form10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
Annual
Report Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of
1934
(Mark
One)
x
|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
|
For the
fiscal year ended June 30, 2008
OR
¨
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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: 0-13150
Concurrent
Computer Corporation
(Exact
name of registrant as specified in its charter)
Delaware
(State
of Incorporation)
04-2735766
(I.R.S.
Employer Identification No.)
4375
River Green Parkway, Suite 100, Duluth, Georgia 30096
(Address
of principal executive offices, including zip code)
(678)
258-4000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the
Act: Common Stock, $0.01 par value
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ 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
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 ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best of
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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definition of “accelerated filer”, “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨ Smaller reporting
company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
aggregate market value of the common equity held by non-affiliates of the
registrant as of December 31, 2007 was approximately $69 million based on the
closing price of $8.30 of our common stock as reported by the NASDAQ Global
Market on December 31, 2007. There were 8,293,000
shares of common stock outstanding as of August 25,
2008.
Certain
portions of the Registrant's Proxy Statement to be used in connection with
Registrant's 2008 Annual Meeting of Stockholders scheduled to be held on October
22, 2008 are incorporated by reference in Part III hereof.
2008
Form 10-K Annual Report
Table
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PART
I
Certain
statements made or incorporated by reference in this Annual Report on Form 10-K
may constitute “forward-looking statements” within the meaning of the federal
securities 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 which
could affect our financial condition or results are discussed below under the
heading “Risk Factors”. Our forward-looking statements are based on
current expectations and speak only as of the date of such
statements.
Overview
We are a
provider of computing technologies and software applications, and related
services, for the video-on-demand (VOD) market and the high-performance
real-time market. Our business is comprised of two segments for
financial reporting purposes: products and services. We provide
products and services for each of these markets.
Our
on-demand products consist of hardware and/or software as well as integration
services, sold primarily to broadband companies that provide interactive,
digital services. These on-demand systems enable broadband
telecommunication providers, mainly cable television systems, to stream video
content to their digital subscribers with digital set-top boxes or personal
computers and then measure the use and success of the streamed
content. Once enabled, the subscribers can view and control the video
stream at any time with familiar interactive functionality such as fast-forward,
rewind, and pause. Currently, 133 distinct Concurrent on-demand
systems are deployed in cable and telecom markets worldwide that represent
approximately 22.4 million basic cable subscribers. Our data analysis
software has been selected for deployment to over 31 million digital subscribers
in 265 distinct on-demand systems worldwide.
Our
real-time products consist of real-time operating systems and software
development tools combined, in most cases, with off-the-shelf hardware and
services sold to a wide variety of companies seeking high-performance, real-time
computer solutions for use in various applications requiring low-latency
response and determinism such as simulation, image generation,
hardware-in-the-loop testing and data acquisition. These real-time
products are specially designed for use with applications that acquire, process,
store, analyze and display large amounts of rapidly changing information in real
time – that is, with microsecond response times as changes occur. We
have over 40 years of experience in high-performance computing systems,
including specific expertise in operating systems, computer hardware,
application software, debugging and analysis tools, and
networking. Our systems and software support applications in the
information technology, simulation and training, financial, data acquisition,
and industrial process control markets.
We were
incorporated in Delaware in 1981 under the name Massachusetts Computer
Company.
We make
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports available, free of charge, on our
website located at www.ccur.com, as soon
as reasonably practicable after filing with the Securities and Exchange
Commission (“SEC”). We have adopted a code of ethics that is
applicable to all employees as well as a code of ethics applicable to our
principal executive, financial, and accounting officers. Both of
these ethics policies are posted on our website located at www.ccur.com. Copies
will be furnished upon written request to the Company at the following
address: Attn: Secretary, 4375 River Green Parkway, Suite
100, Duluth, Georgia 30096. If we amend or change either
code of ethics or grant a waiver under either code, we will disclose these
events through our website.
The
VOD Market
Technological
developments have laid the groundwork for digitally upgraded, two-way capable
networks that enable broadband companies to deliver on-demand services to their
digitally enabled subscribers. As of December 2007, according to SNL
Kagan, there were 123.4 million North American households passed by cable and of
these homes, approximately 64.8 million were basic cable subscribers, with
approximately 38.3 million of these basic subscribers also being digital
subscribers. Of those digital subscribers, 35.1 million had access to
VOD as of December 2007, up from 30.2 million in March 2007.
On-demand
systems offer the following benefits:
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·
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Convenience Without Late
Fees. On-demand products eliminate travel to obtain and
return rentals and eliminate late charges. This service offers
the convenience and breadth of programming for viewing on-demand on a
subscriber’s television.
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·
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Interactivity. On-demand
products enable a subscriber to view content on their television at any
time with interactive capabilities such as play, rewind, fast-forward and
pause.
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·
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Greater
Content. On-demand products enable our customers to make
large amounts of content immediately available to their subscribers, an
advantage over mail-order media sources. Our customers utilize
both free on-demand and subscription on-demand services. These
offerings help create awareness and understanding of on-demand
television.
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No Special Recorder Box
Necessary. On-demand products have the capability to enable a user
to save television programming for playback after the ‘live’ broadcast
without requiring a special set-top box, such as a digital video recorder
(DVR). Such time-shifted television services further do not
require subscribers to plan recording, purchase or rent a DVR device,
install and maintain the device, learn how to operate and update the
device. Additionally, since on-demand is network based,
broadband companies can incrementally add storage more economically and
efficiently, whereas storage capacity on a DVR device is still very
limited and is not so simply
expanded.
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·
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Advertising. On-demand
products offer unmatched potential for advanced advertising services that
can substantially enhance the advertising experience. Such
advances include ‘telescoping’ from broadcast television to specialized
advertisements stored and viewed via the on-demand platform and targeted
advertising specially tailored for the viewer based on anonymous viewer
information. Such specialized advertisements will improve the
viewing experience by offering advertising the viewer is interested in
viewing, thus substantially improving the commercial aspects of
on-demand.
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·
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Measurement. On-demand
products enable broadband companies to measure the effectiveness of VOD
services. Our products capture this information and enable its
display in a wide array of reports. This software is also
utilized by satellite broadcasters to measure transactions with
subscribers.
|
We
believe that on-demand is a key strategic competitive initiative for broadband
companies because it provides them with an opportunity to differentiate their
service offerings from digital broadcast satellite providers, which are
technically unable to duplicate the full functionality of
VOD. Further, we believe on-demand will provide cable and other
telecommunication companies access to new revenue generating opportunities,
increase subscriber satisfaction and reduce subscriber churn.
We
believe that on-demand is also a strategic differentiator for telephone
companies as they seek to expand services beyond the delivery of
voice. Cable companies are offering voice services and, thus,
competing for telephone company customers. In response, the telephone
companies have expanded into television and are deploying on-demand products for
the same reasons that cable companies have.
The
Real-Time Computing Markets
Our
real-time products offer unique solutions for a wide-range of applications that
require state-of-the-art, time-critical software and hardware
technology. The operating systems we provide typically offer
high-performance computation and high data throughput, with predictable and
repeatable responses to time-critical events. Our real-time products
are currently used in host, client-server, embedded and distributed computing
solutions. Applications that utilize our operating system and
development tools include the following:
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·
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Simulation and
Training. Applications that perform man-in-the-loop
(MITL) simulation and hardware-in-the-loop (HITL)
simulation. Examples of MITL applications include training
simulators for commercial and military aviation, vehicle operation,
mission planning and rehearsal. HITL solutions are constructed
to create accurate simulations to verify hardware designs for applications
such as engineering design for power plants, avionics and automotive
subsystems. We offer a complete software environment for
developing and executing real-time MITL and HITL simulations, known as the
SIMulation Workbench™.
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Data
Acquisition. Applications that perform environmental
analysis and display, engine testing, range and telemetry systems, shock
and vibration testing, weather satellite data acquisition and forecasting,
intelligence data acquisition and analyses, and command and
control.
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Image Generation. Image generation
applications requiring scalable, commercial-off-the-shelf (COTS) graphics
technology for the highest levels of computer-generated image quality and
fidelity, compatibility with the latest industry-standard components from
leading graphics suppliers and improved customer value versus proprietary
solutions.
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Industrial Process
Control. Applications such as plant monitoring and
control systems that ensure safety and reliable operation in industrial
environments. Examples are gas and oil pipeline supervision, power plant
control systems and manufacturing
monitoring.
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·
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Information
Technology. Data processing applications that require
high reliability and time-critical response to user action with minimal
interrupt latency such as applications used for stock and bond trading,
financial analysis and other financial transaction
systems.
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Business
Strategy
On-Demand
Product Line
Our
on-demand strategy is comprised of the following primary
initiatives:
|
·
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North American
Cable. We have 81 distinct on-demand systems currently
deployed with a wide variety of North American cable
operators. Our primary customers include, in alphabetical
order, Blue Ridge Communications, Bright House Networks, Cogeco, Inc.,
Comcast Corporation, Cox Communications, Inc., Knology, Inc., Mediacom
Communications Corporation, Time Warner, Inc., and Vidéotron
Ltée. We intend to focus on continuing to serve these customers
and add to our customer base by providing the product innovations and
customer support that we believe the cable companies need to
succeed. It is our goal to provide the highest quality products
and support so that we enable our customers to succeed with their
customers.
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Data
Analytics. We provide data measurement and reporting
software to broadband companies. We plan to continue to develop
this software to expand its capabilities for our broadband customers so
they can better understand the systems’ overall quality of service, system
capacity utilization and how video content is viewed by
consumers. Recent product developments have been aimed at
capacity utilization, audience measurement and targeted
advertising. We are currently involved in undisclosed lab
trials of these products.
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·
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International
Cable. We have 13 distinct on-demand systems currently
deployed in international cable systems including in South Korea by
Broadband Solutions, Inc., in China by Shekou CATV and Beijing Cable and
in Japan by Jupiter Telecommunications, Inc., NTT Communications and Wai
Wai. We will continue to pursue relationships with
international cable companies.
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·
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Telecommunications
Markets. We have been deployed by a number of
international telcos, including Telecom Italia, Austria Telecom, Cyta
Telecom (in Cypress), Sistema in Russia, Hanasanet and Arcor in Germany
and Chunghwa Telecom in Taiwan. These opportunities have been
obtained for the most part through a reseller agreement signed in June
2003 and extending to June 2009 with Alcatel-Lucent pursuant to which we
are Alcatel-Lucent’s preferred on-demand solution on their platform for
resale throughout the world. However, we are not prohibited
from pursuing relationships with other integrators and international
telecommunication companies to take advantage of other opportunities as
they arise.
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·
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Innovate to Improve the
On-Demand Viewing Experience. We continue to focus on
the development of future on-demand technologies to remain a technology
leader by improving streaming, storage and content ingest flexibility,
asset management, the subscriber’s navigation experience, encryption
techniques, time-shifted television applications, business analytics,
advertising applications, and
functionality.
|
Real-Time
Product Line
Our
real-time strategy is comprised of the following primary
initiatives:
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·
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Establish Our Real-Time Linux
Operating Systems as the DeFacto Standard for Real-Time
Computing. As the high-performance, real-time, computing
market has shifted to multi-core open systems, we have introduced new
products to meet market demand while maintaining support for our
proprietary systems. The market for open software has grown and
we believe we can position our RedHawk real-time operating system as a
standard, real-time open source operating system. Additionally,
market dynamics are shifting to multi-processor environments with greater
per-device processing capabilities, thereby affording us an opportunity to
provide our real-time operating system to the embedded device
market. We are seeking to accomplish this by partnering with
established industry providers of both software and hardware to resell our
products, in addition to our established direct sales
channels.
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Real-Time Operating System
Sales on Commercial-Off-The-Shelf Hardware
Platforms. Our strategy includes offering upgrades for
our legacy Unix system offerings and customer investment in our
open-source Linux® operating system running on our iHawk™integrated
hardware solutions. Our iHawk family is a line of commercial
off-the-shelf multi-core Intel® Xeon™ and AMD Opteron™ servers available
in single, dual, quad, and 8-way processor models which allow us to scale
from 2 to 32 cores. iHawks are available in a wide-range of
configurations and include our multi-function Real-Time Clock and
Interrupt Module. We expect that the on-going introduction of a
wide-range of Intel and AMD-based servers running our RedHawk Linux
operating system will allow us to compete for a broad range of business
opportunities.
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NightStar® Tool
Suite. Our NightStar tool
suite is a collection of software debugging and analysis products that
enable our customers to perform diagnostic tests on the applications they
have developed and system tuning for use on our Linux® open source and
proprietary real-time operating systems. This compelling tool
set is now available for standard Linux distributions and differentiates
our real-time offering from other proprietary and Linux-based real-time
offerings.
|
Products
and Services
Our
products fall into two principal groups, on-demand systems and real-time
systems. In addition, we provide technical support to our
customers. The percentage of total revenue contributed by our
on-demand and our real-time products and service offerings are discussed in
Management’s Discussion and Analysis of Financial Condition and Results of
Operation in this Annual Report on Form 10-K.
On-Demand
Products
Our
on-demand systems are typically located at the network operator’s headend or hub
in a distributed or centralized architecture with a small software module
residing on the subscriber’s set-top-box. When a subscriber selects a
certain piece of video content from an on-screen menu, a dedicated video session
is established between our video server and the digital set-top-box in the
subscriber's home via the resource manager over the broadband
network. The selected video content is accessed from the video server
where it is stored at either a headend or a hub. The purchase is
typically captured by our back-office software or a third-party’s back office
software, creating a billing and royalty record for the broadband company’s
billing system. Our analytics products integrate with VOD systems
provided by us or our competitors and capture information from the VOD systems
and organize and report that information to the broadband provider.
MediaHawkTM On-Demand
Platform. Our MediaHawk 4500 high performance video-on-demand
system combines commercial-off-the-shelf hardware sourced from leading Original
Equipment Manufacturers (OEMs) with our own proprietary software. It
includes the MediaHawk 4500 Video Server, the MediaStore 2000 storage system,
the MediaCache 1000 solid state storage system, and the MediaMatrix Interconnect
switching fabric. We believe our modular approach provides our
customers with the ability to successfully manage initial deployments, expand
those deployments, and add new services. From 1999 through June 30,
2008, we had shipped a total of 4,309 video servers with a total capacity of
1,507,164 streams. Our design goal is to provide seamless end-user
viewing of the highest quality. Our on-demand systems allow broadband
companies to automate the movement of content from one storage location to
another based upon demand and other network requirements. We believe
this feature enables the most efficient streaming and storage of
content. We have applied for multiple patents to protect the
architecture and design of our on-demand platform.
Our On-Demand Platform includes
the following software components:
|
·
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Resource
Manager. Our resource manager is a software component
that establishes the network connection that allows video to be streamed
to the home over the broadband operator’s network as a dedicated
session. The resource manager is designed to route video
streams in the most efficient manner available at any given
time.
