
Company’s consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and include the accounts of
Forgent's wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in the consolidation. Preparation of the
consolidated financial statements in conformity with 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 year end and the reported amounts of revenues and
expenses during the fiscal year. The more significant estimates made
by management include the valuation allowance for the gross deferred tax 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 Forgent’s critical accounting policies:
Revenue
Recognition
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. The Company recognizes software 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 Entity’s Hardware” and EITF Issue No.
00-21.
Revenue
consists of software license, software subscription and service
fees. Revenue from the software element is earned through the
licensing or right to use the Company’s software and from the sale of specific
software products. Service fee income is earned through the sale of
maintenance and technical support, training and installation. 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 as a
single unit of accounting 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 software licensing
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 Company’s training
and installation services are not essential to the functionality of the
Company’s products as such services can be provided by a third party or the
customers themselves.
For
instances in which VSOE cannot be determined for undelivered elements, and these
undelivered elements do not provide significant customization or modification of
its software product, Forgent recognizes the entire contract amount ratably over
the period during which the services are expected to be performed.
The
Company does not recognize revenue for agreements with rights of return,
refundable fees, cancellation rights or acceptance clauses until such rights of
return, refund or cancellation have expired or acceptance has
occurred. The Company's arrangements with resellers do not allow for
any rights of return.
Deferred
revenue includes amounts received from customers in excess of revenue
recognized, and is comprised of deferred maintenance, service and other
revenue. Deferred revenues are recognized in the Consolidated
Statements of Operations when the service is completed and over the terms of the
arrangements, primarily ranging from one to three years.
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 Company's 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.
RECENT ACCOUNTING
PRONOUNCEMENTS
In
September 2009, the Emerging Issues Task Force (the “EITF”) reached final
consensus on the issue related to revenue recognition with multiple
deliverables. EITF Issue No. 08-1, “Revenue Arrangements with Multiple
Deliverables” addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the separate units
of accounting. This guidance eliminates the residual method and replaces it with
the “relative selling price” method when allocating revenue in a multiple
deliverable arrangement. The selling price for each deliverable shall be
determined using vendor specific objective evidence of selling price, if it
exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the
selling price for that deliverable. After adoption, this guidance will also
require expanded qualitative and quantitative disclosures. EITF 08-1 is
effective for the Company’s revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with early
adoption permitted. The Company is currently evaluating the impact of adoption
on its consolidated results of operations and financial position.
In May
2009, the Financial Accounting Standard Board (“FASB”) issued Statement No.
165, “Subsequent Events,”
establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. Statement No. 165 is based on the
same principles as those that currently exist and defines the circumstances and
period after the balance sheet date during which management of a reporting
entity should evaluate events that occur for potential recognition or disclosure
in the financial statements. The standard also requires a new disclosure of the
date through which a reporting entity has evaluated its subsequent events.
Forgent adopted Statement No. 165, effective for the year ended July 31, 2009,
and has accounted and reported its subsequent events accordingly.
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
Forgent’s accounting for future business combinations once adopted.
ITEM
7A. 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
8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and
supplementary data required by this Item 8 are listed in Items 15 (1)
and (2) of Part III of this Report (Exhibits, Financial Statement
Schedules).
ITEM
9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A(T). CONTROLS AND
PROCEDURES
The Company's 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 Company’s CEO and Controller, with
the participation of management, have evaluated the effectiveness of the
Company’s disclosure controls and procedures as of July 31,
2009. Based on their evaluation, they have concluded, to the best of
their knowledge and belief, that the disclosure controls and procedures,
including internal controls over financial reporting, are
effective. No changes were made in the Company’s internal controls
over financial reporting during the fourth fiscal quarter ended July 31, 2009,
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting. In making
this assessment, management used the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Tradeway Commission.
This annual report does not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was
not subject to attestation by the Company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s reporting in this annual
report.
ITEM
9B. OTHER
INFORMATION
None.
PART
III
ITEM
10. DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this
item is incorporated by reference from the Company's definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal
year 2009.
ITEM
11. EXECUTIVE
COMPENSATION
The information required under this
item is incorporated by reference from the Company's definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal
year 2009.
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
information required under this item, with the exception of the table provided
below, is incorporated by reference from the Company's definitive proxy
statement relating to its annual meeting of shareholders, which will be filed
with the Securities and Exchange Commission within 120 days of the end of
fiscal year 2009.
EQUITY COMPENSATION PLAN
INFORMATION
The
following table provides information as of July 31, 2009 with respect to the
shares of the Company’s common stock that may be issued under the Company’s
existing equity compensation plans.
|
|
A
|
|
B
|
|
C
|
Plan
Category
|
|
Number of Securities
to
be Issued upon
Exercise
of
Outstanding Options
|
|
Weighted Average
Exercise
Price of
Outstanding Options
|
|
Number of Securities
Remaining Available for
Future
Issuance Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column
A)
|
Equity
Compensation Plans Approved by Stockholders (1)
|
|
1,131,305
(3)
|
|
$ |
0.76 (3) |
|
21,317
(4)
|
Equity
Compensation Plans Not Approved by Stockholders (2)
|
|
-0-
|
|
|
N/A |
|
-0-
|
Total
|
|
1,131,305
|
|
$ |
0.76 |
|
21,317
|
(1)
|
Consists
of the 1989 Stock Option Plan, the 1992 Director Stock Option Plan, the
1996 Stock Option Plan, and the Employee Stock Purchase
Plan.
|
(2)
|
All
of the Company’s equity compensation plans have been previously approved
by the Company’s stockholders.
|
(3)
|
Under
the Employee Stock Purchase Plan, each eligible employee may purchase up
to 2,500 shares per quarter (but in no case can the participant contribute
more than 15% of base pay) of common stock at quarterly intervals on the
last day of the calendar quarter (i.e. March, June, September, and
December) each year at a purchase price per share equal to 85% of the
lower of (i) the average selling price per share of common stock on
the first day of the quarter or (ii) the average selling price per
share on the quarterly purchase
date.
|
(4)
|
Includes
shares available for future issuance under the Company's Employee Stock
Purchase Plan.
|
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this
item is incorporated by reference from the Company's definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal
year 2009.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required under this
item is incorporated by reference from the Company's definitive proxy statement
relating to its annual meeting of shareholders, which will be filed with the
Securities and Exchange Commission within 120 days of the end of fiscal
year 2009.
