SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Quarter Ended December 31, 2001
or
Transition Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Transition Period from to
---- ----
Commission File No. 0-13150
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CONCURRENT COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
4375 River Green Parkway, Duluth, GA 30096
(Address of principal executive offices)
Telephone: (678) 258-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of January 28, 2002 was 61,502,053.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenues:
Product sales
Real-time systems $ 4,862 $ 6,738 $ 10,198 $ 11,449
Video-on-demand systems 12,425 1,832 15,938 7,269
---------- ---------- ---------- ----------
Total product sales 17,287 8,570 26,136 18,718
Service and other 5,194 5,963 10,447 12,127
---------- ---------- ---------- ----------
Total 22,481 14,533 36,583 30,845
Cost of sales:
Real-time and video-on-demand systems 9,437 4,640 14,230 10,201
Service and other 2,964 3,231 5,813 6,391
---------- ---------- ---------- ----------
Total 12,401 7,871 20,043 16,592
---------- ---------- ---------- ----------
Gross margin 10,080 6,662 16,540 14,253
Operating expenses:
Sales and marketing 4,174 4,066 8,328 8,139
Research and development 3,655 2,818 7,116 5,449
General and administrative 2,189 3,775 4,098 6,242
---------- ---------- ---------- ----------
Total operating expenses 10,018 10,659 19,542 19,830
---------- ---------- ---------- ----------
Operating income (loss) 62 (3,997) (3,002) (5,577)
Interest income - net 192 26 407 17
Other expense - net (48) (37) (59) (92)
---------- ---------- ---------- ----------
Income (loss) before income taxes 206 (4,008) (2,654) (5,652)
Provision for income taxes 150 150 300 300
---------- ---------- ---------- ----------
Net income (loss) $ 56 $ (4,158) $ (2,954) $ (5,952)
========== ========== ========== ==========
Net income (loss) per share
Basic $ 0.00 $ (0.08) $ (0.05) $ (0.11)
========== ========== ========== ==========
Diluted $ 0.00 $ (0.08) $ (0.05) $ (0.11)
========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-1-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2001 2001
-------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 28,237 $ 9,460
Accounts receivable - net 20,211 14,348
Inventories 5,936 7,187
Prepaid expenses and other current assets 1,459 1,058
-------------- ----------
Total current assets 55,843 32,053
Property, plant and equipment - net 10,671 10,484
Purchased developed computer software 1,488 1,583
Goodwill - net 10,744 10,744
Other long-term assets - net 2,153 2,188
-------------- ----------
Total assets $ 80,899 $ 57,052
============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,314 $ 13,929
Deferred revenue 2,207 3,300
-------------- ----------
Total current liabilities 15,521 17,229
Long-term liabilities:
Deferred revenue 948 1,193
Other 5,320 5,347
-------------- ----------
Total liabilities 21,789 23,769
Stockholders' equity:
Common stock 614 551
Capital in excess of par value 168,977 140,352
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (105,714) (102,760)
Treasury stock (58) (58)
Accumulated other comprehensive loss (4,709) (4,802)
-------------- ----------
Total stockholders' equity 59,110 33,283
-------------- ----------
Total liabilities and stockholders' equity $ 80,899 $ 57,052
============== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-2-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Net loss $(2,954) $(5,952)
Adjustments to reconcile net loss to net
cash used in operating activities:
Accrual of non-cash warrants 1,417 238
Depreciation, amortization and other 2,423 2,943
Other non cash expenses 324 672
Changes in operating assets and liabilities:
Accounts receivable (6,022) (2,613)
Inventories 946 (3,058)
Prepaid expenses and other current assets (401) (153)
Other long-term assets (32) 84
Accounts payable and accrued expenses (615) 320
Deferred revenue (1,338) 2,777
Long-term liabilities 11 (76)
-------- --------
Total adjustments to net loss (3,287) 1,134
-------- --------
Net cash used in operating activities (6,241) (4,818)
INVESTING ACTIVITIES
Net additions to property, plant and equipment (2,274) (1,839)
-------- --------
Net cash used in investing activities (2,274) (1,839)
FINANCING ACTIVITIES
Net repayment of capital lease obligation (38) (35)
Proceeds from sale and issuance of common stock 27,271 3,334
-------- --------
Net cash provided by financing activities 27,233 3,299
Effect of exchange rates on cash and cash equivalents 59 (432)
-------- --------
Increase (decrease) in cash and cash equivalents 18,777 (3,790)
Cash and cash equivalents at beginning of period 9,460 10,082
-------- --------
Cash and cash equivalents at end of period $28,237 $ 6,292
======== ========
Cash paid during the period for:
Interest $ 46 $ 178
======== ========
Income taxes (net of refunds) $ 317 $ 284
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
CONCURRENT COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Concurrent
Computer Corporation ("Concurrent") have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with accounting principles generally
accepted in the United States of America. The foregoing financial information is
unaudited but reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the periods presented. All
such adjustments are of a normal recurring nature.
While Concurrent believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the Annual
Report on Form 10-K as filed with the Securities and Exchange Commission.
The results of interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each period.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares including potential common shares
issuable. Under the treasury stock method, incremental shares representing the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued are included in the
computation.
The number of shares used in computing basic and diluted net income per
share for the three months ended December 31, 2001 was 61,031,000 and
64,761,000, respectively. The number of shares used in computing basic and
diluted net loss per share for the six months ended December 31, 2001 was
60,297,000. Because of the loss for the six months ended December 31, 2001, the
potential common shares issuable were anti-dilutive and were not considered in
the diluted earnings per share calculations. Common share equivalents of
3,507,000 for the six months ended December 31, 2001 were excluded from the
calculation, as their effect was antidilutive.