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MH BOSS. Our
MediaHawk Back Office Software Suite (“MH BOSS”) is our back office
business management system composed of a relational database supporting
subscriber and provider data management. The supported
applications include customer access management, content distribution
management, order management, royalty management, billing interfaces and
marketing analysis.
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Real Time Media
System. Our Real Time Media System is software that
enables our customers to capture broadcast television programming at the
time of broadcast and simultaneously digitally encode, store and propagate
the captured programs for future viewing by subscribers. The
Time Warner Cable Start Over service is enabled by this
module.
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·
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Client. Our
client is a software module with very small memory and processor
requirements that resides on each digital set-top-box, empowering the
subscriber to browse and select on–demand content with complete
interactive control.
|
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·
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Web Client. We have
developed an HTML-based VOD navigation system which leverages
commercial-off-the-shelf (COTS) web-development technologies and
standards. This application allows broadband operators to use
standard web-authoring tools to create and brand their own VOD navigation
pages.
|
Our
on-demand systems are compatible with a wide range of equipment and software
employed by broadband companies to deliver digital television service, including
digital set-top boxes from Cisco Systems Inc. (f.k.a. Scientific-Atlanta),
Motorola, Pioneer, Sony, Pace Micro, Samsung, Humax, and Matsushita and
transport topologies such as IP, DSL, Gigabit Ethernet, DVB-ASI, ATM, and 64 and
256 QAM IF or RF.
Everstream® Data SuiteTM. Data
Suite is the foundation to our comprehensive data collection, reporting,
analytics, and ad insertion platforms, enabling universal data collection from
multiple vendor systems. Data Suite is a complete solution for collecting data
from disparate interactive television (iTV) systems and platforms, scrubbing and
transforming that data into standardized information, and storing that data
within a standard data warehouse model. This enables our customers,
broadband companies deploying iTV services, to use our Everstream applications
to leverage data from all of their systems. Data Suite is built upon open
relational database standards using proven Oracle technology and is integrated
with the leading technologies that power iTV and on-demand services including
SeaChange, Concurrent, C-COR (recently acquired by ARRIS), Motorola, Cisco,
Kasenna (recently acquired by Espial Group), TANDBERG Television, part of the
Ericsson Group, Navic Networks (recently acquired by Microsoft Corp.), Microsoft
TV, Cisco ACNS, Real Networks, and Windows Media, as well as supports data from
all major billing systems including Convergys, DST/Innovis, and
CSG.
Once our
Data Suite product has captured operational information from our customers’
diverse iTV services, that information can be leveraged, correlated, and
interpreted empowering marketing, programming, advertising, and operations teams
to seamlessly analyze usage, revenue, and quality of services. This
intelligence provides new ways to compete by quickly identifying opportunities
for revenue growth, operational efficiencies, and reduction of subscriber
churn. This information can be utilized by the following
modules:
|
·
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Oi™ for VOD. Oi
provides operations and engineering teams with crucial insight into
service performance and subscriber experience for digital services such as
video on demand. Oi enables clear and concise summaries of metrics and
trends with the ability to apply and track organization-wide
targets.
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Xi™ for VOD. Xi provides
market-to-market comparison, trending, and correlation analysis on the key
performance metrics of interactive services. We believe Xi
provides the industry’s most comprehensive insight into the impact of iTV
offerings across multiple locations, platforms, and
services.
|
|
·
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Ci™. Ci is a
centralized, enterprise application server and data warehouse system for
managing advertising campaigns across single or multiple system networks.
Ci represents our fourth generation of distributed ad campaign management
technology for iTV and broadband platforms including video on
demand. The application is made up of two components: the
Campaign Director and the Campaign Decision Engine. Campaign
Director is designed to be deployed in a centralized location while
Campaign Decision Engines are deployed at each system, feeding information
to the Campaign Director. Ci is built upon Java J2EE Enterprise
Java Bean technology, giving it enterprise scalability, reliability and
portability to different hardware and operating system
platforms.
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ReportOneTM Template
Sets. A series of template sets to meet the standard
demands of the broadband industry including templates for VOD and
long-format advertising. These templates provide flexible
query, filter, sort, grouping, and output of event, content, and
subscriber level data from your interactive systems, supporting all major
on-demand vendors and platforms such as Cognos ReportNet. These
templates may be used “out-of-the-box” or modified by our customers or
ourselves to meet specific business
requirements.
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CAPiTM. CAPi
is a solution that enables visibility into capacity utilization and
subscriber usage patterns of diverse video and high speed data service
offerings. CAPi collects
utilization data and aggregates it into meaningful, actionable information
with local, regional, and enterprise perspectives that provide operators
the necessary information to effectively manage and plan for the capacity
requirements of their work.
|
Real-Time
Products
Our
principle real-time products are:
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RedHawk™
Linux. RedHawk Linux is an industry-standard,
POSIX-compliant, real-time version of the open source Linux operating
system. RedHawk Linux, compatible with the popular Red Hat® Linux
distribution, provides high I/O throughput, guaranteed fast response to
external events, determinism and optimized interprocess
communication. RedHawk is the ideal Linux environment for the
complex real-time applications found in simulation, data acquisition, and
industrial systems control. RedHawk also maintains third-party software
compatibility with Red Hat Linux, allowing us to take advantage of the
full range of third-party software applications that run on Red
Hat. RedHawk achieves real-time performance by means of a
multithreaded, fully-preemptable real-time kernel with low-latency
enhancements developed by Concurrent. RedHawk's true symmetric
multiprocessing support includes load-balancing and CPU shielding to
maximize determinism and real-time performance in mission-critical
solutions. RedHawk is optimized for multi-core environments and
supports both 32- and 64-bit
systems.
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iHawk™. Our
iHawk servers, based on Intel Xeon or AMD Opteron technologies, feature
our real-time Linux operating systems and our Real-Time Clock and
Interrupt Module. iHawk multiprocessing systems are extensively
deployed in simulation, data acquisition and industrial process control
applications, and satisfy scientific and other complex computing
requirements.
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ImaGen™. ImaGen is
our imaging platform for simulation and modeling applications that require
high-performance image generation. ImaGen Linux-based visual
servers provide multiple channels of state-of-the-art visualization and
graphics performance. High-end image generation, once
achievable only on large, costly, dedicated visual systems, is provided by
ImaGen servers employing COTS graphics technology. Typical
ImaGen imaging applications include civil and military simulation, mission
planning, homeland security, scientific and medical visualization,
architectural design, energy exploration and
entertainment.
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Power
Hawk®. Power Hawk is our family of scalable, real-time
UNIX-based Versa Module Eurocard (VME) systems capable of supporting data
acquisition, simulation and industrial process control
applications. The Power Hawk line features Motorola PowerPC
processors and is available in single, dual and quad central processing
unit (CPU) versions.
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Model
3200-2000. The Model 3200-2000 is an upgrade to our
Series 3200 family of high-performance proprietary
platforms. Model 3200-2000 provides additional processing power
and system throughput required by demanding real-time
applications. Model 3200-2000 runs our proprietary OS/32
real-time operating system.
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PowerMAX Operating
System. The PowerMAX operating system is our
highly-deterministic UNIX-based operating system used on our Power Hawk
systems.
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NightStar™ Tools. The
NightStar development tools help users debug and analyze their application
software running all standard Linux distributions and Concurrent’s own
PowerMAX OS.
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SIMulation
Workbench. SIMulation Workbench is a software product
that provides a framework to develop and execute real-time
hardware-in-the-loop simulations. Its powerful user interface
enables convenient configuring, starting, stopping, recording and playback
of simulation runs. It also provides fast, direct shared memory
access to all parameters and signals needed by a
simulation. SIMulation Workbench’s in-memory design optimizes
performance and data conversion speed. SIMulation Workbench is
offered together with iHawk HITL testing
solutions.
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Services
Customer
Support. We typically offer worldwide hardware and software
maintenance and support services for our products. Services may
include installation, integration, training, on-site maintenance, 24x7 telephone
support, return-to-factory warranty, depot repair, and software support update
service. An on-demand system has multiple interface points with other
network elements, e.g., transport equipment, set-top boxes, conditional access,
clients, navigators (electronic program guides), billing systems, content
receivers, other applications and back office systems. Our system
engineers are able to integrate these diverse elements, creating seamless
on-demand services. Typically we provide support services at no
additional charge during the warranty period and charge for the services under
maintenance agreements after the warranty period. In addition to
these basic service and support options, we also offer, for additional fees,
software upgrades and additional onsite services. For more than 40
years, we have routinely offered and delivered long-term service and support of
our products, under maintenance contracts, for additional fees.
Custom Engineering and Integration
Services. We provide custom engineering and integration
services in the design of special hardware and software to help our customers
with their specific applications. This may include custom
modifications to our products or integration of third-party interfaces or
devices into our systems. Many customers use these services to
migrate existing applications from earlier generations of our systems or our
competitors’ systems to our state-of-the-art systems running
Linux. These services also include classroom and on-site training,
system and site performance analysis, and multiple vendor support
planning.
Sales
and Marketing
We sell
our systems primarily in the U.S. through our direct field sales team supported
by consultants and our technical support group. As of June 30, 2008,
we had 76 employees in our sales and marketing force, which includes sales,
sales support, marketing, strategic communications, product-line management,
program management, and business development. Our sales force has
significant experience in on-demand and real-time operating
systems. Outside North America, we utilize a direct sales force out
of our facilities in France, Germany, Hong Kong, Japan, China and the United
Kingdom, augmented by our channel partners (resellers and system
integrators).
Customers
We derive
revenue from a limited number of customers. As a result, the loss of,
or reduced demand for products or related services from any of our major
customers could adversely affect our business, financial condition and results
of operations. Our products are typically manufactured and shipped in
the same quarter the purchase order is received. Accordingly, we do
not believe backlog is a meaningful indicator of future level of
sales. Our backlog for real-time and on-demand systems at June
30, 2008 and 2007 totaled $2.1 million and $1.9 million,
respectively. In addition, we had deferred revenue of $9.5 million
and $9.0 million at June 30, 2008 and 2007, respectively, which resulted
primarily from prepaid maintenance services and shipments of systems where the
revenue had not yet been recognized.
We have
purchase agreements with many customers, but these agreements typically do not
require minimum purchases of our products. As a result, sales to
specific customers tend to, and are expected to continue to, vary from
year-to-year, depending on such customers' budgets for capital expenditures and
new product introductions. Our master purchase agreement with Cox
Communications, however, does have periodic purchase thresholds which, if not
achieved, would entitle Concurrent to certain fixed payments.
A
significant portion of our on-demand revenue has come from, and is expected to
continue to come from, sales to the large broadband companies. The
customers accounting for more than 10% of total revenue consisted of Cox (12%)
and Time Warner (10%) for the fiscal year ended June 30, 2008; Cox (19%) and
Comcast (11%) for the fiscal year ended June 30, 2007; and Cox (16%) and Comcast
(13%) for the fiscal year ended June 30, 2006. No other customer of
our on-demand products accounted for more than 10% of total revenue during the
last three fiscal years.
Although
we sell our real-time products to large customers, the customer base is more
diversified than our on-demand business. Thus, only one customer,
Lockheed-Martin, accounted for more than 10% of total revenues during the last
three years. Specifically, Lockheed-Martin accounted for less than
10% of total revenues in the fiscal years ended June 30, 2008 and June 30, 2007,
but 13% of total revenues in the fiscal year ended June 30, 2006.
We derive
a significant portion of our revenues from the supply of products to U.S.
government prime contractors and agencies of the U.S. government. The
supplied systems include configurations from the RedHawk Linux, SIMulation
Workbench, iHawk, ImaGen, PowerMAXION, Power Hawk, and 3200-2000 product lines,
with certain systems incorporating custom enhancements requested by the
customer. We sell these integrated computer systems to prime
contractors, including Lockheed-Martin, Boeing, Northrop Grumman, AAI and other
Fortune 500 companies. We also supply spare parts, upgrades, and
engineering consulting services and both hardware and software
maintenance. For the fiscal years ended June 30, 2008 and 2007, we
recorded $9.3 million and $8.9 million in revenues to U.S. government prime
contractors and agencies of the U.S. government, representing 13% and 13% of
total sales for the period, respectively. Government business is
subject to many risks, such as delays in funding, reduction or modification of
contracts or subcontracts, failure to exercise options, changes in government
policies and the imposition of budgetary constraints. A loss of
government contract revenues could have a material adverse effect on our
business, financial condition and results of operations.
New
Product Development
We are
committed to the development of new technology and rapid innovation in the
evolving markets in which we compete. Research and development costs
are expensed when incurred and aggregated $16.6 million, $17.6 million, and
$18.8 million in fiscal years 2008, 2007, and 2006, respectively.
Our
research and development strategies with respect to our on-demand solutions are
focused on the following:
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Solid State
Storage. In order to improve performance and storage
reliability, we have developed the MH 4500 that integrates our new RAM
storage and flash solid state drive memory with traditional disk
storage. This hybrid approach enables us to provide a cost
effective solution that will easily evolve as technology
improves. We will continue to develop this product to meet our
customer demands and reduce costs.
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Content
Management. As VOD matures as an industry, we anticipate
that demand for stored content could increase from thousands of hours to
over ten thousand hours. We continue to enhance our systems to
intelligently and automatically manage the distribution and lifecycle of
stored content, thus, increasing the efficiency of our customers’
networks.
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Time-Shifted
Television. This technology allows the subscriber to
pause and rewind time-shifted programming, effectively providing “TV
on-demand.” Our Real Time Media products capture, encode, and store
broadcast programs for future viewing. Additionally, our MediaHawk
On-Demand Platform enables broadband companies to grow streaming, storage,
and content capture independently so they can more easily provide “TV
on-demand”.
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Audience
Measurement. Understanding what consumers watch, when
they watch and how they watch television is essential to the broadband
providers, content owners, advertisers, and ad agencies. We
expect to develop our Everstream products so they can provide this
information, thereby, replacing services that currently project or
estimate consumer activity with small
samplings.
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Interactive and Targeted
Advertising. Interactive long format advertising has
already been deployed by numerous customers. Targeted
advertising technology will allow our on-demand systems to insert
different television commercials into the video streams for different
consumers. This technology will allow the advertiser to closely
“target” product advertisements to consumers most likely to buy, rather
than broadcasting the same advertisements to everyone. These
products are currently involved in undisclosed lab
tests.
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Our
research and development strategies with respect to our real-time products are
focused on the following:
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RedHawk
Linux. We plan to continue to enhance our RedHawk Linux
real-time operating system to provide increased determinism for
time-critical applications. We also have plans to introduce new
tools and features to allow us to offer RedHawk Linux into a wider range
of real-time embedded applications.
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iHawk. We continue to
plan to offer iHawk multiprocessor systems based on Intel and AMD
processor technology and state-of-the-art packaging. These
systems will be available in 2 to 32 core configurations and will include
support for new Intel and AMD multi-core technology as it is
released.
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SIMulation
Workbench. Our plans are to enhance SIMulation Workbench
with new features and support for additional input/output cards as needed
by our customers for hardware-in-the-loop testing
applications.