PART
IV
ITEM
15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
(a)
|
Financial Statements and
Financial Statements
Schedules
|
(1) The
following financial statements of the Company are filed as a part of this
Report:
Report of Independent Registered Public
Accounting Firm
Consolidated Financial
Statements
Consolidated Balance Sheets as of July
31, 2009 and 2008
Consolidated Statements of Operations
for the years ended July 31, 2009 and 2008
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended July 31, 2009
and 2008
Consolidated Statements of Cash Flows
for the years ended July 31, 2009 and 2008
Notes
to Consolidated Financial Statements
(2)
Financial Statement Schedules:
All
schedules for which provision is made in the applicable account regulation of
the Securities and Exchange Commission are either not required under the related
instructions, are inapplicable or the required information is included elsewhere
in the Consolidated Financial Statements and incorporated herein by
reference.
(b) Exhibits
The exhibits filed in response to Item
601 of Regulations S-K are listed in the Index to the Exhibits.
Index
To Financial Statements and Financial Statement Schedules (Item 15(a)(1) of Part
IV)
|
PAGE
|
|
|
|
F -
1
|
Financial
Statements:
|
|
|
F -
2
|
|
F -
3
|
|
|
|
F -
4
|
|
F -
5
|
|
F -
6
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Forgent Networks, Inc.
We have
audited the accompanying consolidated balance sheets of Forgent Networks, Inc.
as of July 31, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company’s internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Forgent Networks, Inc.
at July 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for the years then ended, in conformity with U.S. generally
accepted accounting principles.
Austin,
Texas
November
6, 2009
FORGENT
NETWORKS, INC.
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands, except per share data)
|
|
JULY 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,375 |
|
|
$ |
12,062 |
|
Short-term
investments
|
|
|
5,339 |
|
|
|
2,627 |
|
Accounts
receivable, net of allowance for doubtful
accounts
of $20 and $41 at July 31, 2009 and 2008,
respectively
|
|
|
1,207 |
|
|
|
1,488 |
|
Inventory
|
|
|
3 |
|
|
|
74 |
|
Prepaid
expenses and other current assets
|
|
|
143 |
|
|
|
421 |
|
Total
current assets
|
|
|
11,067 |
|
|
|
16,672 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
672 |
|
|
|
907 |
|
Intangible
assets, net
|
|
|
3,949 |
|
|
|
4,729 |
|
|
|
$ |
15,688 |
|
|
$ |
22,308 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
6,294 |
|
|
$ |
3,778 |
|
Accrued
compensation and benefits
|
|
|
278 |
|
|
|
203 |
|
Lease
impairment and advance
|
|
|
899 |
|
|
|
373 |
|
Other
accrued liabilities
|
|
|
541 |
|
|
|
384 |
|
Deferred
revenue
|
|
|
1,897 |
|
|
|
1,844 |
|
Total
current liabilities
|
|
|
9,909 |
|
|
|
6,582 |
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
119 |
|
|
|
25 |
|
Lease
impairment and advance
|
|
|
250 |
|
|
|
564 |
|
Other
long-term obligations
|
|
|
206 |
|
|
|
217 |
|
Total
long-term liabilities
|
|
|
575 |
|
|
|
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; 32,906
and
32,892 shares issued, 31,116 and 31,102 shares
outstanding
at July 31, 2009 and 2008, respectively
|
|
|
329 |
|
|
|
329 |
|
Treasury
stock at cost, 1,790 shares at July 31, 2009 and 2008,
respectively
|
|
|
(4,815 |
) |
|
|
(4,815 |
) |
Additional
paid-in capital
|
|
|
270,738 |
|
|
|
270,657 |
|
Accumulated
deficit
|
|
|
(260,947 |
) |
|
|
(251,214 |
) |
Accumulated
other comprehensive loss
|
|
|
(101 |
) |
|
|
(37 |
) |
Total
stockholders' equity
|
|
|
5,204 |
|
|
|
14,920 |
|
|
|
$ |
15,688 |
|
|
$ |
22,308 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FORGENT
NETWORKS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Amounts
in thousands, except per share data)
|
|
FOR THE YEAR ENDED
JULY 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
10,044 |
|
|
$ |
10,182 |
|
Cost
of Sales
|
|
|
(2,021 |
) |
|
|
(2,238 |
) |
Gross
Margin
|
|
|
8,023 |
|
|
|
7,944 |
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
12,558 |
|
|
|
11,237 |
|
Research
and development
|
|
|
2,270 |
|
|
|
2,153 |
|
Litigation
settlement
|
|
|
2,200 |
|
|
|
-- |
|
Impairment
of assets
|
|
|
630 |
|
|
|
7,391 |
|
Amortization
of intangible assets
|
|
|
597 |
|
|
|
490 |
|
Total
operating expenses
|
|
|
18,255 |
|
|
|
21,271 |
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(10,232 |
) |
|
|
(13,327 |
) |
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
125 |
|
|
|
715 |
|
Gain
on sale of assets
|
|
|
277 |
|
|
|
-- |
|
Foreign
currency translation
|
|
|
38 |
|
|
|
14 |
|
Interest
expense and other
|
|
|
(53 |
) |
|
|
(89 |
) |
Total
other income
|
|
|
387 |
|
|
|
640 |
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS BEFORE INCOME TAXES
|
|
|
(9,845 |
) |
|
|
(12,687 |
) |
Benefit
(provision) for income taxes
|
|
|
112 |
|
|
|
(21 |
) |
NET
LOSS
|
|
$ |
(9,733 |
) |
|
$ |
(12,708 |
) |
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.31 |
) |
|
$ |
(0.42 |
) |
Diluted
|
|
$ |
(0.31 |
) |
|
$ |
(0.42 |
) |
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,110 |
|
|
|
30,026 |
|
Diluted
|
|
|
31,110 |
|
|
|
30,026 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FORGENT
NETWORKS, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts
in thousands)
|
|
COMMON
STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER
OF
SHARES
|
|
|
|
|
|
TREASURY