The number of shares used in computing basic and diluted net loss per share
for the three months ended December 31, 2000 and the six months ended December
31, 2000 was 54,675,000 and 54,332,000, respectively. Because of the losses for
these periods, the potential common shares issuable were anti-dilutive and were
not considered in the diluted earnings per share calculations. Common share
equivalents of 4,809,000 and 5,089,000 for the three months ended December 31,
2000 and the six months ended December 31, 2000, respectively, were excluded
from the calculation as their effect was also antidilutive.
3. Revenue Recognition and Related Matters
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition". Concurrent recognizes revenue
from video-on-demand and real-time systems when persuasive evidence of an
arrangement exists, the system has been shipped, the fee is fixed or
determinable and collectibility of the fee is probable. Under multiple element
arrangements, Concurrent allocates revenue to the various elements based on
vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of
fair value is determined based on the price charged when the same element is
sold separately.
-4-
In certain instances, Concurrent's customers require significant
customization of both the software and hardware products and, therefore, the
revenues are recognized as long term contracts in conformity with Accounting
Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts",
Statement of Position ("SOP") 81-1 "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software
Revenue Recognition". For long-term contracts, revenue is recognized using the
percentage of completion method of accounting based on costs incurred on the
project compared to the total costs expected to be incurred through completion.
Concurrent recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
Custom engineering and integration services performed by the Real-Time
Division are typically completed within 90 days from receipt of an order.
Revenues from these services are recognized upon completion and delivery of the
software solution to the customer.
4. Inventories
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components of
inventories are as follows:
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2001 2001
------------- ---------
Raw materials $ 4,950 $ 5,709
Work-in-process 796 1,178
Finished goods 190 300
------------- ---------
$ 5,936 $ 7,187
============= =========
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2001 2001
------------- ---------
Accounts payable, trade $ 3,321 $ 4,277
Accrued payroll, vacation and
other employee expenses 5,920 6,090
Warranty accrual 1,608 977
Other accrued expenses 2,465 2,585
------------- ---------
$ 13,314 $ 13,929
============= =========
-5-
6. COMPREHENSIVE LOSS
Concurrent's total comprehensive loss is as follows:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income (loss) $ 56 $ (4,158) $ (2,954) $ (5,952)
Other comprehensive income (loss):
Foreign currency translation income (loss) (180) (33) 93 (445)
---------- ---------- ---------- ----------
Total comprehensive loss $ (124) $ (4,191) $ (2,861) $ (6,397)
========== ========== ========== ==========
7. SEGMENT INFORMATION
Concurrent operates its business in two divisions: real-time and
video-on-demand ("VOD"). Concurrent's Real-Time Division is a leading provider
of high-performance, real-time computer systems, solutions and software for
commercial and government markets focusing on strategic market areas that
include hardware-in-the-loop and man-in-the-loop simulation, data acquisition,
industrial systems, and software and embedded applications. Concurrent's VOD
Division is a leading supplier of digital video server systems to a wide range
of industries serving a variety of markets, including the broadband/cable,
hospitality, intranet/distance learning, and other related markets. Shared
expenses are primarily allocated based on either revenues or headcount. There
were no material intersegment sales or transfers. Corporate costs include costs
related to the offices of the Chief Executive Officer, Chief Financial Officer,
Investor Relations and other administrative costs including annual audit and tax
fees, Board of Director fees and similar costs.
-6-
The following summarizes the operating income (loss) by segment for the
three-month periods ended December 31, 2001 and December 31, 2000, respectively:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, 2001 (UNAUDITED)
------------------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
------------- -------------- -------------- -------------
Revenues:
Product sales $ 4,862 $ 12,425 $ - $ 17,287
Service and other 5,194 - - 5,194
------------- -------------- -------------- -------------
Total 10,056 12,425 - 22,481
Cost of sales
Systems 2,127 7,310 - 9,437
Service and other 2,964 - - 2,964
------------- -------------- -------------- -------------
Total 5,091 7,310 - 12,401
------------- -------------- -------------- -------------
Gross margin 4,965 5,115 - 10,080
Operating expenses
Sales and marketing 1,726 2,312 136 4,174
Research and development 1,272 2,383 - 3,655
General and administrative 393 564 1,232 2,189
------------- -------------- -------------- -------------
Total operating expenses 3,391 5,259 1,368 10,018
------------- -------------- -------------- -------------
Operating income (loss) $ 1,574 $ (144) $ (1,368) $ 62
============= ============== ============== =============
THREE MONTHS ENDED DECEMBER 31, 2000 (UNAUDITED)
-------------------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
------------- -------------- -------------- --------------
Revenues:
Product sales $ 6,738 $ 1,832 $ - $ 8,570
Service and other 5,963 - - 5,963
------------- -------------- -------------- --------------
Total 12,701 1,832 - 14,533
Cost of sales
Systems 3,502 1,138 - 4,640
Service and other 3,231 - - 3,231
------------- -------------- -------------- --------------
Total 6,733 1,138 - 7,871
------------- -------------- -------------- --------------
Gross margin 5,968 694 - 6,662
Operating expenses
Sales and marketing 1,870 2,060 136 4,066
Research and development 844 1,974 - 2,818
General and administrative 505 594 2,676 3,775
------------- -------------- -------------- --------------
Total operating expenses 3,219 4,628 2,812 10,659
------------- -------------- -------------- --------------
Operating income (loss) $ 2,749 $ (3,934) $ (2,812) $ (3,997)
============= ============== ============== ==============