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Image
Generation. ImaGen is our imaging platform for
simulation and modeling applications that require high-performance image
generation. We plan to continue to introduce ImaGen
multi-channel visual servers featuring the latest NVIDIA Graphics cards,
including SLI technology.
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NightStar
Tools. NightStar tools is our powerful, integrated set
of graphics-based tools for developing time-critical
applications. We plan to introduce new features to NightStar to
improve debugging efficiency and performance in multi-core and
multiprocessing environments.
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Competition
Both our
on-demand and real-time products are sold into highly-competitive environments,
driven by rapid technological innovation. Both product groups compete
based upon features, reliability, scalability, service, and
price. Due in part to the range of performance and applications
capabilities of our products, we compete in various markets against a number of
companies.
The major
competitors of the on-demand product line currently include the
following: SeaChange International, Inc., Microsoft Corp., Motorola,
Inc., Cisco Systems, Inc., TANDBERG Television, part of the Ericsson Group, and
C-COR Inc. (acquired by ARRIS). Additionally, there are a number of
other entities in the market, including Kasenna (recently acquired by Espial
Group), Myrio, Akimbo, Bitband, Video Propulsion, Orca, Minerva, Sun
Microsystems, Inc. and others. We believe that we and SeaChange
International Inc. are the leaders in the North American cable and international
VOD markets based on the number of subscribers in the markets
served. Typically, in Everstream opportunities, we compete against
in-house development or customer offerings from consulting entities such as
Accenture.
Our
real-time product line competes with a number of companies. Our major
competitors can be categorized as follows:
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major
computer companies that participate in the high-performance computing
business by offering high-performance, general purpose product platforms,
including Sun Microsystems, HP and
IBM;
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other
computer companies that provide solutions for applications that address
specific performance characteristics, such as fault-tolerance or
high-performance graphics, including SGI, Quantum3D and Rockwell
Collins;
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single-board
computer companies that provide board-level processors that are typically
integrated into a customer's computer system, including GE Fanuc, Thales
and Mercury;
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companies
providing competitive Linux offerings, including Red Hat, Novell,
MontaVista Software, LynuxWorks, Inc., Wind River and TimeSys
Corporation;
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companies
involved in hardware-in-the-loop and data acquisition including dSpace and
ADI Corporation; and
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customers
who may choose to integrate their own in-house real-time solutions using
off-the-shelf hardware and open-source Linux operating systems and
tools.
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Additional
competitors with significant market presence and financial resources, including
computer hardware and software companies, content providers and television
equipment manufacturers, including digital set-top-box manufacturers, may enter
our markets, thereby further intensifying competition. Our future
competitors also may include one or more of the parties with whom we currently
have a strategic relationship. Although we have proprietary rights
with respect to much of the technology incorporated in our on-demand and
real-time systems, our strategic partners have not agreed to refrain from
competing against us. Increased competition could result in price reductions
that would adversely affect our business, financial condition and results of
operations. Many of our current and potential future competitors have longer
operating histories, significantly greater financial, technical, sales,
marketing and other resources than us, and greater brand name
recognition. In addition, many of our competitors have
well-established relationships with our current and potential customers and have
extensive knowledge of our markets.
Intellectual
Property
We rely
on a combination of contracts and copyright, trademark, patent and trade secret
laws to establish and protect our proprietary rights in our
technology. We distribute our products under software license
agreements that typically grant customers perpetual licenses to our products and
which contain various provisions protecting our ownership and confidentiality of
the licensed technology. The source code of our products is protected
as a trade secret and as an unpublished copyright work. However, some
of our products utilize open source that provides little copyright
protection. In addition, in limited instances, we license our
products under licenses that give licensees limited access to the source code of
certain of our products, particularly in connection with our strategic
alliances.
Despite
the precautions we have taken, there can be no assurance that our products or
technology will not be copied or otherwise obtained and used without
authorization. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries or with
respect to open source code utilized in our products. We believe
that, due to the rapid pace of innovation within our industry, factors such as
the technological and creative skills of our personnel are more important to
establishing and maintaining a technology leadership position within the
industry than are the various legal protections for our technology.
We own
three U.S. patents and multiple foreign counterparts covering targeted
advertising across any type of network. These U.S. patents are Nos.
5,931,901; 6,038,591; and 6,161,142. In addition, these U.S. patents
have foreign counter-parts issued in various foreign
jurisdictions. Additionally, we have patent applications pending in
the United States and abroad. We also have obtained a patent license
to the patent portfolio previously owned by Thirdspace Living Limited, which is
now owned by Alcatel-Lucent (13 patents, 29 patent applications, and all
additions, divisionals, continuations, continuations-in-part, extensions,
reissues, and foreign counterparts thereof). These patents cover
multiple interactive television, targeted advertising, and on-demand
technologies. The portfolio includes U.S. Patent Nos. 5,623,595 and
5,805,804 (“Subject Patents”). Although our license from
Alcatel-Lucent to the Subject Patents does not, on its face, terminate upon a
merger, acquisition, or change in control of Concurrent, a November 2000
agreement regarding the Subject Patents and entered into by Thirdspace may have
the effect of terminating our license to the Subject Patents upon a merger or
acquisition that results in a change in control of Concurrent. As a
result, on September 28, 2007, Concurrent obtained a separate Patent License to
the Subject Patents from Broadband Royalty Corporation (“BBR”), with assurances
from its parent company, C-COR Incorporated. BBR co-owns the Subject
Patents with Alcatel-Lucent. This separate Patent License eliminates
transferability concerns regarding our license to the Subject
Patents. The Patent License provides a license to the Subject Patents
that may be transferred to an acquirer of Concurrent or Concurrent’s video
streaming business, so long as the acquirer has not been formally identified as
an actual or potential Alcatel licensee.
We have
entered into licensing agreements with several third-party software developers
and suppliers. Generally, such agreements grant us non-exclusive,
worldwide licenses with respect to certain software provided as part of
computers and systems we market and terminate on varying dates.
Suppliers
We
sometimes purchase product components from a single supplier in order to obtain
the required technology and the most favorable price and delivery terms.
These components include, for example, systems, system boards, memory, CPUs,
mother boards, storage devices, software, and chassis. We purchase
product components from the following single suppliers: Dell, Xyratex,
Qlogic, STEC, Curtis-Wright, Oracle, Kardios, KMA Systems, Supermicro, GE Fanuc,
Data Device Corporation, Myricom, Pentair, and North Atlantic Industries. In most cases,
comparable products are available from other sources, but would require
significant reengineering to conform to our system specifications.
Single-source suppliers accounting for 10% or more of these purchases were
Xyratex (25%), Dell (21%) and Bell Micro Products (15%) for the fiscal year
ended June 30, 2008. For the fiscal year ended June 30, 2007, Xyratex
accounted for 23% and Dell accounted for 19%.
Seasonality
We have
experienced variations in revenue, expenses and operating results from quarter
to quarter in our on-demand and real-time businesses, and it is probable that
these variations will continue. We believe that fluctuations in the
number of orders for our on-demand systems being placed from quarter to quarter
are principally attributable to the buying patterns and budgeting cycles of
broadband companies. We believe that orders for real-time products
are dictated by buying cycles of the government and large government
contractors. In addition, for both product lines, orders are often
not finalized until the end of a quarter. We do not believe
seasonality is a significant factor at this time.
Governmental
Regulation
We are
subject to various international, U.S. federal, state and local laws affecting
our business. Any finding that we have been or are in noncompliance
with such laws could result in, among other things, governmental
penalties. Further, changes in existing laws or new laws may
adversely affect our business.
In
connection with orders from the U.S. federal government and government
contractors, we are in some circumstances subject to the U.S. federal government
procurement regulations that may provide the buyer with the right to audit and
review our performance, as well as our compliance with applicable laws and
regulations. In addition, our business is subject to government regulation based
on the products we sell that may be subject to government requirements such as
obtaining an export license in certain circumstances or an end-use certificate
from the buyer. In the United States, these requirements include, among others,
the U.S. Export Administration Regulations, International Traffic in Arms
Regulations and the economic sanctions and embargo laws enforced by the Office
of Foreign Assets Control Regulations. If a government audit uncovers improper
or illegal activities, or if we are alleged to have violated any laws or
regulations governing the products we sell under our government contracts, we
may be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeiture of profits, suspension of
payments, fines, and suspension or debarment from doing business with U.S.
federal government agencies.
Recently
several countries where our systems are shipped have adopted rules and
regulations governing the labeling of computer hardware which apply to our
products. Specifically, we must comply with the Waste of Electronic
and Electrical Equipment (WEEE) and Restriction of Hazardous Substances
Directive (RoHS) enacted in the European Union and the Ministry of Information
Order No. 39 in China.
The
television industry is subject to extensive regulation in the United States and
other countries. Our on-demand business is dependent upon the
continued growth of the digital television industry in the United States and
internationally. Broadband companies are subject to extensive
government regulation by the Federal Communications Commission and other federal
and state regulatory agencies. Recently, the FCC has attempted to
expand its regulation of the cable industry pursuant to the Cable Communications
Policy Act of 1984, which amended the Communications Act of 1934. The 1984 Cable
Act established policies in the areas of ownership, channel usage, franchise
provisions and renewals, subscriber rates and privacy, obscenity and lockboxes,
unauthorized reception of services, equal employment opportunity, and pole
attachments. The law also defined jurisdictional boundaries among federal, state
and local authorities for regulating cable television systems which, among other
provisions, allow for expanded regulatory powers when domestic cable penetration
exceeds a threshold of 70%. Additional regulations could have the
effect of limiting capital expenditures by broadband companies and thus could
have a material adverse effect on our business, financial condition and results
of operations. The enactment by federal, state or international
governments of new laws or regulations could adversely affect our broadband
customers, and thereby materially adversely affect our business, financial
condition and results of operations.
Environmental
Matters
We
purchase, use, and arrange for certified disposal of chemicals used in the
manufacturing process at our Pompano Beach, Florida, facility. As a
result, we are subject to federal and state environmental protection and
community right-to-know laws. Additionally, we export our products
around the world where there are additional environmental
regulations. These laws could have the effect of limiting our capital
expenditures and thus could have a material adverse effect on our business,
financial condition and results of operations. Violations of such
laws can result in the imposition of substantial remediation costs and
penalties. We believe we are in compliance with all material
environmental laws and regulations.
Employees
As of
June 30, 2008, we had 318 employees worldwide. Of these employees,
264 were located in the United States and 54 were located
internationally. Our employees are not unionized.
Financial
Information About Foreign And Domestic Operations And Export Sales
A summary
of net sales (consolidated net sales reflects sales to unaffiliated customers)
attributable to our foreign and domestic operations for the fiscal years ended
June 30, 2008, 2007, and 2006 is presented in Note 11 to the consolidated
financial statements included herein.
The
following are some of the risk factors we face.
You
should carefully consider each of the following risk factors and all of the
other information in this Annual Report on Form 10-K. These risks are
not the only ones we face. Our business operations could also be
impaired by additional risks and uncertainties that, at present, are not known
to us, or that, at present, are considered immaterial.
If any of
the following risks and uncertainties develops into actual events, our business,
financial condition and results of operations could be materially and adversely
affected. If that happens, the trading prices of our common stock and
other securities we may issue in the future could decline
significantly.
The risk
factors below contain forward-looking statements regarding
Concurrent. Actual results could differ materially from those set
forth in the forward-looking statements. See “Cautionary Statements
Regarding Forward-Looking Statements” on page 45.
Risks
Related to Our Business
We
incurred net losses in the past and may incur further losses in the
future.
We
incurred net losses of $12.2, $9.3, $7.7 and $5.7 million in fiscal years ended
June 30, 2007, 2006, 2005, and 2004, respectively. Our net income for
the fiscal year ended June 30, 2008 was $265,000 and included a gain of $3.3
million from the settlement of cases with Vicor and C-COR. As of June
30, 2008, we had an accumulated deficit of approximately $158.0
million. We may incur additional net losses in the
future.
A
significant portion of our revenue has been, and is expected to continue to be,
concentrated in a small number of customers. If we are unsuccessful
in maintaining and expanding relationships with these customers or lose any of
these customers, our business will be adversely affected.
For the
fiscal year ended June 30, 2008, Cox and Time Warner accounted for approximately
12% and 10% of our revenues, respectively. For the fiscal year ended
June 30, 2007, Cox, Comcast and Time Warner accounted for approximately 19%, 11%
and 8%, respectively, of our revenues. If we are unsuccessful in
maintaining and expanding key relationships with these and other existing
customers, our business will be materially adversely
affected. Further, if we are unsuccessful in establishing
relationships with other large companies or experience problems in any of our
systems, our ability to attract new customers and sell additional products to
existing customers will be materially adversely affected.
Our VOD
customers sometimes swap sites or purchase sites from competitors. If
we already have products deployed at a swapped site, the new owner may replace
our products or discontinue maintenance with respect to such
site. Alternatively, forecasted revenues could be negatively impacted
because the new owner of the site may not need to purchase products from us due
to their existing agreement with us.
Due to
our limited customer base and the relative size of each customer compared to
Concurrent, our customers may make unreasonable and extensive demands upon our
business. Such demands may include contractual service and product
obligations on unfavorable terms including decreased pricing. In
addition, our failure to adequately perform under these contracts could result
in liquidated damages. The payment of any liquidated damages or
failure to meet our customers’ expectations could substantially harm our future
business prospects.
We
typically do not have written agreements that require customers to purchase
fixed minimum quantities of our products. Our sales to specific
customers tend to, and are expected to continue to, vary from year-to-year,
depending on such customers’ budgets for capital expenditures and new product
introductions.
We
utilize open source software which could enable our customers or competitors to
gain access to our source code and distribute it without paying any license fee
to Concurrent.
Key
components of both our real-time and on-demand products utilize open source
software on Linux platforms. Some open source software, especially
that provided under the GNU Public License, is provided pursuant to licenses
that limit the restrictions that may be placed on the distribution and copying
of the provided code. Thus, it is possible that customers or
competitors could copy our software and freely distribute it. This
could substantially impact our business and the ability to protect future
business.
We
rely on a combination of contracts and copyright, trademark, patent and trade
secret laws to establish and protect our proprietary rights in our
technology. If we are unable to protect our intellectual property
rights, our competitive position could be harmed or we could be required to
incur expenses to enforce our rights. Our business also could be
adversely affected if we are found to infringe on the intellectual property of
others.
We
typically enter into confidentiality or license agreements with our employees,
consultants, customers and vendors, in an effort to control access to and
distribution of our proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our proprietary technology without authorization. The steps
we take may not prevent misappropriation of our intellectual property, and the
agreements we enter into may not be enforceable. In addition,
effective copyright and trade secret protection may be unavailable or limited in
some foreign countries. Other companies, such as Acacia Technologies
Group, USA Video Inc., Personalized Media Communication L.L.C., Vtran Media
Technologies, the SCO Group, and our competitors, may currently own or obtain
patents or other proprietary rights that might prevent, limit or interfere with
our ability to make, use or sell our products. Further, we have
indemnification obligations with numerous customers that could require us to
become involved in intellectual property litigation. As a result, we
may be found to infringe on the intellectual property rights of
others. In the event of a successful claim of infringement against us
or against a customer to which we have an indemnification obligation, our
business and operating results could be adversely affected.