|
|
|
ADDITIONAL
PAID-IN
|
|
|
ACCUMULATED
|
|
|
OTHER
COMPREHENSIVE
|
|
|
TOTAL
STOCKHOLDERS'
|
|
|
|
OUTSTANDING
|
|
|
AMOUNT
|
|
|
STOCK
|
|
|
CAPITAL
|
|
|
DEFICIT
|
|
|
INCOME (LOSS)
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT JULY 31, 2007
|
|
|
25,598 |
|
|
$ |
274 |
|
|
$ |
(4,815 |
) |
|
$ |
265,647 |
|
|
$ |
(238,506 |
) |
|
$ |
20 |
|
|
$ |
22,620 |
|
Proceeds
from stock issued under
employee
plans
|
|
|
38 |
|
|
|
4 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Issuance
of restricted stock to
employees
and consultants
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
86 |
|
Issuance
of stock for acquisition
|
|
|
5,095 |
|
|
|
51 |
|
|
|
|
|
|
|
4,884 |
|
|
|
|
|
|
|
|
|
|
|
4,935 |
|
Stock
compensation for
employees
and consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,708 |
) |
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(57 |
) |
|
|
(12,765 |
) |
BALANCE
AT JULY 31, 2008
|
|
|
31,102 |
|
|
|
329 |
|
|
|
(4,815 |
) |
|
|
270,657 |
|
|
|
(251,214 |
) |
|
|
(37 |
) |
|
|
14,920 |
|
Proceeds
from stock issued under
employee
plans
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Issuance
of restricted stock to
employees
and consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
67 |
|
Stock
compensation for
employees
and consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,733 |
) |
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(64 |
) |
|
|
(9,797 |
) |
BALANCE
AT JULY 31, 2009
|
|
|
31,116 |
|
|
$ |
329 |
|
|
$ |
(4,815 |
) |
|
$ |
270,738 |
|
|
$ |
(260,947 |
) |
|
$ |
(101 |
) |
|
$ |
5,204 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FORGENT
NETWORKS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
|
|
FOR THE YEAR ENDED
JULY 31,
|
|
|
|
2009
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(9,733 |
) |
|
$ |
(12,708 |
) |
Adjustments
to reconcile net loss to net cash used in operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,239 |
|
|
|
1,147 |
|
Amortization
of leasehold advance and lease impairment
|
|
|
(373 |
) |
|
|
(401 |
) |
Impairment
of assets
|
|
|
630 |
|
|
|
7,391 |
|
Provision
for doubtful accounts
|
|
|
54 |
|
|
|
21 |
|
Share-based
compensation
|
|
|
78 |
|
|
|
107 |
|
Foreign
currency translation gain
|
|
|
(36 |
) |
|
|
(22 |
) |
Gain
on sale of assets
|
|
|
(32 |
) |
|
|
-- |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
139 |
|
|
|
192 |
|
Inventory
|
|
|
71 |
|
|
|
(74 |
) |
Prepaid
expenses and other current assets
|
|
|
142 |
|
|
|
(141 |
) |
Accounts
payable
|
|
|
2,545 |
|
|
|
(8,252 |
) |
Accrued
expenses and other liabilities
|
|
|
346 |
|
|
|
(650 |
) |
Deferred
revenue
|
|
|
312 |
|
|
|
77 |
|
Net
cash used in operating activities
|
|
|
(4,618 |
) |
|
|
(13,313 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of short-term investments
|
|
|
(6,080 |
) |
|
|
(7,056 |
) |
Sales
and maturities of short-term investments
|
|
|
3,375 |
|
|
|
6,460 |
|
Purchases
of property and equipment
|
|
|
(314 |
) |
|
|
(311 |
) |
Change
in other assets
|
|
|
-- |
|
|
|
164 |
|
Acquisition
of iSarla, Inc., net of cash acquired
|
|
|
-- |
|
|
|
(7,377 |
) |
Net
cash used in investing activities
|
|
|
(3,019 |
) |
|
|
(8,120 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of stock
|
|
|
2 |
|
|
|
23 |
|
Payments
on capital leases
|
|
|
(40 |
) |
|
|
(15 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(38 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
Effect
of translation exchange rates on cash
|
|
|
(12 |
) |
|
|
(37 |
) |
Net
decrease in cash and cash equivalents
|
|
|
(7,687 |
) |
|
|
(21,462 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
12,062 |
|
|
|
33,524 |
|
Cash
and cash equivalents at end of period
|
|
$ |
4,375 |
|
|
$ |
12,062 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Issuance
of stock for acquisition of iSarla, Inc.
|
|
$ |
-- |
|
|
$ |
4,987 |
|
Interest
paid
|
|
|
77 |
|
|
|
62 |
|
Income
taxes paid
|
|
|
-- |
|
|
|
107 |
|
Stock
compensation for employees and consultants
|
|
|
11 |
|
|
|
21 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
NOTE
1 - THE COMPANY
Forgent Networks, Inc. ("Forgent" or
the "Company"), a Delaware corporation d/b/a Asure Software and incorporated in
1985, is a provider of web-based workforce management solutions that enable
organizations to manage their office environment as well as their human resource
and payroll processes effectively and efficiently.
In
September 2007, the Company announced its name change to “Asure Software” to
reflect the Company’s focus on its software business for its future
growth. In October 2007, Forgent purchased iSarla Inc., a Delaware
corporation and application service provider that offers on-demand software
solutions that help simplify the human resource process and improve employee
productivity by managing and communicating human resources, employee benefits
and payroll information. Under the trade name “iEmployee,” these
web-based solutions include Time & Attendance, Timesheets, Human Resource
Benefits, Expenses and others. Forgent’s software business also includes
software products and services from its NetSimplicity product line, which
provides simple and affordable solutions to common office administration
problems. NetSimplicity’s flagship product, Meeting Room Manager,
automates the entire facility scheduling process: reserving rooms, requesting
equipment, ordering food, sending invitations, reporting on the meeting
environment and more.