-7-
The following summarizes the operating income (loss) by segment for the
six-month periods ended December 31, 2001 and December 31, 2000, respectively:
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, 2001 (UNAUDITED)
-----------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
----------- ------------ ------------ ------------
Revenues:
Product sales $ 10,198 $ 15,938 $ - $ 26,136
Service and other 10,447 - - 10,447
----------- ------------ ------------ ------------
Total 20,645 15,938 - 36,583
Cost of sales
Systems 4,628 9,602 - 14,230
Service and other 5,813 - - 5,813
----------- ------------ ------------ ------------
Total 10,441 9,602 - 20,043
----------- ------------ ------------ ------------
Gross margin 10,204 6,336 - 16,540
Operating expenses
Sales and marketing 3,363 4,676 289 8,328
Research and development 2,504 4,612 - 7,116
General and administrative 752 872 2,474 4,098
----------- ------------ ------------ ------------
Total operating expenses 6,619 10,160 2,763 19,542
----------- ------------ ------------ ------------
Operating income (loss) $ 3,585 $ (3,824) $ (2,763) $ (3,002)
=========== ============ ============ ============
SIX MONTHS ENDED DECEMBER 31, 2000 (UNAUDITED)
-----------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
----------- ------------ ------------ ------------
Revenues:
Product sales $ 11,449 $ 7,269 $ - $ 18,718
Service and other 12,127 - - 12,127
----------- ------------ ------------ ------------
Total 23,576 7,269 - 30,845
Cost of sales
Systems 5,892 4,309 - 10,201
Service and other 6,391 - - 6,391
----------- ------------ ------------ ------------
Total 12,283 4,309 - 16,592
----------- ------------ ------------ ------------
Gross margin 11,293 2,960 - 14,253
Operating expenses
Sales and marketing 3,787 4,032 320 8,139
Research and development 1,673 3,776 - 5,449
General and administrative 774 1,255 4,213 6,242
----------- ------------ ------------ ------------
Total operating expenses 6,234 9,063 4,533 19,830
----------- ------------ ------------ ------------
Operating income (loss) $ 5,059 $ (6,103) $ (4,533) $ (5,577)
=========== ============ ============ ============
-8-
8. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Derivative instruments will
be recognized in the balance sheet at fair value, and changes in the fair values
of such instruments must be recognized currently in earnings unless specific
hedge accounting criteria are met. Concurrent adopted SFAS 133 on July 1, 2000.
As Concurrent does not have any hedging and derivative positions, adoption of
these pronouncements did not have a material effect on Concurrent's financial
position.
In March 2000, the FASB issued Interpretation No. 44, "Accounting of
Certain Transactions Involving Stock Compensation - an Interpretation of APB No.
25" ("FIN 44"). FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. Concurrent adopted FIN 44 on July
1, 2000, and the adoption did not have a material effect on the financial
position or operations of Concurrent.
In June 2001, the FASB issued Statements No. 141, "Business Combinations"
("SFAS 141"), and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 provides that all business combinations initiated after June 30, 2001
shall be accounted for using the purchase method. In addition, it provides that
the cost of an acquired entity must be allocated to the assets acquired,
including identifiable intangible assets, and liabilities assumed based on their
estimated fair values at the date of acquisition. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. As permitted, Concurrent early-adopted these
statements as of July 1, 2001, the beginning of its fiscal year.
In connection with the adoption of SFAS 142, Concurrent is required to
perform an impairment assessment within six months of adoption. As of September
30, 2001, Concurrent completed this transitional impairment test and deemed that
no impairment loss was necessary. Any subsequent impairment losses will be
reflected in operating income in the income statement.
-9-
Also in accordance with SFAS 142, Concurrent discontinued the amortization
of goodwill effective July 1, 2001. A reconciliation of previously reported net
income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:
(Dollars in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
2001 2000 2001 2000
--------- ---------- ---------- ----------
Reported net income (loss) $ 56 $ (4,158) $ (2,954) $ (5,952)
Add: Goodwill amortization - 309 - 618
--------- ---------- ---------- ----------
Adjusted net income (loss) $ 56 $ (3,849) $ (2,954) $ (5,334)
========= ========== ========== ==========
Basic and diluted income (loss) per share:
Reported net income (loss) $ 0.00 $ (0.08) $ (0.05) $ (0.11)
Goodwill amortization - 0.01 - 0.01
--------- ---------- ---------- ----------
Adjusted net income (loss) $ 0.00 $ (0.07) $ (0.05) $ (0.10)
========= ========== ========== ==========
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred and requires that the amount recorded as a liability be
capitalized by increasing the carrying amount of the related long-lived asset.
Subsequent to initial measurement, the liability is accreted to the ultimate
amount anticipated to be paid, and is also adjusted for revisions to the timing
or amount of estimated cash flows. The capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. SFAS 143 is required to be adopted for fiscal years beginning
after June 15, 2002, with earlier application encouraged. The adoption of SFAS
143 is not expected to have a material effect on Concurrent's financial position
and results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." SFAS 144 retains the fundamental
provisions of SFAS No. 121 for (a) recognition and measurement of the impairment
of long-lived assets to be held and used and (b) measurement of long-lived
assets to be disposed of by sale. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. Concurrent has not yet determined the impact
on its financial position and results of operations, if any, from the adoption
of SFAS 144.
9. Issuance of Non-Cash Warrants
On March 29, 2001, Concurrent entered into a definitive purchase agreement
with Comcast Cable, providing for the purchase of VOD equipment. As part of that
agreement, Concurrent agreed to issue three different types of warrants.
Concurrent issued a warrant to purchase 50,000 shares of its common stock
on March 29, 2001, exercisable at $5.196 per share over a four-year term. This
warrant is referred to as the "Initial Warrant".