Any
litigation or claims, whether or not valid, could result in substantial costs
and diversion of our resources. Intellectual property litigation or
claims could force us to do one or more of the following:
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cease
selling, incorporating or using products or services that incorporate the
challenged intellectual property;
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obtain
a license from the holder of the infringed intellectual property right,
which license may not be available on reasonable terms, if at all;
and
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redesign
products or services that incorporate the disputed
technology.
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If we are
forced to take any of the foregoing actions, we could face substantial costs and
our business could be seriously harmed. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or be adequate to indemnify us for all liability that may be
imposed.
We may
initiate claims or litigation against third parties in the future for
infringement of our proprietary rights or to determine the scope and validity of
our proprietary rights or the proprietary rights of
competitors. These claims could result in costly litigation and the
diversion of our technical and management personnel. As a result, our
operating results could suffer and our financial condition could be
harmed.
In
the future, we may need to raise additional capital. This capital may
not be available on acceptable terms, if at all. If we cannot raise
funds on acceptable terms, if and when needed, we may not be able to develop or
enhance our products and services, take advantage of future opportunities, grow
our business or respond to competitive pressures or unanticipated
requirements.
Our
working capital declined from $43.5 million on June 30, 2002 to $17.4 million on
June 30, 2006 and was $25.7 million on June 30, 2008, after giving effect to a
private placement in May of 2007 that generated net proceeds of approximately
$12.6 million. If our revenue does not increase and stabilize in
future periods, we will continue to use cash from operating activities, which
will cause working capital to further decline. If these losses continue, we may
be forced to take extreme measures to continue the business, such as raising
additional funds through an offering of stock at discounted prices, employee
reductions, re-capitalization or reorganization transactions at undesirable
prices, incurring significant debt at above market rates, or seeking bankruptcy
protection.
The
markets in which we operate are highly competitive, and we may be unable to
compete successfully against our current and future competitors, which would
adversely affect our business.
The
markets for on-demand and real-time products are extremely
competitive. Our primary on-demand competitor, SeaChange
International, is well funded and has been very successful in the VOD
market. Additionally, some smaller competitors have been acquired by
larger public companies with experience in the industry. This intense
competition has negatively impacted our VOD revenues and may severely impact our
success and ability to expand our on-demand deployments.
The
market for our real-time products is ever changing. Although we
currently enjoy a leadership position, a number of well-funded competitors such
as Novell, Oracle, IBM, or Red Hat could seek to displace us. As
demand shifts, we may be unable to adequately respond to customer demands or
technology changes. There may be new entrants into the real-time
market with better, more appropriate products. We may also experience
decreasing prices for our products and services due to competition, the
purchasing leverage of our customers and other factors.
A list of
the competitors faced by both of our markets and a categorization of our
competitors is included under the Competition heading in the Business section in
our Annual Report on Form 10-K for the year ended June 30, 2008.
We
may experience competitive pricing pressure for our products and services, which
may impair our revenue growth and our ability to achieve
profitability.
We may
experience decreasing prices for our products and services due to competition,
the purchasing leverage of our customers and other factors. If we are
required to decrease prices, our results of operations will be adversely
affected. We may reduce prices in the future to respond to
competition and to generate increased sales volume.
We
currently have strategic relationships with Oracle, Alcatel-Lucent, Cisco
Systems and Motorola, among others. We may be unsuccessful in
maintaining these strategic relationships, or establishing new strategic
relationships that may be an important part of future success. In
either event, our business could be adversely affected.
The
success of our business is and will continue to be dependent in part on our
ability to maintain existing and enter into new strategic relationships. There
can be no assurance that:
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such
existing or contemplated relationships will be commercially
successful;
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we
will be able to find additional strategic partners;
or
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we
will be able to negotiate acceptable terms with potential strategic
partners.
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We cannot
assure you that existing or future strategic partners will not pursue
alternative technologies or develop alternative products in addition to or in
lieu of our technology, either on their own or in collaboration with others,
including our competitors. These alternative technologies or products
may be in direct competition with our technologies or products and may
significantly erode the benefit of our strategic relationships and adversely
affect our business, financial condition and results of operations.
We
have a significant base of deployed products that our customers, over time, may
decide to swap for newer products from other companies with improved
functionality.
Although
the VOD market is evolving in the view of most subscribers, a significant number
of our on-demand products have been deployed for several years and may be facing
obsolescence. When our customers evaluate replacing those older
products, they may choose to try a different vendor. If that were to
occur, we would lose future revenue opportunities from expansion as well as
maintenance.
A
loss of our government contracts and/or orders would have a material adverse
effect on our business.
We derive
a significant portion of our real-time revenues from the supply of systems under
government contracts and/or orders. For the fiscal year ended June
30, 2008, we recorded $9.3 million in sales to U.S. government prime contractors
and agencies of the U.S. government, up $0.4 million, or 4% from the year ended
June 30, 2007. These sales represent approximately 13% of our total
sales in both the fiscal year ended June 30, 2008 and 2007,
respectively. Government business is subject to many risks, such as
delays in funding, reduction or modification of contracts or subcontracts,
changes in governmental policies and the imposition of budgetary
constraints. A loss of government contract revenues would have a
material adverse effect on our business, results of operations and financial
condition.
If
we fail to develop and market new products and product enhancements in a timely
manner our business could be adversely affected.
Our
future success is dependent on our development and marketing of additional
products that achieve market acceptance and enhance our current
products. In addition, services, products or technologies developed
by others may render one or more of our products or technologies uncompetitive,
unmarketable or obsolete. Our future success will depend on our
ability to continue to enhance our existing products, including development of
new applications for our technology, and to develop and introduce new products
to meet and adapt to changing customer requirements and emerging
technologies. Our failure to respond to rapidly changing technologies
could adversely affect our business, financial condition and results of
operations. Our inability to develop, on a timely basis, new products or
enhancements to existing products, or the failure of such new products or
enhancements to achieve market acceptance could have a material adverse effect
on our business, financial condition and results of operations. There
can be no assurance that we will be successful in pursuing any new products or
enhancements to existing products.
In
some cases, we rely on a limited number of suppliers, which entails several
risks, including the possibility of defective parts, a shortage of components,
an increase in component costs, and reduced control over delivery
schedules.
We
sometimes purchase product components from a single supplier in order to obtain
the required technology and the most favorable price and delivery terms.
These components include, for example, systems, system boards, memory, CPUs,
mother boards, storage devices, software, and chassis. We purchase
product components from the following single suppliers: Dell, Xyratex,
Qlogic, STEC, Curtis-Wright, Oracle, Kardios, KMA Systems, Supermicro, GE Fanuc,
Data Device Corporation, Myricom, Pentair, and North Atlantic Industries.
In most cases, comparable products are available from other sources, but would
require significant reengineering to conform to our system specifications.
Single-source suppliers accounting for 10% or more of these purchases were
Xyratex (25%), Dell (21%) and Bell Micro Products (15%) for the fiscal year
ended June 30, 2008. For the fiscal year ended June 30, 2007, Xyratex
(23%) and Dell (19%) were the only suppliers that accounted for more than
accounted for more than 10% of Concurrent’s purchases.
In most
cases, comparable products are available from other sources, but would require
significant reengineering to conform to our system
specifications. Our reliance on single suppliers entails a number of
risks, including the possibility of defective parts, a shortage of components,
increase in components costs, and reduced control over delivery
schedules. Any of these events could adversely affect our business,
results of operations and financial condition. We estimate that a lead-time of
16-24 weeks may be necessary to switch to an alternative supplier of certain
custom application specific integrated circuit and printed circuit
assemblies. A change in the supplier of these components without the
appropriate lead-time could result in a material delay in shipments by us of
certain products. Where alternative sources are available,
qualification of the alternative suppliers and establishment of reliable
supplies of components from such sources may also result in
delays. Shipping delays may also result in a delay in revenue
recognition, possibly outside the fiscal year period originally planned, and, as
a result, may adversely affect our financial results for that particular
period.
We
provide maintenance for a large number of legacy systems owned by customers in
the real-time market.
A large
percentage of the services we provide to customers who run our legacy hardware
and systems as these systems age. Over time, these systems will be
replaced and the customers may not choose to purchase replacement systems from
us. In such a case our service revenue will be materially
negatively impacted.
International
sales accounted for approximately 25%, 26%, 27% and 29% of our revenue in fiscal
years 2008, 2007, 2006 and 2005, respectively. Accordingly, our
business is susceptible to numerous risks associated with international
operations.
We are
subject to a number of risks associated with international business activities
that could increase our costs, lengthen our sales cycle and require significant
management attention. These risks include:
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compliance
with, and unexpected changes in, regulatory requirements resulting in
unanticipated costs and delays;
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difficulties
in compliance with export and re-export regulations governing U.S. goods
and goods from our international
subsidiaries;
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lack
of availability of trained personnel in international
locations;
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tariffs,
export controls and other trade
barriers;
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longer
accounts receivable payment cycles than in the United
States;
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potential
difficulty of enforcing agreements and collecting receivables in some
foreign legal systems;
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potential
difficulty in enforcing intellectual property rights in certain foreign
countries;
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potentially
adverse tax consequences, including restrictions on the repatriation of
earnings;
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the
burdens of complying with a wide variety of foreign
laws;
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general
economic conditions in international markets;
and
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currency
exchange rate fluctuations.
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System
errors, failures, or interruptions could cause delays in shipments, require
design modifications or field replacement which may have a negative impact on
our business and damage our reputation and customer relationships.
System
errors or failures may adversely affect our business, financial condition and
results of operations. Despite our testing and testing by current and
potential customers, all errors or failures may not be found in our products or,
if discovered, successfully corrected in a timely manner. These errors or
failures could cause delays in product introductions and shipments or require
design modifications that could adversely affect our competitive
position. Further, some errors may not be detected until the systems
are deployed. In such a case, we may have to undertake substantial
field replacement programs to correct the problem. Our reputation may
also suffer if our customers view our products as unreliable, whether based on
actual or perceived errors or failures in our products.
Further,
a defect, error or performance problem with our on-demand systems could cause
our customers’ VOD offerings to fail for a period of time or be
degraded. Any such failure would cause customer service and public
relations problems for our customers. As a result, any failure of our
customers’ systems caused by our technology, including the failure of third
party technology incorporated therein or therewith, could result in delayed or
lost revenue due to adverse customer reaction, negative publicity regarding us
and our products and services and claims for substantial damages against us,
regardless of our responsibility for such failure. Any claim could be
expensive and require us to spend a significant amount of
resources. In circumstances where third party technology incorporated
with or in our systems includes a defect, error or performance problem or fails
for any reason, we may have to replace such third party technology at our
expense and be responsible to our customers for their corresponding
claims. Such tasks could be expensive and could require us to spend a
significant amount of resources.
Trends
in our business may cause our quarterly operating results to fluctuate;
therefore, period-to-period comparisons of our operating results may not
necessarily be meaningful.
We have
experienced significant variations in the revenue, expenses and operating
results from quarter to quarter in our business, and it is possible that these
variations will continue. We believe that fluctuations in the number
of orders for our products being placed from quarter to quarter are principally
attributable to the buying patterns and budgeting cycles of our
customers. In addition, sales cycles associated with the purchase of
many of our producers are typically lengthy and orders are often not finalized
until the end of a quarter. As a result, our results of operations
have in the past and will possibly continue to fluctuate in accordance with this
purchasing activity. Therefore, period-to-period comparisons of our
operating results may not necessarily be meaningful. In addition,
because these factors are difficult for us to forecast, our business, financial
condition and results of operations for one quarter or a series of quarters may
be adversely affected and below the expectations of securities analysts and
investors, which could result in material declines of our stock
price.
The
VOD opportunities beyond the North American cable market, such as VOD over telco
networks and international cable networks markets may not develop or may not be
substantial to Concurrent.
In recent
years North American and International markets in the deployment of video over
telco networks and international cable networks have been slow to
develop. If there is limited adoption of VOD, further deployment
delays or if we fail to participate in these new markets, we may not be able to
broaden our customer base and expand revenues. We have little
commercial experience in these markets and cannot assure that we can be
successful. Our failure to do so could materially adversely affect
our business, financial condition and results of operations.
The
introduction of broadband internet VOD services for televisions may gain
traction, thus replacing current VOD services and having a negative impact on
Concurrent’s on-demand revenue.
A number
of well-funded companies such as Google, Yahoo, and Apple have been discussing
broadband Internet VOD services for home television viewing. If these
products are developed they may be more cost effective than our VOD solutions,
which could result in our customers discontinuing purchases of our on-demand
products.
Our
business may be adversely affected if we fail to retain our current key
personnel, many of whom would be difficult to replace, or fail to attract
additional qualified personnel.
Our
future performance depends on the continued service of our senior management and
our engineering, sales and marketing and manufacturing
personnel. Competition for qualified personnel is intense, and we may
fail to retain our new key employees or to attract or retain other highly
qualified personnel. The loss of the services of one or more of our
key personnel could seriously impact our business. Our future success
also depends on our continuing ability to attract, hire, train and retain highly
skilled managerial, technical, sales, marketing and customer support
personnel. In addition, new employees frequently require extensive
training before they achieve desired levels of productivity. We do
not carry key person life insurance on any of our employees.
As
our products age, we may not be able to purchase necessary parts to support
legacy systems deployed or to be deployed.
With the
passage of time, suppliers of essential parts may stop producing these
parts. In such cases, we may be required to redesign our products to
accommodate the obsolescence. If that occurs, we will have to spend
considerable effort in the redesign and, in some cases, may be forced to have
the redesigned products requalified. Requalification may take several
months, thereby delaying expected revenue.
Our
facilities, especially our Pompano Beach, Florida facility, could be subject to
severe weather that could shut down those facilities and halt
production.
All of
our facilities are, from time to time, subject to severe weather that could
result in a temporary shut-down of the impacted facility. However,
our Pompano Beach, Florida facility is located in south Florida where there have
been a number of hurricanes in recent years. A hurricane could
shut-down the Pompano Beach facility for extended periods thereby making it
impossible for us to manufacture and ship products since all of our products are
shipped out of those facilities. Further, an extended shut-down could
slow the release of software products for our real-time business since almost
all the developers for those products are located at those
facilities.
We
may engage in future acquisitions that dilute the ownership interest of our
stockholders, cause us to incur debt or assume contingent liabilities or present
other challenges, such as integration issues, for our business, which if not
successfully resolved would adversely affect our business.