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.
On
January 29, 2009, Forgent’s Board 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. In addition to a new board of directors, the Company is
currently managed by a new Chief Executive Officer, who the new board of
directors believes will be able to implement its strategy for growing the
software business and achieving profitability and positive cash
flows. However, uncertainties and challenges remain and there can be
no assurances that Forgent's current strategy will be successful.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
REVENUE
RECOGNITION
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. The Company recognizes software 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 Entity’s Hardware” and EITF Issue No. 00-21.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
Revenue
consists of software license, software subscription and service
fees. Revenue from the software element is earned through the
licensing or right to use the Company’s software and from the sale of specific
software products. Service fee income is earned through the sale of
maintenance and technical support, training and installation. 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 as a single unit
of accounting 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 software licensing
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 Company’s training
and installation services are not essential to the functionality of the
Company’s products as such services can be provided by a third party or the
customers themselves.
For
instances in which VSOE cannot be determined for undelivered elements, and these
undelivered elements do not provide significant customization or modification of
its software product, Forgent recognizes the entire contract amount ratably over
the period during which the services are expected to be performed.
The
Company does not recognize revenue for agreements with rights of return,
refundable fees, cancellation rights or acceptance clauses until such rights of
return, refund or cancellation have expired or acceptance has
occurred. The Company's arrangements with resellers do not allow for
any rights of return.
Deferred
revenue includes amounts received from customers in excess of revenue
recognized, and is comprised of deferred maintenance, service and other
revenue. Deferred revenues are recognized in the Consolidated
Statements of Operations when the service is completed and over the terms of the
arrangements, primarily ranging from one to three years.
BASIS OF
PRESENTATION
Forgent’s
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles and include the accounts of the Company
and its wholly owned subsidiaries. All intercompany transactions and balances
have been eliminated in consolidation. Certain reclassifications have been made
to prior year’s financial statement to conform to the current year
presentation.
USE OF
ESTIMATES
Preparation of the consolidated
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions 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 year end and the reported amounts of revenues and expenses during the
fiscal year. The more significant estimates made by management
include the valuation allowance for the gross deferred tax assets, contingency
legal reserves, 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.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
CASH AND CASH
EQUIVALENTS
Cash and cash equivalents include cash
and investments in highly liquid investments with an original maturity of three
months or less when purchased. All other investments not considered to be cash
equivalents, including highly liquid investments with maturities greater than
three months, are separately classified as short-term investments.
SHORT-TERM
INVESTMENTS
Short-term investments are carried at
market value. Short-term investments consist of funds invested in U.S.
government agency securities and mature within one year of July 31, 2009 and
2008. The carrying amounts of the Company's short-term investments at
July 31, 2009 and 2008 are as follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
MARKET
|
|
|
|
|
|
MARKET
|
|
|
|
COST
|
|
|
VALUE
|
|
|
COST
|
|
|
VALUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agency Securities
|
|
$ |
5,334 |
|
|
$ |
5,339 |
|
|
$ |
2,632 |
|
|
$ |
2,627 |
|
|
|
$ |
5,334 |
|
|
$ |
5,339 |
|
|
$ |
2,632 |
|
|
$ |
2,627 |
|
The Company accounts for investment
securities under Financial Accounting Standard Board (“FASB”) Statement No. 115,
"Accounting for Certain
Investments in Debt and Equity Securities." Statement No. 115 requires
investment securities to be classified as held-to-maturity, trading or
available-for-sale based on the characteristics of the securities and the
activity in the investment portfolio. At July 31, 2009 and 2008, all investment
securities were classified as available-for-sale. The Company specifically
identifies its short-term investments and uses the cost of the investments as
the basis for recording unrealized gains and losses as part of other
comprehensive income on the Consolidated Balance Sheet and for recording
realized gains and losses as part of other income and expenses on the
Consolidated Statement of Operations. The Company did not have any material
unrealized or realized gains or losses on its available-for-sale securities
during the years ended July 31, 2009 and 2008.
FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company’s financial instruments
consist primarily of cash and cash equivalents, short-term investments, trade
accounts receivable and accounts payable. The current carrying
amounts of these financial instruments approximate their fair market values
because of the short-term nature of these instruments.
CREDIT
POLICY
The Company reviews potential
customers' credit ratings to evaluate customers' ability to pay an obligation
within the payment term, which is usually net thirty days. When
payment is reasonably assured and no known barriers exist to legally enforce the
payment, the Company extends credit to customers, which usually does not exceed
10% of their net worth. An account is placed on "Credit Hold" if a placed order
exceeds the credit limit and may be placed on "Credit Hold" sooner if
circumstances warrant. The Company follows its credit policy
consistently and constantly monitors all of its delinquent accounts for
indications of uncollectibility.
CONCENTRATION OF CREDIT
RISK
The Company grants credit to customers
in the ordinary course of business. Concentrations of credit risk related to the
Company’s trade accounts receivable are limited due to the large number of
customers, including third-party resellers, and their dispersion across several
industries and geographic areas. The Company performs ongoing credit evaluations
of its customers and maintains reserves for potential credit losses. The Company
requires advanced payments or secured transactions when deemed
necessary.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
The Company maintains an allowance
for doubtful accounts at an amount estimated to be sufficient to provide
adequate protection against losses resulting from extending credit to the
Company’s customers. This allowance is based in the aggregate, on
historical collection experience, age of receivables, and general economic
conditions. The allowance for doubtful accounts also considers the need for
specific customer reserves based on the customer’s payment experience,
credit-worthiness and age of receivable balances. Forgent’s bad debts
have not been material and have been within management
expectations. The allowances for doubtful accounts as of July
31,
2009 and
2008 are as follows:
|
|
BALANCE
AT
BEGINNING
OF
YEAR
|
|
|
PROVISION
FOR
DOUBTFUL
ACCOUNTS
RECEIVABLE
|
|
|
WRITE-OFF
OF
UNCOLLECTIBLE
ACCOUNTS
RECEIVABLE
|
|
|
BALANCE
AT
END
OF
YEAR
|
|
|
|
|
|
Year ended July 31,
2009
|
|
$ |
41 |
|
|
|
49 |
|
|
|
(70 |
) |
|
$ |
20 |
|
Year ended July 31,
2008
|
|
|
21 |
|
|
|
21 |
|
|
|
(1 |
) |
|
|
41 |
|
INVENTORY
Inventory
is recorded at cost and includes purchased LCD panels and barcode scanners that
are sold as part of the Company’s workforce management solutions to complement
its NetSimplicity software products. Due to the minimal level of
inventory maintained and the quick turnover in inventory, reserves for excess
and obsolescence is not considered necessary.