Concurrent is also generally obligated to issue new warrants to purchase
shares of its common stock to Comcast at the end of each quarter through March
31, 2004, based upon specified performance goals which are measured by the
number of Comcast basic cable subscribers that have the ability to utilize the
VOD service. The incremental number of subscribers that have access to VOD at
quarter end as compared to the prior quarter end multiplied by a specified
percentage is the number of additional warrants that are earned during the
quarter. These warrants are referred to as the "Performance Warrants".
Concurrent issued a performance warrant for 4,431 shares to Comcast on October
9, 2001, exercisable at $6.251 per share over a four-year term. Concurrent also
-10-
issued a performance warrant for 52,511 shares to Comcast on January 15, 2002,
exercisable at $15.019 per share over a four-year term.
Concurrent will also issue additional warrants to purchase shares of its
common stock, if at the end of any quarter the then total number of Comcast
basic cable subscribers with the ability to utilize the VOD system exceeds
specified threshold levels. These warrants are referred to as the "Cliff
Warrants".
Concurrent is recognizing the value of the Performance Warrants and the
Cliff Warrants over the term of the agreement as Comcast purchases additional
VOD servers from Concurrent and makes the service available to its customers.
For the three months ended December 31, 2001 and the six months ended December
31, 2001, Concurrent recognized $287,000 and $692,000, respectively, as a
reduction to revenue for the Performance Warrants and Cliff Warrants that have
been accrued for but not yet issued.
The value of the warrants is determined using the Black-Scholes
option-pricing model. The weighted assumptions used for the quarter ended
December 31, 2001 were: expected dividend yield - 0%; risk free interest rate -
4.08%; expected life - 4 years; expected volatility - 123.8%. Concurrent will
adjust the value of the earned but unissued warrants on a quarterly basis using
the Black-Scholes option-pricing model until the warrants are actually issued.
The value of the new warrants earned and any adjustments in value for warrants
previously earned will be determined using the Black-Scholes option-pricing
model and recognized as part of revenue on a quarterly basis.
The exercise price of the warrants is subject to adjustment for stock
splits, combinations, stock dividends, mergers, and other similar
recapitalization events. The exercise price is also subject to adjustment for
issuance of additional equity securities at a purchase price less than the then
current fair market value of Concurrent's common stock. Based on the information
that is currently available, Concurrent does not expect the warrants to be
issued to Comcast to exceed 1% of its outstanding shares of common stock over
the term of the agreement. The exercise price of the warrants to be issued to
Comcast will equal the average closing price of Concurrent's common stock for
the 30 trading days prior to the applicable warrant issuance date and the
warrant will be exercisable over a four-year term.
10. Revolving Credit Facility
Concurrent has a revolving credit facility with a bank that expires on
December 31, 2002 and which provides for borrowings up to $5 million at an
interest rate of prime (4.75% at December 31, 2001) plus 0.75% or between LIBOR
plus 2.25% and LIBOR plus 3.00% depending on Concurrent's ratio of Consolidated
Funded Debt (as defined in the credit facility) to EBITDA. Concurrent has
pledged substantially all of its assets as collateral for the facility. No
borrowings were outstanding at December 31, 2001 under the credit facility. At
December 31, 2001 the Company was in violation of its EBITDA covenant for the
VOD division. This violation is considered a "commitment suspension period"
which means Concurrent is unable to borrow under the credit facility until the
EBITDA covenant violation for the VOD division is cured.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Policies and Estimates
Revenue Recognition
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition". Concurrent recognizes revenue
from video-on-demand and real-time systems when: (1) persuasive evidence of an
arrangement exists; (2) the system has been shipped; (3) the fee is fixed or
determinable; and (4) collectibility of the fee is probable. Under multiple
element arrangements, Concurrent allocates revenue to the various elements based
on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE
of fair value is determined based on the price charged when the same element is
sold separately. Determination of criteria (3) and (4) are based on management's
judgements regarding the fixed nature of the fee charged for products and
services delivered and the collectibility of those fees. Should changes in
conditions cause management to determine these criteria are not met for certain
future transactions, revenue recognized for any reporting period could be
adversely affected.
In certain instances, Concurrent's customers require significant
customization of both software and hardware products and, therefore, revenues
are recognized as long term contracts using the percentage-of-completion method,
which relies on estimates of total expected contract revenue and costs.
Concurrent follows this method since reasonably dependable estimates of the
revenue and costs applicable to various stages of a contract can be made.
Recognized revenues and profit are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to income in
the period in which the facts that give rise to the revision become known.
Valuation and Accrual of Non-Cash Warrants
Concurrent entered into a definitive purchase agreement with Comcast Cable
in March of 2001, providing for the sale of VOD equipment. As part of that
agreement, Concurrent agreed to issue three types of warrants (See note 9 to the
condensed consolidated financial statements).
Concurrent recognized the value of the Initial Warrant as a reduction of
revenue in the quarter ended March 31, 2001. Concurrent recognizes the value of
Performance Warrants and Cliff Warrants as a reduction of revenue over the term
of the agreement as Comcast purchases additional VOD servers from Concurrent and
makes the service available to its customers.
The value of the warrants is determined using the Black-Scholes
option-pricing model. The weighted assumptions used for the quarter ended
December 31, 2001 were: expected dividend yield - 0%; risk free interest rate -
4.08%; expected life - 4 years; expected volatility - 123.8%. Concurrent will
adjust the value of the earned but unissued warrants on a quarterly basis using
the Black-Scholes option-pricing model until the warrants are actually issued.