As part
of our business strategy, we review acquisition prospects that would compliment
our current product offerings, enhance our technical capabilities or otherwise
offer growth opportunities. We periodically review investments in new
businesses, and we may acquire businesses, products or technologies in the
future. In the event of any future acquisitions, we could issue
equity securities that would dilute current stockholders’ percentage ownership,
incur substantial debt, or assume contingent liabilities. These
actions could materially adversely affect our operating
results. Acquisitions also entail numerous risks,
including:
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difficulties
in the assimilation of acquired operations, technologies or
services;
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unanticipated
costs associated with the
acquisition;
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diversion
of management’s attention from other business
concerns;
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adverse
effects on existing business
relationships;
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risks
associated with entering markets in which we have no or limited prior
experience; and
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potential
loss of key employees of acquired
companies.
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We cannot
assure that we will be able to successfully integrate any business, products,
technologies or personnel that we might acquire in the future. Our
failure to do so could materially adversely affect our business, operating
results and financial condition.
Risks
Related to Our Industries
The success of our business is
dependent upon the growth of the digital video market, which may not grow as we
expect. Any failure by the market to accept digital video technology
will have a material adverse effect on our business.
VOD is
still an evolving technology, and we cannot assure you that it will attract
widespread demand or market acceptance. Further, the potential size
of the VOD market and the timing of our development are
uncertain. Our success in the VOD market will depend upon the
commercialization and broad acceptance of VOD by residential subscribers and
other industry participants, including broadband companies, content providers,
set-top box manufacturers, and educational institutions. The future
growth of our on-demand business will depend on the pace of the installation of
interactive digital cable and digital set-top-boxes, the rate at which broadband
companies deploy digital infrastructure, the rate at which digital video
technology expands to additional market segments, and the rate that the
technology is adopted by consumers.
The
success of our business is dependent on the availability of, and the
distribution windows for, movies, programs and other content. If
sufficient VOD content is not available on a timely basis, our on-demand
business will be adversely affected.
The
success of VOD will largely be dependent on the availability of a wide variety
and substantial number of movies, subscription based content from providers such
as HBO, Showtime, and Starz Encore, specialty programs and other material, which
we refer to as content, in digital format. We do not provide digital
VOD content. Therefore, the future success of our on-demand business
is dependent in part on content providers, such as traditional media and
entertainment companies, providing significant content for
VOD. Further, we are dependent in part on other third parties to
convert existing analog content into digital content so that it may be delivered
via VOD.
In
addition, we believe that the ultimate success of VOD will depend in part on the
timing of the VOD distribution window. The distribution window is the
time period during which different mediums, such as home movie rental
businesses, receive and have exclusive rights to motion picture
releases. Currently, video rental businesses have an advantage of
receiving motion picture releases on an exclusive basis before most other forms
of non-theatrical movie distribution, such as pay-per-view, premium television,
VOD, basic cable and network syndicated television. The length of the
exclusive distribution window for movie rental businesses varies, typically
ranging from 3 to 90 days for domestic video stores. Thereafter,
movies are made sequentially available to various television distribution
channels. We believe the success of VOD will depend in part on movies
being available for VOD distribution either simultaneously with, or shortly
after, they are available for video rental distribution. The order,
length and exclusivity of each window for each distribution channel are
determined solely by the studio releasing the movie. Given the size
of the home video rental industry, the studios have a significant interest in
maintaining that market. We cannot assure you that favorable changes,
if any, will be made relating to the length and exclusivity of the video rental
and television distribution windows.
We
believe all of the major studios have entered into agreements with certain
broadband companies and content aggregators to provide digital movies for
distribution through VOD. However, these agreements are subject to
change. If studios fail to reach agreements regarding content or
cancel existing agreements, our customers could delay or cancel on-demand system
orders, which would adversely affect our on-demand business.
The
deployment of on-demand by broadband companies may be delayed due to limited
bandwidth or other technology initiatives that could require broadband companies
to further upgrade their networks.
Bandwidth
is a limited resource. On-demand deployments may be delayed as
operators focus on new initiatives that require incremental bandwidth such as
high definition television, increased high-speed data speed, voice over internet
protocol, interactive television, gaming and other evolving
applications. These initiatives compete for the broadband companies’
network bandwidth and may require the broadband companies to increase their
bandwidth capabilities by further upgrading their networks and therefore
delaying on-demand related spending which could adversely affect our on-demand
business.
Our
business is subject to governmental regulation. Any finding that we
have been or are in noncompliance with such laws could result in, among other
things, governmental penalties or class action lawsuits. Further,
changes in existing laws or new laws may adversely affect our
business.
We are
subject to various international, U.S. federal, state and local laws affecting
our on-demand and real-time product lines. The television industry is
subject to extensive regulation in the United States and other
countries. Our on-demand revenue is dependent upon the continued
growth of the digital television industry in the United States and
internationally. Broadband companies are subject to extensive
government regulation by the Federal Communications Commission and other federal
and state regulatory agencies. Recently, the FCC has attempted to
expand its regulation of the cable industry pursuant to the Cable Communications
Policy Act of 1984, which amended the Communications Act of 1934. The 1984 Cable
Act established policies in the areas of ownership, channel usage, franchise
provisions and renewals, subscriber rates and privacy, obscenity and lockboxes,
unauthorized reception of services, equal employment opportunity, and pole
attachments. The law also defined jurisdictional boundaries among federal, state
and local authorities for regulating cable television systems which, among other
provisions, allow for expanded regulatory powers when domestic cable penetration
exceeds a threshold of 70%. Additional regulations could have the
effect of limiting capital expenditures by broadband companies and thus could
have a material adverse effect on our business, financial condition and results
of operations. If we were found to be, or believed to be
non-compliant with privacy laws, we could face substantial exposure to
government fines or privacy litigation. This risk is especially
important for our Everstream products since these products, current and future,
monitor set-top-box functions that could be impacted by privacy law protections.
Additionally, regulations could have the effect of limiting capital expenditures
by broadband companies and thus could have a material adverse effect on our
business, financial condition and results of operations. The
enactment by federal, state or international governments of new laws or
regulations could adversely affect our broadband customers, and thereby
materially adversely affect our business, financial condition and results of
operations. Our real-time revenue is also subject to strict
government regulation as the result of the government work we do. The
regulations deal with security clearances, privacy, employment practices,
pricing, purchasing, intellectual property and integrity. If we were
ever found in violation or if out of tolerance, our production and resultant
revenues could be halted or significantly delayed.
We
may be subject to liability if private information supplied to our customers,
including broadband companies, is misused.
Our
on-demand systems allow broadband companies to collect and store video
preferences and other data that many viewers may consider
confidential. Unauthorized access or use of this information could
result in liability to our customers, and potentially us, and might deter
potential on-demand viewers. We have no control over the policy of
our customers with respect to the access to this data and the release of this
data to third parties.
We
cannot assure you that our products and services will keep pace with
technological developments and emerging industry standards, address the changing
needs of our customers or achieve market acceptance, any of which could
materially adversely affect our business.
The
markets for our products are characterized by rapidly changing technology,
evolving industry standards and new product introductions and
enhancements. There can be no assurance that we will be successful in
enhancing our on-demand and real-time products or developing, manufacturing and
marketing new products that satisfy customer needs or achieve market
acceptance. In addition, services, products or technologies developed
by others may render one or more of our products or technologies uncompetitive,
unmarketable or obsolete. Future technological advances in the
real-time, television and video industries may result in the availability of new
products and services that could compete with our solutions or reduce the cost
of existing products or services. Our future success will depend on
our ability to continue to enhance our existing products, including development
of new applications for our technology, and to develop and introduce new
products to meet and adapt to changing customer requirements and emerging
technologies. Further, announcements of currently planned or other
new product offerings by our competitors may cause customers to defer purchase
decisions or to fail to purchase our existing solutions. Our failure
to respond to rapidly changing technologies could adversely affect our business,
financial condition and results of operations.
Other
Risks
We
have implemented certain anti-takeover provisions that could make it more
difficult for a third party to acquire us.
Provisions
of Delaware law and our restated certificate of incorporation, amended and
restated bylaws, and rights plan could make it more difficult for a third party
to acquire us, even if doing so would be beneficial to our
stockholders.
We are
subject to certain Delaware anti-takeover laws regulating corporate
takeovers. These anti-takeover laws prevent a Delaware corporation
from engaging in a business combination involving a merger or sale of more than
10% of our assets with any stockholder, including affiliates and associates of
the stockholder, who owns 15% or more of the outstanding voting stock, for three
years following the date that the stockholder acquired 15% or more of the
corporation’s stock except under limited circumstances.
There are
provisions in our restated certificate of incorporation and our amended and
restated bylaws that also may delay, deter or impede hostile takeovers or
changes of control.
In
addition, we have a rights plan, also known as a poison pill. The
rights plan has the potential effect of significantly diluting the ownership
interest in us of any person that acquires beneficial ownership of 15% or more
of our common stock or commences a tender offer that would result in a person or
group owning 15% or more of our common stock.
Uncertainties
in the domestic and global economies may reduce demand for our products and
services.
Another
factor that may negatively affect our operating results is the current uncertain
condition of the domestic and global economy. The current uncertainty in
economic conditions in many of our markets may have an affect on demand for our
products and render budgeting and forecasting difficult. The difficulty in
forecasting demand increases the difficulty in anticipating our inventory
requirements, which may cause us to over-produce finished goods, resulting in
inventory write-offs, or under-produce finished goods, affecting our ability to
meet customer requirements.
Our
operating results may vary based on changes in our customers’ capital
expenditures caused by uncertain conditions in the domestic and global economy.
We sell our solutions primarily to large organizations whose businesses
fluctuate with general economic and business conditions. As a result, decreased
demand for our solutions and services caused by a weakening global economy may
cause a decline in our revenue. Historically, economic downturns have resulted
in overall reductions in corporate spending. In the future, potential
customers may decide to reduce their budgets for capital expenditures by
deferring or reconsidering product purchases, which would negatively impact our
operating results.
Our
stock price has been volatile in the past and may be volatile in the
future.
Our
common stock is traded on the NASDAQ Global Market. For the twelve
months ended June 30, 2008, the high and low prices reported on the NASDAQ
Global Market were $18.80 and $5.90, respectively. Further, as of
August 25, 2008, the price as reported on the NASDAQ Global Market was
$6.86. Stock prices reflect the one-for-ten reverse stock split, made
effective on July 9, 2008. The market price of our common stock may
fluctuate significantly in the future in response to various factors, some of
which are beyond our control, including, among others:
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variations
in our quarterly operating results;
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changes
in securities analysts’ estimates of our financial
performance;
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the
development of the on-demand market in
general;
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changes
in market valuations of similar
companies;
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announcement
by us or our competitors of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital
commitments;
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loss
of a major customer or failure to complete significant transactions;
and
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additions
or departures of key personnel.
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In
addition, in recent years the stock market in general, and the NASDAQ Global
Market and the market for technology companies in particular, have experienced
extreme price and volume fluctuations. In some cases, these
fluctuations have been unrelated or disproportionate to the operating
performance of these companies. These market and industry factors may
materially and adversely affect our stock price, regardless of our operating
performance.
In the
past, class action litigation often has been brought against companies following
periods of volatility in the market price of those companies’ common
stock. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management’s
attention and resources, which could materially and adversely affect our
business, financial condition and results of operations.
A
sustained period of low stock price brings with it a risk that our stock will
not comply with the minimum trading-price rules of the NASDAQ Global Market, and
may be subject to delisting, thus significantly impacting the liquidity of our
stock and our access to public capital.
Any
weaknesses identified in our system of internal controls by us and our
independent registered public accounting firm pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 could have an adverse effect on our
business.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and
report on their systems of internal control over financial reporting. In
addition, our independent registered public accounting firm must report on
management’s evaluation of those controls. In future periods, we may identify
deficiencies, including as a result of the loss of the services of one or more
of our key personnel, in our system of internal controls over financial
reporting that may require remediation. There can be no assurances
that any such future deficiencies identified may not be significant deficiencies
or material weaknesses that would be required to be reported in future
periods.
Item 1B. Unresolved Staff Comments.
None.
Our
principal facilities as of June 30, 2008, are listed below. All of
the principal facilities are leased. Management considers all
facilities listed below to be suitable for the purpose(s) for which they are
used, including manufacturing, research and development, sales, marketing,
service, and administration.
Location
|
|
Principal
Use
|
|
Expiration Date Of
Lease
|
|
Approx. Floor
Area
|
|
|
|
|
|
|
(Sq.
Feet)
|
4375
River Green Parkway
Suite
100
Duluth,
Georgia
|
|
Corporate
Headquarters, Administration, Research & Development, Service, Sales
and Marketing
|
|
November
2009
|
|
36,600
|
|
|
|
|
|
|
|
2881
Gateway Drive
Pompano
Beach, Florida
|
|
Administration,
Research & Development, Manufacturing, Service, Sales and
Marketing
|
|
December
2013
|
|
30,000
|
|
|
|
|
|
|
|
6001
Cochran Road, Suite 300
Solon,
OH 44139
|
|
Everstream
Research & Development, and Support
|
|
May
2009
|
|
10,000
|
In
addition to the facilities listed above, we also lease space in various domestic
and international industrial centers for use as sales and service offices and
warehousing.
Item 3. Legal Proceedings.
We are
not presently involved in any material litigation.
Item 4. Submission of Matters to a Vote of Security
Holders.
A Special
Meeting of Shareholders was held on July 8, 2008 to approve an amendment to
Concurrent’s Certificate of Incorporation which would effect a one-for-ten
reverse split of Concurrent’s Common Stock.
The
amendment was approved based upon the following voting results:
For
|
|
|
55,061,601 |
|
Against
|
|
|
14,219,026 |
|
Abstain
|
|
|
192,483 |
|
Item X. Officers of the Registrant.
Our
officers are elected by the Board of Directors to hold office until their
successors have been chosen and qualified or until earlier resignation or
removal. Set forth below are the names, positions, and ages of
executive officers as of August 27, 2008:
Name
|
|
Position
|
|
Age
|
|
|
|
|
|
Dan
Mondor
|
|
Chief
Executive Officer
|
|
53
|
Kirk
L. Somers
|
|
Executive
Vice President
|
|
43
|
Emory
O. Berry
|
|
Chief
Financial Officer
|
|
42
|
Dan Mondor, President, Chief
Executive Officer, and Director. Mr. Mondor joined Concurrent
as Chief Executive Officer and Director on April 23, 2008. Mr. Mondor
has over 28 years of industry experience with leading global corporations in
general management, sales, marketing and strategic planning. Prior to
joining Concurrent, Mr. Mondor held a number of senior executive positions with
Mitel Networks, Inc., Nortel Networks, Inc. and Siemens
Corporation. Most recently he was president of Mitel Networks, Inc.
with responsibility for Mitel’s U.S. region. Prior to joining Mitel,
he was vice president of Solutions at Nortel and has held a number of senior
executive positions during his 16 year career at Nortel. He was with Siemens AG
from 1984 to 1990 and began his career with Bell-Northern
Research. Mr. Mondor has a Masters of Engineering from the University
of Ottawa and a BS in Electrical Engineering from the University of
Manitoba.