PROPERTY AND
EQUIPMENT
Property and equipment, including
software, furniture and equipment, are recorded at cost less accumulated
depreciation. Internal support equipment is video teleconferencing equipment
used internally for purposes such as sales and marketing demonstrations, Company
meetings, testing, troubleshooting customer problems and engineering, and is
recorded at manufactured cost, if the Company manufactured the asset or is
recorded at cost, if purchased. Depreciation is recorded using the straight-line
method over the estimated economic useful lives of the assets, which range from
two to five years. Property and equipment also includes leasehold
improvements and capital leases, which are recorded at cost less accumulated
amortization. Amortization of leasehold improvements and capital
leases is recorded using the straight-line method over the shorter of the lease
term or over the life of the respective assets, as applicable. Gains or losses
related to retirements or disposition of fixed assets are recognized in the
period incurred. Repair and maintenance costs are expensed as incurred. The
Company periodically reviews the estimated economic useful lives of its property
and equipment and makes adjustments, if necessary, according to the latest
information available.
IMPAIRMENT OF GOODWILL,
INTANGIBLE ASSETS AND LONG-LIVED ASSETS
Goodwill
and other intangible assets with indefinite lives are not required to be
amortized under 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 Company's 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.”
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
In
accordance with Statement No. 144, Forgent reviews and evaluates its
long-lived assets for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such
factors and circumstances exist, including those noted above, the Company
compares the assets’ carrying amounts against the estimated undiscounted cash
flows to be generated by those assets over their estimated useful lives.
If the carrying amounts are greater than the undiscounted cash flows, the
fair values of those assets are estimated by discounting the projected cash
flows. Any excess of the carrying amounts over the fair values are
recorded as impairments in that fiscal period.
ADVERTISING
COSTS
The Company expenses advertising costs
as they are incurred. Advertising expenses were $42 and $35
for the years ended July 31, 2009 and 2008, respectively, and are recorded as
part of sales and marketing expenses on the Consolidated Statements of
Operations.
LEASE
OBLIGATIONS
Forgent recognizes its lease
obligations with scheduled rent increases over the term of the lease on a
straight-line basis. Accordingly, the total amount of base rentals over the term
of the Company’s leases is charged to expense on a straight-line method, with
the amount of rental expense in excess of lease payments recorded as a deferred
rent liability. As of July 31, 2009 and 2008, the Company had deferred
rent liabilities of $25 and $70, respectively, all of which are classified as
long-term liabilities. The Company also recognizes capital lease obligations and
records the underlying assets and liabilities on its Consolidated Balance
Sheets. As of July 31, 2009 and 2008, Forgent had $100 and $52 in capital lease
obligations, respectively.
FOREIGN CURRENCY
TRANSLATION
The financial statements of the
Company's foreign subsidiaries are measured using the local currency as the
functional currency. Accordingly, the assets and liabilities of these foreign
subsidiaries are translated at current exchange rates at each balance sheet
date. Translation adjustments arising from the translation of net assets located
outside of the United States into United States dollars are recorded in
accumulated other comprehensive income (loss) as a separate component of
stockholders' equity. Income and expenses from the foreign subsidiaries are
translated using monthly average exchange rates. Net gains and losses resulting
from foreign exchange transactions are included in other income and expenses and
were not significant in fiscal years 2009 and 2008.
INCOME
TAXES
The Company accounts for income taxes
using the liability method under FASB Statement No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred
tax assets are reduced by a valuation allowance when it is more likely than not
that some component or all of the deferred tax assets will not be
realized.
In June 2006, the FASB issued
Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with Statement
No. 109, “Accounting for
Income Taxes.” This interpretation defines the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. Additionally, FIN 48 provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. Forgent adopted FIN48, effective August 1,
2007. The adoption did not have a material effect on the Company’s
consolidated financial statements.
SHARE BASED
COMPENSATION
In
December 2004, the FASB issued Statement No. 123 (Revised 2004), “Share-Based Payment” (“No.
123R”). This revised standard addresses the accounting for stock-based payment
transactions in which a company receives employee services in exchange for
either equity instruments of the company or liabilities that are based on the
fair value of the company's equity instruments or that may be settled by the
issuance of such equity instruments. Under this standard, companies may not
account for stock-based compensation transactions using the intrinsic-value
method in accordance with APB Opinion No. 25, “ Accounting for Stock Issued to
Employees.” Instead, companies are required to account for
such transactions using a fair-value method and recognize the related expense in
the Consolidated Statement of Operations.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
The
Company adopted Statement No. 123R, effective August 1, 2005, using the
modified prospective application transition method. The modified prospective
application method requires that companies recognize compensation expense on
stock-based payment awards that are modified, repurchased or cancelled after the
effective date. The fair value of each award granted from Forgent's
stock option plans are estimated at the date of grant using the Black-Scholes
option pricing model. No options were granted during the year
ended July 31, 2009 and 2008.
As of
July 31, 2009, $6 of unrecognized compensation costs related to non-vested
option grants is expected to be recognized over the course of the following 0.5
year.
The
Company issued 14 shares and 38 shares of
common stock related to exercises of stock options granted from its Stock Option
and Stock Purchase Plans for the years ended July 31, 2009 and 2008,
respectively. The Company issued 0 shares and 372 shares of restricted
common stock from its Restricted Stock Plan for the years ended July 31, 2009
and 2008, respectively.