The value of the new warrants earned and any adjustments in value for warrants
previously earned will be determined using the Black-Scholes option-pricing
model and recognized as part of revenue on a quarterly basis. To the extent the
above assumptions change on a periodic basis, or the number of subscribers
capable of receiving VOD increases or decreases, revenue and gross margins may
be positively or negatively impacted.
In accordance with a definitive agreement with Scientific Atlanta, Inc.
("SAI") executed in August of 1998, Concurrent agreed to issue warrants to SAI
upon achievement of pre-determined revenue targets. The value of these warrants
cannot exceed 5% of applicable revenue and the number of shares related to the
warrant are determined using the Black-Scholes option-pricing model and cannot
exceed 888,888 shares for every $30 million of revenue from the sale of VOD
servers using the SAI platform. The value of these warrants cannot impact gross
-12-
margin by more than $1.5 million per $30 million of applicable revenue.
Concurrent accrues for this cost as a part of cost of sales at the time of
recognition of applicable revenue.
Warranty Accrual/Maintenance Revenue Deferral
Concurrent either accrues the estimated costs to be incurred in performing
warranty services at the time of revenue recognition and shipment of the
servers, or defers revenue associated with the maintenance services to be
provided during the warranty period based upon the value for which Concurrent
would sell such services separately, depending upon the specific terms of the
customer agreement. Concurrent's estimate of costs to service its warranty
obligations is based on historical experience and expectation of future
conditions. To the extent Concurrent experiences increased warranty claim
activity or increased costs associated with servicing those claims, its warranty
accrual will increase resulting in decreased gross margin.
Inventory Valuation Reserves
Concurrent provides for inventory obsolescence based upon assumptions about
future demand, market conditions and anticipated timing of the release of next
generation products. If actual market conditions or future demand are less
favorable than those projected by management, or if next generation products are
released earlier than anticipated, additional inventory write-downs may be
required.
Impairment of Goodwill
At December 31, 2001, Concurrent had $10.7 million of goodwill. In
assessing the recoverability of Concurrent's goodwill the Company must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If the estimates or their related
assumptions change in the future, Concurrent may be required to record
impairment charges for theses assets not previously recorded. In connection with
the adoption of SFAS 142, Concurrent was required to perform an impairment
assessment within six months of its July 1, 2001 adoption. As of September 30,
2001, Concurrent completed this transitional impairment test and deemed that no
impairment loss was necessary. Any subsequent impairment losses, if any, will be
reflected in operating income in the income statement.
Valuation of Deferred Tax Assets
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. At June 30, 2001 and
December 31, 2001, substantially all of the deferred tax assets have been fully
reserved due to the operating losses for the past several years and the
inability to assess as more likely than not the likelihood of generating
sufficient future taxable income to realize such benefits.
-13-
Selected Operating Data as a Percentage of Total Revenue
The following table sets forth selected operating data as a percentage of
total revenue for certain items in Concurrent's consolidated statements of
operations for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Net sales:
Product sales (% of total sales):
Real-time systems 21.6 % 46.4 % 27.9 % 37.1 %
Video-on-demand systems 55.3 12.6 43.6 23.6
---------- ---------- ---------- ----------
Total product sales 76.9 59.0 71.4 60.7
Service and other 23.1 41.0 28.6 39.3
---------- ---------- ---------- ----------
Total 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems 54.6 54.1 54.4 54.5
Service and other 57.1 54.2 55.6 52.7
---------- ---------- ---------- ----------
Total 55.2 54.2 54.8 53.8
---------- ---------- ---------- ----------
Gross margin 44.8 45.8 45.2 46.2
Operating expenses:
Sales and marketing 18.6 28.0 22.8 26.4
Research and development 16.3 19.4 19.5 17.7
General and administrative 9.7 26.0 11.2 20.2
---------- ---------- ---------- ----------
Total operating expenses 44.6 73.3 53.4 64.3
---------- ---------- ---------- ----------
Operating income (loss) 0.3 (27.5) (8.2) (18.1)
Interest income - net 0.9 0.2 1.1 0.1
Other expense - net (0.2) (0.3) (0.2) (0.3)
---------- ---------- ---------- ----------
Income (loss before income taxes) 0.9 (27.6) (7.3) (18.3)
Provision for income taxes 0.7 1.0 0.8 1.0
---------- ---------- ---------- ----------
Net income (loss) 0.2 % (28.6)% (8.1)% (19.3)%
========== ========== ========== ==========
-14-
RESULTS OF OPERATIONS
THE QUARTER ENDED DECEMBER 31, 2001 COMPARED TO THE QUARTER ENDED DECEMBER 31,
2000
Product Sales. Total product sales were $17.3 million for the three months
ended December 31, 2001, an increase of $8.7 million or 101.7% from $8.6 million
for the three months ended December 31, 2000. This increase resulted from VOD
product sales increasing by $10.6 million to $12.4 million in the three-month
period ended December 31, 2001 from $1.8 million for the same period in 2000.
The increase in VOD product sales is due to the increase in VOD server purchases
from a single domestic cable operator, which accounted for approximately 95% of
VOD system revenue in the quarter ended December 31, 2001. Sales of real-time
products decreased 27.8% to $4.9 million in the three month period ended
December 31, 2001 from $6.7 million in the three month period ended December 31,
2000, primarily due to an order from AAI Corporation in fiscal 2001 of
approximately $2 million which was not repeated in fiscal 2002.
Service and Other Sales. Service and other sales decreased $0.8 million or
12.9% to $5.2 million for the three months ended December 31, 2001 from $6.0
million for the three months ended December 31, 2000. The decline resulted
primarily from customers switching from proprietary real-time systems to
Concurrent's open systems which are less expensive to maintain, and the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service.