Kirk L. Somers, Executive Vice
President. Mr. Somers has served as Executive Vice President
since February 2007. He served as the Company’s General Counsel from
November 2001 to February 2007 and was appointed Secretary in August
2004. He was made a vice president and placed in charge of Investor
Relations in January 2005. Immediately prior to joining Concurrent,
from December 1998 to November 2001, Mr. Somers was the Assistant General
Counsel for a company within divine, inc. (f.k.a. eshare communication, Inc.), a
developer and marketer of enterprise interactive management solutions, where he
was responsible for corporate-wide development and enforcement of the company’s
intellectual property portfolio as well as commercial contracts and other
corporate matters. From December 1995 to December 1998, Mr. Somers
was a partner in the law firm of Marshall & Melhorn in Toledo, Ohio
practicing in the area of litigation. Prior to that, he was a JAG in
the USAF.
Emory O. Berry, Chief Financial
Officer and Executive Vice President of Operations. On August
1, 2008, we hired Mr. Berry as our Chief Financial Officer and Executive Vice
President of Operations. Mr. Berry has been serving as the Company’s
Chief Financial Officer through the financial management staffing firm TechCFO,
LLC (“TechCFO”) since March 9, 2007. Mr. Berry had been an active
partner at TechCFO since August 2006. Beginning in August 1999, Mr.
Berry served as the Chief Financial Officer of DVT Corporation, until its
acquisition in May 2005 by Cognex Corporation, a publicly traded provider of
machine vision systems. From May 2005 through January 2007, Mr. Berry
assisted Cognex with the financial and operational integration of DVT as a
consultant. From June 1998 through March 1999, Mr. Berry served as
Chief Financial Officer and Treasurer of Firearms Training Systems, formally, a
publicly traded company specializing in simulated weapons training
systems. Mr. Berry also served as the Director of Corporate
Accounting of Firearms Training Systems from March 1997 through June
1998.
PART
II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our
Common Stock is currently traded under the symbol “CCUR” on the NASDAQ Global
Market. The following table sets forth the high and low sale for our
Common Stock for the periods indicated, as reported by the NASDAQ Global
Market.
Fiscal
Year 2008
|
|
|
|
|
|
|
Quarter
Ended:
|
|
High (1)
|
|
|
Low (1)
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
$ |
18.80 |
|
|
$ |
12.20 |
|
December
31, 2007
|
|
$ |
13.60 |
|
|
$ |
7.20 |
|
March
31, 2008
|
|
$ |
9.00 |
|
|
$ |
6.03 |
|
June
30, 2008
|
|
$ |
8.68 |
|
|
$ |
5.90 |
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
|
|
|
|
|
Quarter
Ended:
|
|
High (1)
|
|
|
Low (1)
|
|
|
|
|
|
|
|
|
|
|
September
30, 2006
|
|
$ |
26.00 |
|
|
$ |
13.50 |
|
December
31, 2006
|
|
$ |
20.50 |
|
|
$ |
15.90 |
|
March
31, 2007
|
|
$ |
19.00 |
|
|
$ |
12.10 |
|
June
30, 2007
|
|
$ |
19.40 |
|
|
$ |
12.60 |
|
|
(1)
|
Restated
to reflect the one-for-ten reverse stock split, made effective July 9,
2008.
|
As of
August 25, 2008, there were 8,293,000 shares of Common Stock outstanding,
held by approximately 1,518 registered stockholders with a closing price on the
NASDAQ Global Market of $6.86.
We have
never declared or paid any cash dividends on our capital stock. We do
not anticipate paying a dividend at any time in the immediate
future.
On June
23, 2008, our Board authorized the repurchase of up to $2.5 million of our
common stock, through a stock repurchase program. Under the share repurchase
program, we may repurchase shares from time to time at the discretion of a stock
repurchase committee in accordance with applicable securities laws in the open
market or in privately negotiated transactions. Repurchases will
depend upon market conditions and other factors, and repurchases may be
commenced or suspended from time to time at our discretion, without prior
notice. We do not intend to repurchase any shares from our
management, directors or other insiders. We have not repurchased any
shares of our common stock as of June 30, 2008.
STOCK
PRICE PERFORMANCE GRAPH
The graph
below compares the total returns (assuming reinvestment of dividends) of
Concurrent’s common stock, The Nasdaq Stock Market (U.S. companies), and the
Nasdaq Computer Manufacturers Index. The graph assumes $100 invested
on June 30, 2003 in Concurrent common stock and each of the
indices.
Comparison
of Five Year-Cumulative Total Returns
Performance
Graph for
Concurrent
Computer Corporation
|
|
6/30/2003
|
|
|
6/30/2004
|
|
|
6/30/2005
|
|
|
6/30/2006
|
|
|
6/29/2007
|
|
|
6/30/2008
|
|
CCUR
|
|
$ |
100.00 |
|
|
$ |
67.81 |
|
|
$ |
72.95 |
|
|
$ |
89.38 |
|
|
$ |
61.30 |
|
|
$ |
23.29 |
|
Nasdaq
Stock Market (US Companies)
|
|
$ |
100.00 |
|
|
$ |
126.05 |
|
|
$ |
127.42 |
|
|
$ |
135.53 |
|
|
$ |
161.50 |
|
|
$ |
140.65 |
|
Nasdaq
Computer Manufacturers
|
|
$ |
100.00 |
|
|
$ |
108.65 |
|
|
$ |
136.41 |
|
|
$ |
122.00 |
|
|
$ |
174.18 |
|
|
$ |
140.98 |
|
Item 6. Selected Financial Data.
The
following table sets forth selected historical consolidated financial data that
has been derived from our audited consolidated financial
statements. The information set forth below is not necessarily
indicative of the results of future operations and should be read in conjunction
with, and is qualified by reference to, our financial statements and related
notes thereto included elsewhere herein and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Selected
Consolidated Financial Data
(Dollars
in thousands, except per share amounts)
|
|
Year ended June 30,
|
|
Income Statement
Data
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Net
sales
|
|
$ |
70,816 |
|
|
$ |
69,149 |
|
|
$ |
71,612 |
|
|
$ |
78,685 |
|
|
$ |
79,235 |
|
Gross
margin
|
|
|
38,099 |
|
|
|
32,361 |
|
|
|
35,369 |
|
|
|
38,776 |
|
|
|
38,722 |
|
Operating
loss
|
|
|
(3,887 |
) |
|
|
(11,793 |
) |
|
|
(9,580 |
) |
|
|
(7,457 |
) |
|
|
(8,540 |
) |
Income
(loss) before cumulative effect of accounting
change
|
|
|
265 |
|
|
|
(12,171 |
) |
|
|
(9,022 |
) |
|
|
(7,729 |
) |
|
|
(5,725 |
) |
Cumulative
effect of accounting change (net of income tax)
|
|
|
- |
|
|
|
- |
|
|
|
(323 |
) (2) |
|
|
- |
|
|
|
- |
|
Net
income (loss)
|
|
|
265 |
(1) |
|
|
(12,171 |
) |
|
|
(9,345 |
) (2) |
|
|
(7,729 |
)
(3) |
|
|
(5,725 |
) (4) |
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (5)
|
|
$ |
0.03 |
(1) |
|
$ |
(1.67 |
) |
|
$ |
(1.35 |
) (2) |
|
$ |
(1.23 |
)
(3) |
|
$ |
(0.91 |
) (4) |
Diluted
(5)
|
|
$ |
0.03 |
(1) |
|
$ |
(1.67 |
) |
|
$ |
(1.35 |
) (2) |
|
$ |
(1.23 |
)
(3) |
|
$ |
(0.91 |
) (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
Balance Sheet
Data
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Cash
and cash equivalents
|
|
$ |
27,359 |
|
|
$ |
20,416 |
|
|
$ |
14,423 |
|
|
$ |
19,880 |
|
|
$ |
27,928 |
|
Working
capital
|
|
|
25,681 |
|
|
|
22,232 |
|
|
|
17,383 |
|
|
|
22,911 |
|
|
|
26,378 |
|
Total
assets
|
|
|
75,539 |
|
|
|
74,133 |
|
|
|
68,758 |
|
|
|
63,977 |
|
|
|
74,542 |
|
Debt
|
|
|
949 |
|
|
|
1,077 |
|
|
|
1,583 |
|
|
|
2,537 |
|
|
|
- |
|
Stockholders'
equity
|
|
|
47,428 |
|
|
|
46,595 |
|
|
|
43,774 |
|
|
|
38,353 |
|
|
|
45,726 |
|
|
(1)
|
Net
income for the year ended June 30, 2008 includes a $1.9 million gain on
arbitration settlement- net, related to alleged defective parts provided
to Concurrent by one of its suppliers and a $1.4 million recovery of
minority investment- net, related to proceeds received from the
liquidation of the remaining assets of Thirdspace Living Limited
(“Thirdspace”), for the partial recovery of the previously recognized
impairment charge of our investment in
Thirdspace.
|
|
(2)
|
In
March 2005, the Financial Accounting Standards Board (“FASB”) issued
Financial Interpretation No. 47 (“FIN 47”), Accounting for Asset
Retirement Obligations – an interpretation of FASB Statement No.
143. FIN 47 requires the recognition of a liability for the fair
value of a legally-required conditional asset retirement obligation when
incurred, if the liability’s fair value can be reasonably
estimated. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. We are required to record an asset and a
corresponding liability for the present value of the estimated asset
retirement obligation associated with the leasehold improvements at some
of our international locations. The asset is depreciated over
the life of the corresponding lease while the liability accretes to the
amount of the estimated retirement obligation. FIN 47 is
effective no later than the end of fiscal years ending after December 15,
2005. We adopted FIN 47 on June 30, 2006 with a $0.3 million
cumulative effect of accounting change (net of tax) recorded in
Concurrent’s results of operations. This charge is a
combination of depreciation and accretion
expense.
|
|
(3)
|
Net
loss for the year ended June 30, 2005 includes $0.4 million impairment
charge related to our investment in Everstream, net of a $0.1 million
recovery of a previously recognized impairment charge related to our
investment in Thirdspace.
|
|
(4)
|
Net
loss for the year ended June 30, 2004 includes $3.1 million from the
partial recovery of the previously recognized impairment charge related to
our investment in Thirdspace.
|
|
(5)
|
Restated
to reflect the one-for-ten reverse stock split, made effective July 9,
2008. See Subsequent Events footnote 19 for additional
information.
|
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto which appear elsewhere
herein. Except for the historical financial information, many of the
matters discussed in this Item 7 may be considered “forward-looking” statements
that reflect our plans, estimates and beliefs. Actual results could
differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, elsewhere
herein and in other filings made with the Securities and Exchange
Commission.
Overview
On April
8, 2008, our Board of Directors appointed Dan Mondor as the CEO and President of
Concurrent effective immediately upon the resignation of Mr. Trimm on April 23,
2008. Mr. Mondor also serves as a director of
Concurrent. Mr. Mondor was most recently with Mitel Networks, Inc.
(“Mitel”), where he served as president from 2007 to 2008. Prior to
joining Mitel, Mr. Mondor was with Nortel Networks Corp. (“Nortel”) from 1990 to
2007 where he served in various capacities, concluding his service as vice
president of solutions.
On June
23, 2008, our Board authorized the repurchase of up to $2.5 million of our
common stock, through a stock repurchase program. Under the share repurchase
program, we may repurchase shares from time to time at the discretion of a stock
repurchase committee in accordance with applicable securities laws in the open
market or in privately negotiated transactions. Repurchases will
depend upon market conditions and other factors, and repurchases may be
commenced or suspended from time to time at our discretion, without prior
notice. We do not intend to repurchase any shares from our
management, directors or other insiders. We have not repurchased any
shares of our Common Stock as of June 30, 2008.
The
on-demand market has a limited number of customers, a number of well-financed
competitors, and requires significant research and development
expenditures. As a result, competition is significant within the
on-demand business. During our fiscal 2008, Comcast notified us that
our MediaHawk video platform was not approved for future deployments and that
our existing deployed on-demand systems would be eventually removed from
service. Comcast accounted for a nominal portion of our on-demand
system product sales over the past few years. Comcast’s decision may
have an adverse impact on future maintenance and support service
revenue. Additionally, during our fiscal 2008, Cox Communications
entered into a multi-year product purchase and licensing agreement with us, with
the intention of deploying our on-demand systems to all of its
markets.
Our
business plan assumes greater demand from our customers. We believe
we are better positioned with new products than in previous
periods. Our Everstream subsidiary is continuing to gain subscribers
and introduce new and innovative software products that address the traditional
on-demand market as well as new markets such as satellite, audience measurement,
advanced advertising, and IPTV. We cannot assure the timing or
success of any of these initiatives.
We are
evaluating the targeted video advertising market over cable networks and the
internet to determine if there are opportunities to sell our current products or
develop new products. We are focused on utilizing our video and
analytics expertise, existing and newly developed software, and our patent
portfolio to address these markets. We are in the midst of this
process and believe that it may have a positive impact on our
business. However, we cannot assure the success of this
initiative.
Our
real-time software initiatives have not come to fruition as quickly as
expected. Sales of our software-only real-time operating system to
financial customers have been less successful and slower to finalize than
anticipated. Further, our relationship with Novell has not generated
the revenue that we expected and has been terminated. We are taking
steps to independently address this market.
Furthermore,
we believe we are executing our business plan and expense reduction initiatives
to achieve profitability. We will continue to review and realign our
cost structure as needed, balanced with investing in the business to increase
revenues.
Recent
Events
On July
8, 2008, our shareholders approved a one-for-ten reverse stock split and
the reverse stock split became effective on July 9, 2008. Pursuant to
the reverse stock split, every ten shares of our common stock have been combined
into one share of common stock. The number of shares subject to our
outstanding options and warrants have been reduced in the same ratio as the
reduction in the outstanding shares, and the per share exercise price of those
options and warrants have been increased in direct proportion to the reverse
stock split ratio. Earnings per share computations, balance
sheets, and footnote presentation of shares and share equivalents for fiscal
2008 and prior periods have been restated to reflect the reverse stock
split. The one-for-ten reverse stock split will have no impact on the
authorized number of shares.
Application
of Critical Accounting Policies
The SEC
defines “critical accounting policies” as those that require application of
management’s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.
The
following is not intended to be a comprehensive list of all of our accounting
policies. Our significant accounting policies are more fully
described in Note 2 to the Consolidated Financial Statements. In many
cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States of
America, with no need for management’s judgment in their
application. There are also areas in which management’s judgment in
selecting an available alternative would not produce a materially different
result.
We have
identified the following as accounting policies critical to us:
Revenue
Recognition and Related Matters
We
recognize revenue 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. Determination of criteria (3)
and (4) are based on our judgments regarding the fixed nature of the fee charged
for products and services delivered and the collectibility of those
fees. Should changes in conditions cause us to determine these
criteria are not met for certain future transactions, revenue recognized for any
reporting period could be adversely affected.