COMPREHENSIVE
LOSS
In
accordance with the disclosure requirements of FASB Statement No. 130, “Reporting Comprehensive
Income,” the Company’s comprehensive loss is comprised of net 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 Company’s comprehensive loss and its components for the years
ended July 31, 2009 and 2008:
|
|
For
the Year
|
|
|
|
Ended
July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(9,733 |
) |
|
$ |
(12,708 |
) |
Foreign
currency
|
|
|
(71 |
) |
|
|
(55 |
) |
Unrealized
gain (loss) on short-term investments
|
|
|
7 |
|
|
|
(2 |
) |
Comprehensive
Loss
|
|
$ |
(9,797 |
) |
|
$ |
(12,765 |
) |
RECENT ACCOUNTING
PRONOUNCEMENTS
In
September 2009, the Emerging Issues Task Force (the “EITF”) reached final
consensus on the issue related to revenue recognition with multiple
deliverables. EITF Issue No. 08-1, “Revenue Arrangements with Multiple
Deliverables” addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the separate units
of accounting. This guidance eliminates the residual method and replaces it with
the “relative selling price” method when allocating revenue in a multiple
deliverable arrangement. The selling price for each deliverable shall be
determined using vendor specific objective evidence of selling price, if it
exists, otherwise third-party evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the
selling price for that deliverable. After adoption, this guidance will also
require expanded qualitative and quantitative disclosures. EITF 08-1 is
effective for the Company’s revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with early
adoption permitted. The Company is currently evaluating the impact of adoption
on its consolidated results of operations and financial position.
In May
2009, the Financial Accounting Standard Board (“FASB”) issued Statement No.
165, “Subsequent Events,”
establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. Statement No. 165 is based on the
same principles as those that currently exist and defines the circumstances and
period after the balance sheet date during which management of a reporting
entity should evaluate events that occur for potential recognition or disclosure
in the financial statements. The standard also requires a new disclosure of the
date through which a reporting entity has evaluated its subsequent events.
Forgent adopted Statement No. 165, effective for the year ended July 31, 2009,
and has accounted and reported its subsequent events accordingly.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
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
Forgent’s accounting for future business combinations once adopted.
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 Company’s 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 foridentical assets or
liabilities;
|
Level 2:
|
Quoted
prices in active markets forsimilar 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 Company’s financial assets (cash equivalents and
short-term investments) measured at fair value on a recurring basis as of July
31, 2009:
|
|
|
|
|
Fair
Value Measure at July 31, 2009
|
|
|
|
Total
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
Carrying
|
|
|
Prices
|
|
|
Other
|
|
|
Significant
|
|
|
|
Value
at
|
|
|
in
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
July
31,
|
|
|
Market
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Money
Market Funds
|
|
$ |
4,375 |
|
|
$ |
4,375 |
|
|
$ |
- |
|
|
$ |
- |
|
Short-term
investments available for sale
|
|
|
5,339 |
|
|
|
5,339 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
9,714 |
|
|
$ |
9,714 |
|
|
$ |
- |
|
|
$ |
- |
|
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
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 standard’s 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 company’s
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
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 Company’s consolidated financial
statements.
NOTE
4 - ACQUISITION
On October 5, 2007, Forgent acquired
all of the outstanding capital stock of iSarla Inc., a Delaware corporation and
application service provider that offers on-demand software solutions that help
simplify the human resource process and improve employee productivity by
managing and communicating human resources, employee benefits and payroll
information. iSarla Inc. conducted its business under the trade name “iEmployee”
and provided hosted application services, including Time & Attendance,
Timesheets, Human Resource Benefits, Expenses and other
solutions. iEmployee was a profitable business with a high percentage
of recurring revenues and delivered its software as a service under the “SaaS”
model. The acquisition expanded Forgent’s current target markets,
significantly augmented the Company’s product and service offerings to
customers, and increased revenues from its operations
considerably. Due to these factors, the Company purchased the
iEmployee business at a premium (i.e. goodwill) over the fair value of the net
assets acquired.
In consideration for the acquisition,
Forgent paid approximately $12,661, including $6,602 in cash, 5,095 shares of
its Common Stock, valued at approximately $4,987 and transaction cost of
approximately $1,072. The shares of Common Stock issued were valued
based upon the price of $0.98 when the number of shares to be issued became
fixed. Upon closing, $990 in cash and 764 shares totaling $748 of the
purchase price were held in escrow for 12 and 18 months for representations and
warranties. The purchase agreement did not include provisions for any
other contingent payments, options or commitments. As a result of the
acquisition, iEmployee’s results of operations since October 5, 2007 have been
included in the Company’s Consolidated Statement of Operations.
The business combination was accounted
for under FASB Statement No. 141, “Business
Combinations.” The application of purchase accounting under
Statement No. 141 requires the total purchase price to be allocated to the fair
value of assets acquired and liabilities assumed based on their fair values at
the acquisition date, with amounts exceeding fair value being recorded as
goodwill. The following table summarizes the final adjusted fair
values of the iEmployee assets acquired and liabilities assumed:
|
|
Final
|
|
|
|
Allocation
|
|
Assets
Acquired
|
|
|
|
Cash
|
|
$ |
460 |
|
Short-term
investments
|
|
|
526 |
|
Accounts
receivable, net
|
|
|
452 |
|
Prepaid
assets
|
|
|
90 |
|
Fixed
assets
|
|
|
340 |
|
Goodwill
|
|
|
7,391 |
|
Intangible
assets
|
|
|
5,368 |
|
Other
assets
|
|
|
11 |
|
Total
assets acquired
|
|
|
14,638 |
|
|
|
|
|
|
Liabilities
assumed
|
|
|
|
|
Accounts
payable
|
|
|
(1,279 |
) |
Accrued
compensation and benefits
|
|
|
(134 |
) |
Accrued
other liabilities
|
|
|
(189 |
) |
Deferred
revenue
|
|
|
(375 |
) |
Total
liabilities assumed
|
|
|
(1,977 |
) |
|
|
|
|
|
Net
assets acquired
|
|
$ |
12,661 |
|
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
The
following summary presents unaudited pro forma consolidated financial
information for the year ended July 31, 2008, as if the iEmployee acquisition
had occurred as of August 1, 2007. The pro forma information does not
purport to be indicative of the actual results which would have occurred had the
acquisition been completed as of August 1, 2007, nor is it necessarily
indicative of the results of operations which may occur in the
future.