Gross Margin. The gross margin increased 51.3% to $10.1 million for the
three months ended December 31, 2001 from $6.7 million for the three months
ended December 31, 2000. The gross margin as a percentage of sales decreased to
44.8% in the three month period ended December 31, 2001 from 45.8% in the three
month period ended December 31, 2000 primarily due to higher VOD sales volume,
which has lower margins than real-time systems. VOD product gross margins
increased to 41.2% in the three month period ended December 31, 2001 from 37.9%
in the three month period ended December 31, 2000, due to increased sales volume
and certain fixed customer service and support costs being spread over higher
VOD sales. As revenue from sales of VOD servers continues to increase as a
percentage of total revenue, overall gross margins will move closer to the
margins realized on sales of its VOD servers. Real-time product gross margins
increased to 56.3% for the three months ended December 31, 2001 from 48.0% for
the three months ended December 30, 2000 primarily due to an increase in higher
margin product sales to one particular customer. The gross margin on service
and other sales declined to 42.9% for the three months ended December 31, 2001
from 45.8% for the same period in 2000 because, as service revenues continued to
decline, service expenses were unable to be reduced pro-rata in order to ensure
quality service and fulfill contractual agreements.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 18.6% for the three months ended December 31, 2001 from
28.0% for the three months ended December 31, 2000. These expenses increased
slightly to $4.2 million in the three month period ended December 31, 2001 from
$4.1 million in the three month period ended December 31, 2000, primarily due to
a $0.3 million increase in domestic VOD sales and marketing personnel costs.
This increase was partially offset by a $0.1 million decrease in international
severance expense and a $0.1 million reduction in international real-time
marketing personnel costs.
Research and Development. Research and development expenses decreased as a
percentage of sales to 16.3% for the three month period ended December 31, 2001
from 19.4% for the three month period ended December 31, 2000. These expenses
increased to $3.7 million in the three month period ended December 31, 2001 from
$2.8 million in the three month period ended December 31, 2000 due to personnel
additions in both the real-time and VOD research and development departments.
The Real-Time Division's research and development expense increased $0.3 million
due to additional resources required for development of the new Linux based
real-time operating system. The VOD Division also added new development staff
in the fourth quarter of fiscal year 2001 and the first two quarters of fiscal
year 2002 to focus on TV Guide version 16.82 integration, targeted and
interactive advertising integration, and development of Concurrent's personal
video channel (pTV(TM)) technology. The additional VOD research and development
personnel resulted in an increase of $0.5 million during the three months ended
December 31, 2001 when compared to the same period in the prior year.
-15-
General and Administrative. General and administrative expenses decreased
as a percentage of sales to 9.7% for the three months ended December 31, 2001
from 26.0% during the same period in the prior year. These expenses decreased
to $2.2 million in the three-month period ended December 31, 2001 from $3.8
million in the same period ended December 31, 2000, primarily due to a $1.2
million severance charge recorded in the three-month period ended December 31,
2000. In addition, after the July 1, 2001 implementation of SFAS 142, goodwill
relating to the acquisition of Vivid Technology, Inc. is no longer amortized.
Discontinuation of this goodwill amortization expense decreased VOD general and
administrative expense by $0.3 million for the three-month period ended December
31, 2001 versus the same period in the prior year.
Interest Income (Expense). Included in interest income (expense) for the
three month period ended December 31, 2001 is $0.2 million of interest income
earned on the net proceeds from the private placement of 5.4 million shares of
common stock that was completed in July 2001.
Income Taxes. Concurrent recorded income tax expense for its foreign
subsidiaries of $150,000 in each of the three month periods ended December 31,
2001 and December 31, 2000 based on pre-tax income of $0.2 million in the three
month period ended December 31, 2001 and a pre-tax loss of $4.0 million in the
three month period ended December 31, 2000, due to the inability to utilize
domestic net operating loss carryforwards to offset taxable income in certain
foreign locations.
Net Income (Loss). Concurrent recorded net income of $0.1 million or $0.00
per share for the three months ended December 31, 2001, compared to a net loss
of $4.2 million or $0.08 loss per share for the three months ended December 31,
2000.
THE SIX MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THE SIX MONTHS ENDED DECEMBER
31, 2000
Product Sales. Total product sales were $26.1 million for the six months
ended December 31, 2001, an increase of $7.4 million or 39.6% from $18.7 million
for the six months ended December 31, 2000. This increase primarily results
from a $8.7 million, or 119.3% increase in VOD product sales to $15.9 million in
the six month period ended December 31, 2001 from $7.3 million for the same
period in 2000. The increase in VOD product sales is due to the increase in VOD
server purchases from a single domestic cable operator, which accounted for
approximately 79% of VOD system revenue during the six months ended December 31,
2001. Sales of real-time products decreased 10.9% to $10.2 million in the six
month period ended December 31, 2001 from $11.4 million in the six month period
ended December 31, 2000, primarily due to an order from AAI Corporation in
fiscal 2001 of approximately $2 million, which was not repeated in fiscal 2002.
Service and Other Sales. Service and other sales decreased $1.7 million or
13.9% to $10.4 million for the six months ended December 31, 2001 from $12.1
million for the six months ended December 31, 2000. The decline resulted
primarily from customers switching from proprietary real-time systems to
Concurrent's open systems which are less expensive to maintain, and from the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service.