Software and Hardware
Sales
On-demand
and real-time product revenues are recognized based on the guidance in American
Institute of Certified Public Accountants Statement of Position (“SOP”) 97-2,
“Software Revenue Recognition” (“SOP 97-2”) and related amendments, SOP 98-4,
“Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition”, and SOP 98-9, “Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions”. Our standard
contractual arrangements with our customers generally include the delivery of a
hardware and software system, certain professional services that typically
involve installation and training, and ongoing software and hardware
maintenance. The software component of the arrangement is considered
to be essential to the functionality of the hardware. Therefore, in
accordance with Emerging Issues Task Force No. 03-5, “Applicability of AICPA
Statement of Position 97-2 to Non-Software Deliverables in an Arrangement
Containing More-Than-Incidental Software”, the hardware and the hardware
maintenance components are considered software related and the provisions of SOP
97-2 apply to all elements of the arrangement. Under multiple element
arrangements, we allocate revenue to the various elements based on
vendor-specific objective evidence (“VSOE”) of fair value. Our VSOE
of fair value is determined based on the price charged when the same element is
sold separately. If VSOE of fair value does not exist for all
elements in a multiple element arrangement, we recognize revenue using the
residual method. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the arrangement is
recognized as revenue. Where fair value of undelivered elements has
not been established, the total arrangement is recognized over the period during
which the services are performed.
In
certain instances, our customers require significant customization of both the
software and hardware products. In these situations, the design and
development is considered essential to the functionality of the software and,
therefore the revenue from these arrangements, with the exception of
maintenance, is recognized in conformity with Accounting Research Bulletin
(“ARB”) No. 45, “Long Term Construction Type Contracts” and SOP 81-1,
“Accounting for Performance of Construction-Type and Certain Production-Type
Contracts.” 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.
Professional
Services
Professional
services revenue is primarily generated from integration of third party software
interfaces, training, and hardware installation. These services are
often completed within 90 days from the shipment of the order. Under
multiple element arrangements, we allocate revenue to the various elements based
on VSOE of fair value. We determine VSOE of fair value for the
services based on the standard rate per hour or fixed fee used when similar
services are sold separately. Revenues from these services are
recognized when the services are performed.
Hardware and Software
Maintenance
We
recognize revenue from maintenance services in accordance with SOP
97-2. Depending upon the specific terms of the customer agreement, we
may include warranty as part of the purchase price. In accordance
with SOP 97-2 and, depending upon the specific terms of the customer agreement,
we either accrue the estimated costs to be incurred in performing maintenance
services at the time of revenue recognition and shipment of product, or we defer
revenue associated with the maintenance services to be provided during the
warranty period based upon the value for which we have sold such services
separately when they are renewed by existing customers. For those
arrangements in which the maintenance period is less than or equal to one year,
we accrue the estimated costs to be incurred in providing
services. In accordance with paragraph 59 of SOP 97-2, we have
determined that the maintenance fee is part of the initial license fee, the
maintenance period is for one year or less, the estimated cost of providing the
services are immaterial, and upgrades and enhancements offered during
maintenance arrangements historically have been and are expected to continue to
be minimal and infrequent. Actual costs are then charged against the
warranty accrual as they are incurred. For those arrangements in
which the maintenance period is greater than one year, we defer revenue based
upon the value for which we have sold such services separately. This
revenue is then recognized on a straight line basis over the warranty
period.
Other
We record
reimbursable out–of–pocket expenses in both services and maintenance net sales
and as a direct cost of services and maintenance in accordance with EITF Issue
No. 01–14, Income Statement
Characterization of Reimbursements Received for “Out–of–Pocket” Expenses
Incurred . In accordance with EITF Issue No. 00–10, Accounting for Shipping and
Handling Fees, the reimbursement by customers of shipping and handling
costs are recorded in software and other net sales and the associated cost as a
cost of sale. We account for sales taxes on a net basis in accordance
with EITF No. 06-3, How
Sales Taxes Collected from Customers and Remitted to Governmental Authorities
Should be Presented in the Income Statement (That Is, Gross Versus Net
Presentation).
Warranty
Accrual
For
certain customers we accrue the estimated costs to be incurred in performing
warranty services at the time of revenue recognition and shipment of the
servers. Our estimate of costs to service warranty obligations is
based on historical experience and expectation of future
conditions. To the extent we experience increased warranty claim
activity or increased costs associated with servicing those claims, our warranty
accrual will increase resulting in decreased gross margin.
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts receivable is based on the aging of accounts
receivable and our assessment of the collectibility of our
receivables. If there is a deterioration of one of our major
customer’s credit worthiness or actual account defaults are higher than our
historical trends, our reserve estimates could be adversely
impacted.
Inventory
Valuation
We
provide 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, or if next generation products are released
earlier than anticipated, additional inventory write-downs may be
required. We also review, on a quarterly basis, the value of
inventory on hand for which a newer and more advanced technology or product is
currently, or will soon be, available. When we believe that we will
not be able to sell the products in inventory at or above cost, we mark the
inventory down to fair market value.
Impairment
of Goodwill and Trademark
SFAS
No. 142, Goodwill and
Other Intangible Assets, requires that goodwill be tested for impairment
at the reporting unit level (operating segment or one level below an operating
segment) on an annual basis (our annual testing date is July 1) and between
annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying
value. These events or circumstances could include a significant
change in the business climate, legal factors, operating performance indicators,
competition or sale or disposition of a significant portion of a reporting
unit. Application of the goodwill impairment test requires judgment,
including the identification of reporting units, assignment of assets and
liabilities to reporting units, assignment of goodwill to reporting units, and
determination of the fair value of each reporting unit. The fair value of
each reporting unit is estimated using a discounted cash flow
methodology. This analysis requires significant judgments, including
estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for our business, the useful life
over which cash flows will occur, and determination of our weighted average cost
of capital. Changes in these estimates and assumptions could materially
affect the determination of fair value and goodwill impairment for each
reporting unit. We allocate goodwill to reporting units based on the
reporting unit expected to benefit from the combination. We evaluate our
reporting units on an annual basis and, if necessary, reassign goodwill using a
relative fair value allocation approach.
Income
Taxes
As part
of the process of preparing our consolidated financial statements, we are
required to estimate income taxes in each of the jurisdictions in which we
operate. The provision for income taxes is determined using the asset
and liability approach for accounting for income taxes in accordance with SFAS
No. 109, Accounting for
Income Taxes. A current liability is recognized for the
estimated taxes payable for the current year. Deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the
enacted tax rates in effect for the year in which the timing differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of changes in tax rates or tax laws are recognized in the
provision for income taxes in the period that includes the enactment
date.
Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount more-likely-than-not to be realized. To the extent we
establish or change the valuation allowance in a period, the tax effect will
flow through the statement of operations. However, in the case of
deferred tax assets of an acquired or merged entity with a valuation allowance
recorded for purchase accounting, any change in that valuation allowance will be
recorded as an adjustment to goodwill to the extent goodwill
exists. Otherwise, such valuation allowance will be reflected in the
Statement of Operations.
The
determination of our provision for income taxes requires significant judgment,
the use of estimates and the interpretation and application of complex tax
laws. We are subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgment is required in determining our
worldwide provision for income taxes and recording the related tax assets and
liabilities. In the ordinary course of our business, there are
transactions and calculations for which the ultimate tax determination is
uncertain. In spite of our belief that we have appropriate support
for all the positions taken on our tax returns, we acknowledge that certain
positions may be successfully challenged by the taxing
authorities. Therefore, an accrual for uncertain tax positions is
provided for, when necessary, in accordance with the requirements Financial
Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FAS 109, Accounting for Income Taxes
(“FIN 48”). In the event that we have accruals for uncertain
tax positions, these accruals are reviewed quarterly and reversed upon being
sustained under audit, the expiration of the statute of limitations, new
information, or other determination by the taxing authorities. The
provision for income taxes includes the impact of changes in uncertain tax
positions. Although we believe our recorded tax assets and
liabilities are reasonable, tax laws and regulations are subject to
interpretation and inherent uncertainty; therefore our assessments can involve
both a series of complex judgments about future events and rely on estimates and
assumptions. Although we believe these estimates and assumptions are
reasonable, the final determination could be materially different than that
which is reflected in our provision for income taxes and recorded tax assets and
liabilities.
In the calculation of our quarterly
provision for income taxes, we use an annual effective rate based on expected
annual income and statutory tax rates. The tax (or benefit)
applicable to significant unused or infrequently occurring items, discontinued
operations or extraordinary items are separately recognized in the income tax
provision in the quarter in which they occur.
Guarantees
In
accordance with FASB Interpretation (“FIN”) No. 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (“FIN No. 45”), we recognize
the fair value of guarantee and indemnification arrangements issued or modified
by us, if these arrangements are within the scope of the
interpretation. In addition, we must continue to monitor the
conditions that are subject to the guarantees and indemnifications, as required
under the previously existing GAAP, in order to identify if a loss has
occurred. If we determine if it is probable that a loss has occurred,
then any such estimable loss would be recognized under those guarantees and
indemnifications. Under our standard Software License, Services and
Maintenance Agreement, we agree to indemnify, defend and hold harmless our
licensees from and against certain losses, damages and costs arising from claims
alleging the licensees’ use of our software infringes the intellectual property
rights of a third party. Historically, we have not been required to
pay material amounts in connection with claims asserted under these provisions
and, accordingly, we have not recorded a liability relating to such
provisions.
Under our
Software License, Services and Maintenance Agreement, we also represent and
warrant to licensees that our software products will operate substantially in
accordance with published specifications, and that the services we perform will
be undertaken by qualified personnel in a professional manner conforming to
generally accepted industry standards and practices. Historically,
only minimal costs have been incurred relating to the satisfaction of product
warranty claims.
Other
guarantees include promises to indemnify, defend and hold harmless each of our
executive officers, non-employee directors and certain key employees from and
against losses, damages and costs incurred by each such individual in
administrative, legal or investigative proceedings arising from alleged
wrongdoing by the individual while acting in good faith within the scope of his
or her job duties on our behalf. Historically, minimal costs have
been incurred relating to such indemnifications and, as such, no amount has been
accrued for these guarantees.
Stock-Based
Compensation
We
account for stock-based compensation in accordance with SFAS No. 123
(revised 2004), Share-Based
Payment (“SFAS
123(R)”), which requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements and requires application
of a fair-value-based measurement method in accounting for share-based payment
transactions with employees. Assumptions used to estimate
compensation expense from issuance of share-based compensation are based, to
some extent, on historical experience and expectation of future
conditions. To the extent we issue additional share-based
compensation, or assumptions regarding previously issued share-based
compensation change, our future share-based compensation expense may be
positively or negatively impacted.
Defined
Benefit Pension Plan
We
maintain a defined benefit pension plan (the “Pension Plan”) for a few current
and a number of former employees of our German subsidiary. The Pension
Plan provides benefits to be paid to all eligible employees at retirement based
primarily on years of service with the Company and compensation rates in effect
near retirement. Our policy is to fund benefits attributed to employees’
services to date as well as service expected to be earned in the future.
The determination of our Pension Plan benefit obligation and expense is
dependent on our selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions include, among others, the
weighted average discount rate, the weighted average expected rate of return on
plan assets and the weighted average rate of compensation
increase. To the extent that these assumptions change, our future
benefit obligation and net periodic pension expense may be positively or
negatively impacted.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans — an
amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS
158”). SFAS 158 requires an employer that is a business entity and
sponsors one or more single employer benefit plans to (1) recognize the
funded status of the benefit in its statement of financial position,
(2) recognize as a component of other comprehensive income, net of tax, the
gains or losses and prior service costs or credits that arise during the period
but are not recognized as components of net periodic benefit cost,
(3) measure defined benefit plan assets and obligations as of the
employer’s fiscal year-end balance sheet date, and (4) disclose in the
notes to financial statements additional information about certain effects on
net periodic benefit cost for the next fiscal year that arise from delayed
recognition of the gains or losses, prior service costs or credits, and
transition assets or obligations. The recognition and disclosure
provisions of SFAS 158 were effective for our fiscal year ended June 30,
2007. See Note 10 to the Consolidated Financial Statements in Part II,
Item 8 of this annual report for the impact of adoption of SFAS
158.
Selected
Operating Data as a Percentage of Net Sales
The
following table sets forth our consolidated historical operating information, as
a percentage of total revenues, unless otherwise noted, for the periods
indicated:
|
|
Year
Ended June 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenue
(% of total sales):
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
62.4
|
% |
|
|
67.3
|
% |
|
|
69.3
|
% |
Service
|
|
|
37.6 |
|
|
|
32.7 |
|
|
|
30.7 |
|
Total
revenue
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost
of sales (% of respective sales category):
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
49.7 |
|
|
|
55.8 |
|
|
|
50.4 |
|
Service
|
|
|
40.4 |
|
|
|
47.8 |
|
|
|
51.0 |
|
Total
cost of sales
|
|
|
46.2 |
|
|
|
53.2 |
|
|
|
50.6 |
|
Gross
margin
|
|
|
53.8 |
|
|
|
46.8 |
|
|
|
49.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
22.2 |
|
|
|
23.7 |
|
|
|
23.1 |
|
Research
and development
|
|
|
23.5 |
|
|
|
25.5 |
|
|
|
26.3 |
|
General
and administrative
|
|
|
13.6 |
|
|
|
14.7 |
|
|
|
13.4 |
|
Total
operating expenses
|
|
|
59.3 |
|
|
|
63.9 |
|
|
|
62.8 |
|
Operating
loss
|
|
|
(5.5 |
) |
|
|
(17.1 |
) |
|
|
(13.4 |
) |
Gain
on arbitration settlement, net
|
|
|
2.7 |
|
|
|
- |
|
|
|
- |
|
Recovery
minority investment, net
|
|
|
2.0 |
|
|
|
- |
|
|
|
- |
|
Interest
income, net
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
0.3 |
|
Other
income, net
|
|
|
0.2 |
|
|
|
0.0 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
0.4 |
|
|
|
(17.0 |
) |
|
|
(12.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
- |
|
|
|
0.6 |
|
|
|
0.3 |
|
Income
(loss) before cumulative effect of accounting change
|
|
|
0.4 |
|
|
|
(17.6 |
) |
|
|
(12.6 |
) |
Cumulative
effect of accounting change (net of income taxes)
|
|
|
- |
|
|
|
- |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
0.4
|
% |
|
|
(17.6 |
)
% |
|
|
(13.0 |
)
% |
Results
of Operations
We
recognize revenue for product sales in accordance with the appropriate
accounting guidance as described in our critical accounting
policies. We recognize revenue from customer service plans ratably
over the term of each plan, which are typically between one and three
years.