|
|
For
the Year
|
|
|
|
Ended
July 31, 2008
|
|
|
|
|
|
|
|
|
|
|
As
Reported
|
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
10,182 |
|
|
$ |
11,195 |
|
Net
(loss) income
|
|
|
(12,708 |
) |
|
|
(12,563 |
) |
|
|
|
|
|
|
|
|
|
Net
(loss) income per common share:
|
|
|
|
|
|
Basic
|
|
$ |
(0.42 |
) |
|
$ |
(0.41 |
) |
Diluted
|
|
|
(0.42 |
) |
|
|
(0.41 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
Basic
|
|
|
30,026 |
|
|
|
30,947 |
|
Diluted
|
|
|
30,026 |
|
|
|
30,947 |
|
NOTE
5 - INTANGIBLE ASSETS
Forgent accounted for its historical
acquisitions in accordance with FASB Statement No. 141, “Business
Combinations.” The Company recorded the amount exceedingthe
fair value of net assets acquired at the date of acquisition as goodwill. The
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. Forgent’s goodwill and
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. Based on Forgent’s impairment
test, no impairment was identified for the Company’s intangible assets for the
years ended July 31, 2009 or 2008. The Company’s goodwill was fully
impaired as of July 31, 2008 (see Note 6).
As of
July 31, 2009 and 2008, the gross carrying amount and accumulated amortization
of the Company’s intangible assets are as follows:
|
|
|
|
|
July
31, 2009
|
|
|
|
Amortization
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Intangible
Asset
|
|
Period
(in Years)
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
Technology
|
|
|
5 |
|
|
$ |
915 |
|
|
$ |
(333 |
) |
|
$ |
582 |
|
Customer
Relationships
|
|
|
8 |
|
|
|
2,470 |
|
|
|
(562 |
) |
|
|
1,908 |
|
Ceridian
Contract
|
|
|
8 |
|
|
|
1,545 |
|
|
|
(351 |
) |
|
|
1,194 |
|
Trade
Names
|
|
|
5 |
|
|
|
288 |
|
|
|
(105 |
) |
|
|
183 |
|
Covenant
not-to-compete
|
|
|
4 |
|
|
|
150 |
|
|
|
(68 |
) |
|
|
82 |
|
|
|
|
|
|
|
$ |
5,368 |
|
|
$ |
(1,419 |
) |
|
$ |
3,949 |
|
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
|
|
|
|
|
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 |
|
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
fiscal year ended July 31, 2009 and 2008 were $780 and $639,
respectively. The following table summarizes the estimated
amortization expense relating to the Company’s intangible assets for the next
five fiscal years and thereafter as of July 31, 2009:
Fiscal
Years
|
|
|
|
2010
|
|
$ |
780 |
|
2011
|
|
|
780 |
|
2012
|
|
|
749 |
|
2013
|
|
|
545 |
|
2014
|
|
|
502 |
|
Thereafter
|
|
|
593 |
|
|
|
$ |
3,949 |
|
NOTE
6 - GOODWILL IMPAIRMENT
In
accordance with 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 $7,391 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.
NOTE
7 - 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 Company’s 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 EISG’s 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 Company’s VAM maintenance and support agreements. By
divesting its VAM software product and services, Forgent can focus its
investment on NetSimplicity’s scheduling software, Meeting Room Manager, which
the Company believes has the greater potential for the Company’s future growth
and profitability. Forgent’s iEmployee operations were not affected
by this sale. As a result of the VAM sale, the Company recorded a
gain of $26 during the year ended July 31, 2009, which is included in other
income on the Consolidated Statement of Operations.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
NOTE
8 - PROPERTY AND EQUIPMENT
Property and equipment and related
depreciable useful lives are composed of the following:
|
|
JULY
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Software:
3 - 5 years
|
|
$ |
3,083 |
|
|
$ |
3,243 |
|
Furniture
and equipment: 2-5 years
|
|
|
2,863 |
|
|
|
2,832 |
|
Internal
support equipment: 2- 4 years
|
|
|
696 |
|
|
|
696 |
|
Capital
leases: lease term or life of the asset
|
|
|
148 |
|
|
|
62 |
|
Leasehold
improvements: lease term or life of the improvement
|
|
|
2,514 |
|
|
|
2,384 |
|
|
|
|
9,304 |
|
|
|
9,217 |
|
Less
accumulated depreciation
|
|
|
(8,632 |
) |
|
|
(8,310 |
) |
|
|
$ |
672 |
|
|
$ |
907 |
|
The amortization of the capital leases
is recorded as depreciation expense on the Consolidated Statements of
Operations. Depreciation and amortization expenses relating to property and
equipment were approximately $459 and $508 for the years ended July 31,
2009 and 2008, respectively.
NOTE
9 – LEASE IMPAIRMENT
During
the fourth fiscal quarter of 2009, Wild Basin One &Two, Ltd. (“Wild Basin”),
Forgent’s landlord, 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 stated
that it is unable to remit any net profit interest payments to the Company as
stipulated under the terms of Forgent’s lease agreement. Additionally, the
current rental market in Austin, Texas continues to show depressed leasing
rates. Based on these factors, 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 $630 to
the Company’s Consolidated Statement of Operations for the year ended July 31,
2009. As of July 31, 2009, Forgent had a $812 liability related to the
impairment charges for the economic value of the lost sublease rental income,
all of which is reported as part of current liabilities on the Company’s
Consolidated Balance Sheet.
NOTE
10 - STOCKHOLDERS' EQUITY
SHARE REPURCHASE
PROGRAM
During fiscal years 2009 and 2008, the
Company did not repurchase any shares of its Common Stock.