Gross Margin. The gross margin increased 16.0% to $16.5 million for the six
months ended December 31, 2001 from $14.3 million for the six months ended
December 31, 2000. The gross margin as a percentage of sales decreased to 45.2%
for the six month period ended December 31, 2001 compared to 46.2% for the same
period ended December 31, 2000 primarily due to higher VOD sales volume, which
has lower margins than real-time systems. VOD product gross margins decreased to
39.8% in the six month period ended December 31, 2001 from 40.7% during the same
period ended December 31, 2000 due to the $0.7 million reduction in revenue
during the six months ended December 31, 2001 from warrants accrued for but not
yet issued to Comcast (see footnote 9 to the condensed consolidated financial
statements). Real-time product gross margins increased to 54.6% for the six
months ended December 31, 2001 compared to 48.5% for the six months ended
-16-
December 31, 2000 primarily due to an increase in higher margin product sales to
one particular customer. The gross margin on service and other sales declined
to 44.4% for the six months ended December 31, 2001 compared to 47.3% for the
same period in 2000 because, as service revenues continued to decline, service
expenses were unable to be reduced pro-rata in order to ensure quality service
and fulfill contractual agreements.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 22.8% for the six months ended December 31, 2001 from
26.4% for the six months ended December 31, 2000. These expenses increased
slightly to $8.3 million in the six month period ended December 31, 2001 from
$8.1 million in the six month period ended December 31, 2000, primarily due to a
$0.6 million increase in domestic VOD sales and marketing personnel costs. This
increase was partially offset by a $0.4 million decrease in international
real-time sales and marketing expense due to a $0.2 million decrease in
severance expense and a $0.2 million reduction of international real-time
marketing personnel costs.
Research and Development. Research and development expenses increased as a
percentage of sales to 19.5% for the six month period ended December 31, 2001
from 17.7% for the six month period ended December 31, 2000. These expenses
increased to $7.1 million in the six month period ended December 31, 2001 from
$5.4 million in the six month period ended December 31, 2000 due to personnel
additions in both the real-time and VOD research and development departments.
The Real-Time Division's research and development expense increased $0.6 million
due to additional resources required for development of the new Linux based
real-time operating system. The VOD division also added new development staff in
the fourth quarter of fiscal year 2001 and the first two quarters of fiscal year
2002 to focus on TV Guide version 16.82 integration, targeted and interactive
advertising integration, and development of Concurrent's personal video channel
(pTV(TM)) technology. The additional VOD research and development personnel
resulted in an increase of $1 million during the six months ended December 31,
2001 compared to the same period in the prior year.
General and Administrative. General and administrative expenses decreased
as a percentage of sales to 11.2% for the six-month period ended December 31,
2001 from 20.2% for the six-month period December 31, 2000. These expenses
decreased to $4.1 million in the six months ended December 31, 2001 from $6.2
million in the same period ended December 31, 2000, primarily due to a $1.2
million severance charge recorded in the six-month period ended December 31,
2000. In addition, after the July 1, 2001 implementation of SFAS 142, goodwill
relating to the acquisition of Vivid Technology, Inc. is no longer amortized.
Discontinuation of this goodwill amortization expense decreased VOD general and
administrative expense by $0.6 million for the six months ended December 31,
2001 compared to the same period in the prior year. Furthermore, accounting
related costs decreased $0.2 million primarily due to consolidation of
accounting departments that existed in both Duluth, GA and Ft. Lauderdale, FL
during part of the six months ended December 31, 2000.
Interest Income (expense). Included in interest income (expense) for the
six month period ended December 31, 2001 is $0.4 million of interest income
earned on the net proceeds from the private placement of 5.4 million shares of
common stock that was completed in July 2001.
Income Taxes. Concurrent recorded income tax expense for its foreign
subsidiaries of $300,000 in each of the six month periods ended December 31,
2001 and December 31, 2000 on pre-tax losses of $2.7 million and $5.7 million,
respectively, due to the inability to recognize the future tax benefit of the
respective periods' net operating loss.
Net Loss. Concurrent recorded a net loss of $3.0 million or $0.05 per
share for the six months ended December 31, 2001, compared to a net loss of $6.0
million or $0.11 per share for the six months ended December 31, 2000.
-17-
Liquidity and Capital Resources
Concurrent's liquidity is dependent on many factors, including sales
volume, operating profit and the efficiency of asset use and turnover.
Concurrent's future liquidity will be affected by, among other things:
- The actual versus anticipated decline in sales of real-time
proprietary systems and service maintenance revenue;
- Revenues from open real-time systems;
- Revenue growth from VOD systems;
- Ongoing cost control actions and expenses, including for example,
research and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- The ability to raise additional capital, if necessary;
- Timing of product shipments which occur primarily during the last
month of the quarter;
- The percentage of sales derived from outside the United States where
there are generally longer accounts receivable collection cycles and
which receivables are not included in the borrowing base of the
revolving credit facility; and
- The number of countries in which Concurrent operates, which may
require maintenance of minimum cash levels in each country and, in
certain cases, may restrict the repatriation of cash, such as cash
held on deposit to secure office leases.
Concurrent used cash of $6.2 million and $4.8 million in operating
activities during the six month periods ended December 31, 2001 and December 31,
2000, respectively, primarily due to the losses generated by Concurrent's VOD
business and uses of working capital. Concurrent has available a $5 million
revolving credit facility with Wachovia Bank which expires December 31, 2002.
Borrowings under the facility are limited to 85% of eligible accounts receivable
and bear interest at prime plus .75% or between LIBOR plus 2.25% and LIBOR plus
3.00% depending on Concurrent's ratio of Consolidated Funded Debt (as defined in
the credit facility) to EBITDA. Concurrent has pledged substantially all of its
assets as collateral for the facility. No borrowings were outstanding at
December 31, 2001 under the credit facility. The credit facility contains
financial covenants which limit the ratio of total liabilities to tangible net
worth and which require Concurrent to achieve on a quarterly basis minimum
EBITDA in each of Concurrent's operating divisions. At December 31, 2001,
Concurrent was in violation of its EBITDA covenant for the VOD division. This
violation is considered a "commitment suspension event" and not an "event of
default". Concurrent is currently in a "commitment suspension period" which
means Concurrent is unable to borrow under the credit facility until the EBITDA
covenant violation for the VOD division is cured.
Concurrent invested $2.3 million and $1.8 million in property, plant and
equipment during the six-month periods ended December 31, 2001 and December 31,
2000, respectively. Current year capital expenditures primarily relate to
computer equipment and development equipment for Concurrent's VOD Division, and
for real-time and VOD manufacturing equipment in Fort Lauderdale.
Concurrent received $24.0 million in net proceeds from a private placement
of 5.4 million shares of Concurrent's common stock on July 19, 2001. Concurrent
also received $3.3 million from the issuance of common stock to employees and
directors who exercised stock options during both of the six month periods ended
December 31, 2001 and December 31, 2000, respectively.
On December 31, 2001, Concurrent's working capital was $40.3 million, and
Concurrent did not have any material commitments for capital expenditures.
Concurrent believes that existing cash balances and funds expected to be
generated by operations will be sufficient to meet Concurrent's anticipated
working capital and capital expenditure requirements for the next twelve months.
-18-
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Concurrent's only significant contractual obligations and commitments
relate to certain operating leases for sales, service and manufacturing
facilities in the United States, Europe and Asia.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Concurrent or its representatives, may
constitute "forward-looking statements" within the meaning of the federal
securities laws. When used in this report, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Statements regarding future events and developments and
Concurrent's future performance, as well as its expectations, beliefs, plans,
estimates or projections relating to the future, are forward-looking statements
within the meaning of these laws. All forward-looking statements are subject to
certain risks and uncertainties that could cause actual events to differ
materially from those projected. The risks and uncertainties that could affect
Concurrent's performance or results include, without limitation:
- Availability of VOD content;
- delays or cancellations of customer orders;
- changes in product demand;
- general political and economic conditions in the United States and
abroad, including but not limited to, results of the terrorist events
of September 11, 2001;
- various inventory risks due to changes in market conditions;
- uncertainties relating to the development and ownership of
intellectual property; uncertainties relating to the ability of
Concurrent and other companies to enforce their intellectual property
rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of the VOD segment;
- the concentration of Concurrent's customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- the highly competitive environment in which Concurrent operates; and
- the entry of new well-capitalized competitors into Concurrent's
markets and other risks and uncertainties.
These risk factors and other important risk factors are discussed in
Concurrent's current report on Form 8-K filed with the Securities and Exchange
Commission on October 22, 2001.
In any one quarter a substantial portion of VOD revenue may be derived from
a single customer. For the three months and six months ended December 31, 2001,
revenue from a single customer accounted for 94.7% and 79.0% of VOD revenue,
respectively. The single customer in any given quarter that makes up such
revenue may vary between several different multiple system cable operators. At
June 30, 2001 and December 31, 2001, this same customer made up 26.2% and 61.7%
of trade accounts receivable, respectively.
These statements are based on current expectations and speak only as of the
date of such statements. Concurrent undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of future events,
new information or otherwise.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
-19-
Concurrent is exposed to market risk from changes in interest rates and
foreign currency exchange rates. Concurrent is exposed to the impact of
interest rate changes on its short-term cash investments, which are backed by
U.S. government obligations, and other investments in respect of institutions
with the highest credit ratings, all of which have maturities of 3 months or
less. These short-term investments carry a degree of interest rate risk.
Concurrent believes that the impact of a 10% increase or decline in interest
rates would not be material to its investment income.
Concurrent conducts business in the United States and around the world.
The most significant foreign currency transaction exposures relate to the United
Kingdom, those Western European countries that use the Euro as a common
currency, Australia and Japan. Concurrent does not hedge against fluctuations
in exchange rates and believes that a hypothetical 10% upward or downward
fluctuation in foreign currency exchange rates relative to the United States
dollar would not have a material impact on future earnings, fair values, or cash
flows.
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds
On July 19, 2001, Concurrent closed on the sale of 5,400,000 shares of
Common Stock to private investors at a price of $4.80 per share. Net proceeds
to Concurrent, after fees and expenses, were approximately $24 million. Raymond
James & Associates, Inc. acted as placement agent in the sale. The sale was a
privately negotiated sale to selected institutional investors and other
accredited investors. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Rule 506 of
Regulation D promulgated thereunder. Concurrent intends to use the proceeds for
working capital, sales and marketing activities, product development and
support, potential acquisitions and investments, capital expenditures and
general corporate purposes. Concurrent subsequently registered the resale of
all of the shares on a Form S-3 registration statement (no. 333-61172), filed on
May 17, 2001 and declared effective on July 19, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(11) Statement on computation of per share earnings
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the period covered by
this report:
- Current Report on Form 8-K filed on October 22, 2001 relating to
amending and restating the Registration Statement on Form 8-A filed
with the Securities and Exchange Commission on January 23, 1986 to
update the description of Concurrent's capital stock, and to update
certain risk factors relating to Concurrent.
- Current Report on Form 8-K filed on October 25, 2001 relating to
financial results for the quarter ended September 30, 2001.
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended December
31, 2001 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: February 10, 2002 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
-------------------------
Steven R. Norton
Chief Financial Officer
(Principal Financial and Accounting Officer,
Authorized Officer)
-21-