STOCK AND STOCK OPTION
PLANS
Forgent has three stock option plans,
the 1989 Stock Option Plan (the "1989 Plan"), the 1996 Stock Option Plan (the
"1996 Plan") and the 1992 Director Stock Option Plan (the "1992 Plan"). The 1989
Plan and the 1996 Plan both provide for the issuance of non-qualified and
incentive stock options to employees and consultants of the Company. Stock
options are generally granted at the fair market value at the time of grant, and
the options generally vest ratably over 48 months and are exercisable for a
period of ten years beginning with date of grant. The 1989 Plan expired in June
1999 and the 1996 Plan expired in April 2006, whereby the Company can no longer
grant options under these plans. However, options previously granted
remain outstanding. The 1992 Plan provides for the issuance of stock options to
non-employee directors at the fair market value at the time of grant. Such
options vest ratably over 36 months and are exercisable for a period of ten
years beginning with the date of the grant. Total compensation expense
recognized in the Consolidated Statements of Operations for stock based awards
was $78 and $107 for fiscal years ending July 31, 2009 and 2008.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
As of July 31, 2009, Forgent had
reserved shares of common stock for future issuance under the 1989, 1992 and
1996 Plans as follows:
Options
outstanding
|
|
|
1,131 |
|
Options
available for future grant
|
|
|
16 |
|
Shares
reserved
|
|
|
1,147 |
|
The following table summarizes activity
under all Plans for the years ended July 31, 2009 and 2008.
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
WEIGHTED
AVERAGE
EXERCISE
PRICE
|
|
|
SHARES
|
|
|
WEIGHTED
AVERAGE
EXERCISE
PRICE
|
|
Outstanding
at the beginning of the year
|
|
|
1,156 |
|
|
$ |
0.76 |
|
|
|
1,169 |
|
|
$ |
0.81 |
|
Granted
|
|
|
0 |
|
|
|
N/A |
|
|
|
0 |
|
|
|
N/A |
|
Exercised
|
|
|
0 |
|
|
|
N/A |
|
|
|
0 |
|
|
|
N/A |
|
Canceled
|
|
|
(25 |
) |
|
|
0.38 |
|
|
|
(13 |
) |
|
|
5.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at the end of the year
|
|
|
1,131 |
|
|
$ |
0.76 |
|
|
|
1,156 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at the end of the year
|
|
|
1,131 |
|
|
$ |
0.76 |
|
|
|
1,156 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options
granted during the year
|
|
|
|
|
|
$ |
N/A |
|
|
|
|
|
|
$ |
N/A |
|
The following table summarizes the
outstanding and exercisable options and their exercise prices as of July 31,
2009.
|
|
OPTIONS OUTSTANDING
|
|
OPTIONS EXERCISABLE
|
RANGE
OF
EXERCISE
PRICES
|
|
NUMBER
OUTSTANDING
AT
JULY
31, 2009
|
|
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
LIFE
(YEARS)
|
|
WEIGHTED-
AVERAGE
EXERCISE
PRICE
|
|
NUMBER
EXERCISABLE
AT
JULY
31, 2009
|
|
WEIGHTED-
AVERAGE
EXERCISE
PRICE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.38 -- $0.38
|
|
920
|
|
3.13
|
|
$
|
0.38
|
|
920
|
|
$
|
0.38
|
1.11 -- 2.66
|
|
126
|
|
3.75
|
|
|
1.63
|
|
126
|
|
|
1.63
|
2.67 -- 2.67
|
|
10
|
|
4.51
|
|
|
2.67
|
|
10
|
|
|
2.67
|
3.61 -- 3.61
|
|
50
|
|
0.38
|
|
|
3.61
|
|
50
|
|
|
3.61
|
3.82 -- 3.82
|
|
25
|
|
2.51
|
|
|
3.82
|
|
25
|
|
|
3.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.38 -- $3.82
|
|
1,131
|
|
3.07
|
|
$
|
0.76
|
|
1,131
|
|
$
|
0.76
|
Generally, options are exercisable
immediately upon grant. However, stock issued upon exercise of a stock option is
subject to repurchase by the Company at the exercise price until the option
vesting period has elapsed. At July 31, 2009, options to purchase
1,115 shares were vested. At July 31, 2009, no unvested options had been
exercised. The total number of vested or expected to vest shares at July 31,
2009 was 1,131 with a weighted average exercise price of $0.76, weighted average remaining
contractual life of 3.07 years and aggregate intrinsic value of
$0. The total intrinsic value of options exercised during the years
ended July 31, 2009 and 2008 were $0 and $0, respectively.
FORGENT
NETWORKS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except per share data or otherwise noted)
EMPLOYEE STOCK PURCHASE
PLAN
On April 29, 1993, Forgent adopted an
Employee Stock Purchase Plan ("Employee Plan"), which enables all employees to
acquire Forgent stock under the plan. The Employee Plan authorizes the issuance
of up to 1,350 shares of Forgent's Common Stock. The Employee Plan allows
participants to purchase shares of the Company's Common Stock at a price equal
to the lesser of (a) 85% of the fair market value of the Common Stock on the
date of the grant of the option or (b) 85% of the fair market value of the
Common Stock at the time of exercise. Common Stock issued under the Employee
Plan totaled 1
share and 38 shares, respectively, for the years ended July 31, 2009 and
2008.
RESTRICTED STOCK
PLAN
On December 17, 1998, the Company
adopted a restricted stock plan (the "1998 Plan"). The 1998 Plan authorizes the
issuance of up to one million shares of Forgent's Common Stock to be used to
reward, incent and retain employees. During fiscal year 2009 and 2008, the
Company issued 0 and 373 shares under the 1998
Plan and recognized $67 and $86 in related expense, respectively. The
weighted-average grant date fair market value of the shares issued in fiscal
year 2008 was $0.58.
A summary of the status of nonvested
shares as of July 31, 2009 and 2008, and changes during the years ended July 31,
2009 and 2008, are presented below:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-
|
|
|
|
|
|
WEIGHTED-
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
GRANT
DATE
|
|
|
|
|
|
GRANT
DATE
|
|
NONVESTED
SHARES
|
|
SHARES
|
|
|
FAIR
VALUE
|
|
|
SHARES
|
|