Custom
engineering services are often completed within 90 days from receipt of an
order. Revenues from these services are recognized upon completion
and delivery of the product to the customer. In certain instances,
our customers require significant customization of both the software and
hardware products. In these situations, the services are considered
essential to the functionality of the software and, therefore, the revenue from
the arrangement, with the exception of maintenance, is recognized in
conformity with Accounting Research Bulletin (“ARB”) No. 45, Long Term Construction Type
Contracts and SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. If we
are able to determine reasonable estimates of the cost of the arrangement, we
record the value of the entire arrangement (excluding maintenance) as the
project progresses based on actual costs incurred compared to the total costs
expected to be incurred through completion. If we are unable to
reasonably estimate the costs to complete the arrangement, all revenue is
deferred until the contract is completed.
Cost of
sales consists of the cost of the computer systems sold, including amortization
of software development costs, labor, material, overhead and third party product
costs. Cost of sales also includes the salaries, benefits and other
costs of the maintenance, service and help desk personnel associated with
product installation and support activities.
Sales and
marketing expenses consist primarily of the salaries, benefits and travel
expenses of employees responsible for acquiring new business and maintaining
existing customer relationships, as well as marketing expenses related to trade
publications, advertisements and trade shows.
Research
and development expenses are comprised of salaries, benefits, and travel
expenses of employees involved in hardware and software product enhancement and
development, cost of outside contractors engaged to perform software development
services, and software certification costs. Development costs are
expensed as incurred.
General
and administrative expenses consist primarily of salaries, benefits and travel
expenses of management and administrative personnel, human resources,
information systems, insurance, investor relations, accounting and fees for
legal, accounting, and other professional services.
Fiscal
Year 2008 in Comparison to Fiscal Year 2007
The
following table sets forth summarized consolidated financial information for
each of the two fiscal years ended June 30, 2008 and 2007 as well as comparative
data showing increases and decreases between periods.
|
|
Year ended June 30,
|
|
(Dollars
in Thousands)
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
Product
revenue
|
|
$ |
44,157 |
|
|
$ |
46,549 |
|
|
$ |
(2,392 |
) |
|
|
(5.1 |
%) |
Service
revenue
|
|
|
26,659 |
|
|
|
22,600 |
|
|
|
4,059 |
|
|
|
18.0 |
% |
Total
revenue
|
|
|
70,816 |
|
|
|
69,149 |
|
|
|
1,667 |
|
|
|
2.4 |
% |
Product
cost of sales
|
|
|
21,945 |
|
|
|
25,982 |
|
|
|
(4,037 |
) |
|
|
(15.5 |
%) |
Service
cost of sales
|
|
|
10,772 |
|
|
|
10,806 |
|
|
|
(34 |
) |
|
|
(0.3 |
%) |
Total
cost of sales
|
|
|
32,717 |
|
|
|
36,788 |
|
|
|
(4,071 |
) |
|
|
(11.1 |
%) |
Product
gross margin
|
|
|
22,212 |
|
|
|
20,567 |
|
|
|
1,645 |
|
|
|
8.0 |
% |
Service
gross margin
|
|
|
15,887 |
|
|
|
11,794 |
|
|
|
4,093 |
|
|
|
34.7 |
% |
Total
gross margin
|
|
|
38,099 |
|
|
|
32,361 |
|
|
|
5,738 |
|
|
|
17.7 |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
15,693 |
|
|
|
16,366 |
|
|
|
(673 |
) |
|
|
(4.1 |
%) |
Research
and development
|
|
|
16,624 |
|
|
|
17,616 |
|
|
|
(992 |
) |
|
|
(5.6 |
%) |
General
and administrative
|
|
|
9,669 |
|
|
|
10,172 |
|
|
|
(503 |
) |
|
|
(4.9 |
%) |
Total
operating expenses
|
|
|
41,986 |
|
|
|
44,154 |
|
|
|
(2,168 |
) |
|
|
(4.9 |
%) |
Operating
loss
|
|
|
(3,887 |
) |
|
|
(11,793 |
) |
|
|
7,906 |
|
|
|
(67.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on arbitration settlement, net
|
|
|
1,900 |
|
|
|
- |
|
|
|
1,900 |
|
|
NM
(1)
|
|
Recovery
of minority investment, net
|
|
|
1,415 |
|
|
|
- |
|
|
|
1,415 |
|
|
NM
(1)
|
|
Other
income, net
|
|
|
884 |
|
|
|
80 |
|
|
|
804 |
|
|
NM (1)
|
|
Income
(loss) before provision for income taxes
|
|
|
312 |
|
|
|
(11,713 |
) |
|
|
12,025 |
|
|
NM
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
47 |
|
|
|
458 |
|
|
|
(411 |
) |
|
|
(89.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
265 |
|
|
$ |
(12,171 |
) |
|
$ |
12,436 |
|
|
NM (1)
|
|
(1) NM denotes percentage is not
meaningful
Product
Sales. Total product sales for fiscal year 2008 were
approximately $44.2 million, a decrease of approximately $2.4 million, or 5.1%,
from approximately $46.5 million for fiscal year 2007. The decrease
in product sales resulted from the $5.0 million, or 16.3%, decrease in on-demand
product sales to $25.6 million in fiscal year 2008, from $30.6 million in fiscal
year 2007. The decrease in on-demand revenue was driven by $2.6
million and $2.1 million decreases in sales in North America and Japan,
respectively. The decrease in North American on-demand sales was
primarily a result of a prior year sale of our latest generation on-demand
system to a North American multiple service operator that newly deployed
on-demand service in its largest market. Additionally, on-demand
product sales in Japan decreased $2.1 million in fiscal 2008, compared to the
same period in the prior year, primarily due to prior year sales to a Japanese
cable distributor for a custom web client project that did not recur in the
current year. Fluctuation in on-demand revenue is often due to the
fact that a significant percentage of revenue is attributable to periodic large
purchases by a small base of large customers.
Partially
offsetting the decrease in on-demand product sales, real-time product sales
increased approximately $2.6 million, or 16.3%, to $18.5 million in fiscal year
2008 from $15.9 million in fiscal year 2007. Sales of real-time
systems increased primarily due to delivery of several simulation and image
generator systems to defense contract and automotive industry customers in North
America and Europe, compared to the same period in the prior year.
Service
Revenue. Total service revenue for fiscal 2008 was $26.7
million, an increase of approximately $4.1 million, or 18.0%, from $22.6 million
for fiscal 2007. Service revenue associated with on-demand products
increased $3.3 million, or 26.2%, as we continued to expand our base of
on-demand market deployments and data collection and reporting software that
requires maintenance and support services. Also, during fiscal 2008
we recognized additional maintenance and support revenue related to customers
for whom we provided service and support during the latter half of fiscal 2007,
but that was not recognized until collectibility was reasonably assured during
our fiscal year 2008. Furthermore, we generated $0.9 million more
installation revenue in fiscal year 2008, compared to the same period in the
prior year primarily due installation of a large system order that was delivered
at the end of fiscal 2007 but for which installation services were purchased and
provided in fiscal year 2008. We expect that service revenue for
on-demand products may continue to grow at a diminishing rate in future quarters
as new, less expensive products replace older products currently under service
contracts.
The
increase in on-demand service revenues was accompanied by a $0.8 million, or
7.5%, increase in service revenue related to real-time products. We
believe service revenue associated with real-time products is beginning to
stabilize. For years we have experienced a steady decline in
real-time service revenues, as our legacy systems have been removed from service
and, to a lesser extent, from customers purchasing our new products that produce
less service revenue. The remaining legacy systems are currently
being removed from service at a slower rate than the rate at which we are
accumulating new maintenance service revenue from our expanding base of new
real-time systems. We expect real-time service revenues to remain
somewhat level over the next twelve months, but that these revenues will
ultimately decline further, partially offset by newer system service, as
additional legacy systems continue to be removed from
service. Further, there are a few legacy service contracts that are
quite large. If and when these contracts are terminated, we expect
service revenue will decrease in relatively large increments.
Product Gross
Margin. Product gross margin was $22.2 million for fiscal year
2008, an increase of approximately $1.6 million, or 8.0%, from $20.6 million for
fiscal year 2007. Product gross margin as a percentage of product
revenue increased to 50.3% in fiscal year 2008 from 44.2% in fiscal year
2007. Product gross margins, as a percentage of product revenue,
increased primarily due to a favorable product mix, as well as technological
advances in our systems allowing us to utilize less hardware per system, coupled
with a lower fixed component of labor and overhead and our ability to purchase
product components at lower prices during fiscal year 2008, compared to the same
period in the prior year.
Service Gross
Margin. The gross margin on service revenue increased
approximately $4.1 million, or 34.7%, to $15.9 million, or 59.6% of service
revenue for fiscal year 2008 from $11.8 million, or 52.2% of service revenue for
fiscal year 2007. The increase in service margins was primarily due
to the fact that we recognized additional maintenance and support revenue
related to customers for whom we provided service and support during the first
half of calendar year 2007, but that was not recognized until collectibility was
reasonably assured during fiscal year 2008. We do not expect this
situation to repeat in future years. We also had additional
maintenance revenue generated from our expanding customer
base. Improved margins were further attributable to service cost of
sales decreasing by less than $0.1 million for fiscal year 2008, compared to the
prior fiscal year, as our newer systems require less support infrastructure and
we have focused on managing costs of the infrastructure that is necessary to
fulfill service and support provided for our products. We expect to
maintain slightly lower service margins as we continue to expand our support
revenue base and manage costs related to our maintenance and support
infrastructure.
Sales and
Marketing. Sales and marketing expenses decreased
approximately $0.7 million, or 4.1% to $15.7 million in fiscal year 2008 from
$16.4 million in fiscal year 2007. The decrease in sales and
marketing expense was primarily driven by a $0.4 million decrease in worldwide
sales and marketing salaries, wages and benefits in fiscal year 2008, compared
to the same period of the prior year that resulted from a reduction of our
worldwide sales and marketing workforce in the prior fiscal year. In
the prior fiscal year we also incurred an additional $0.3 million of severance
as a result of the worldwide workforce reduction, compared to the current fiscal
year. These cost reductions were part of our business plan and
expense reduction initiatives to achieve profitability.
Research and
Development. Research and development expenses decreased
approximately $1.0 million, or 5.6%, to $16.6 million in fiscal year 2008 from
$17.6 million in fiscal year 2007. Research and development expenses
decreased primarily because we incurred $0.7 million less depreciation expense
related to development and test equipment during fiscal year 2008, compared to
the same period in the prior year, as a result of a downward trend in capital
expenditures for development and test equipment over the past few
years. The decrease in research and development expenses was further
attributable to a $0.3 million reduction in lease costs during fiscal year 2008,
compared to the same period in the prior year, primarily due to moving our UK
development team to a less expensive office during the current fiscal
year.
General and
Administrative. General and administrative expenses decreased
approximately $0.5 million, or 4.9%, to $9.7 million in fiscal year 2008, from
$10.2 million in fiscal year 2007. This decrease in general and
administrative expenses resulted from a prior year $0.4 million severance charge
for our chief operating officer, who was terminated in fiscal year 2007 and,
pursuant to his employment agreement, received one year of severance equal to
the value of his salary and benefits. Additionally, insurance expense
decreased by $0.5 million in fiscal year 2008, compared to the same period of
the prior year, due to our ability to obtain more favorable insurance pricing in
the current year. Partially offsetting these general and
administrative cost reductions, during fiscal year 2008 we incurred
approximately $0.3 million of severance charges for termination of part of our
administrative workforce in Europe, Australia and North America as part of our
business plan to reduce operating costs going forward. Furthermore,
we incurred approximately $0.2 million of additional share-based compensation
expense, primarily due to issuance of additional stock options during the
year.
Gain on Arbitration Settlement,
Net. In August 2007, we reached an agreement with Vicor, Inc.
(“Vicor”) a supplier of ours, to settle the claims in the pending arbitration
between the two parties, in exchange for a full release. In the
arbitration, we alleged that in 2002 and 2003 we experienced high failure rates
in our MediaHawk 2000 and 3000 series on-demand servers as a result of defective
power converters manufactured by Vicor. We asserted claims for breach of
contract and fraud. Our alleged damages consisted of material and labor
costs associated with the replacement of the defective parts, internal
engineering costs, loss of market share, and attorney fees, as well as exemplary
damages. We settled for approximately $2.4 million, from which
approximately $0.5 million of attorney fees were deducted and we received the
net proceeds of $1.9 million in fiscal year 2008. We do not
anticipate any further proceeds from this settlement.
Recovery of Minority Investment,
Net. In fiscal year 2003, we recorded a $13.0 million net
impairment charge due to an “other-than-temporary” decline in the market value
of an equity investment in Thirdspace Living Limited
(“Thirdspace”). At the end of fiscal year 2003, Thirdspace was sold
to Alcatel Telecom Ltd. and placed into liquidation. The liquidation
of Thirdspace assets resulted in a recovery for us of $3.1 million of our
previously impaired investment, in aggregate, during fiscal year
2004. Thirdspace’s only significant remaining asset subsequent to the
aforementioned transactions was a right to 40% of amounts recovered by nCube
Corporation (“nCube”), now part of Arris Group, Inc., if any, from the lawsuit
brought by nCube against SeaChange International, Inc., alleging patent
infringement. On January 9, 2006, the U.S. Court of Appeals for the
Federal Circuit affirmed the lower court’s decision in favor of
nCube. On September 28, 2007, nCube, Alcatel and Concurrent agreed
upon the terms of distributing this Thirdspace asset and we received $1.4
million of net proceeds. Consistent with previous recoveries of the
impaired Thirdspace investment, we recorded the $1.4 million as a “Recovery of
minority investment” within the Statement of Operations during fiscal year
2008. We do not anticipate further proceeds related to the
liquidation of Thirdspace. As part of the arrangement with nCube and
Alcatel, we also eliminated transferability concerns regarding our license to
U.S. patent numbers 5,805,804 and 5,623,595. The agreement provides
that licenses to these patents may be transferred to an acquirer of Concurrent
or Concurrent’s on-demand business, so long as the acquirer has not been
formally identified as an Alcatel license target.
Interest Income,
Net. During the fiscal year 2008, interest income, net of
interest expense, increased $0.6 million, compared to the same period in the
prior year, due to an increase in cash available for short-term cash
investments. This increase in cash resulted from proceeds generated
by our private placement during the fourth quarter of the prior fiscal year and
positive cash flow from operations during fiscal year 2008.
Provision for Income
Taxes. We recorded income tax expense for our domestic and
foreign subsidiaries of $47,000 in fiscal year 2008. We recorded
income tax expense of $0.5 million for our domestic and foreign subsidiaries in
fiscal year 2007. Income tax expense for fiscal years 2008 and 2007
was primarily attributable to income earned in foreign locations that cannot be
offset by net operating loss carryforwards, net of the release of $0.5 million
of valuation allowances in fiscal 2008 for our Japan and UK subsidiaries, as we
believe it is more likely than not that we will recognize these tax
benefits.
Net Income
(Loss). The net income (loss) for fiscal year 2008 was $0.3
million or $.03 per basic and diluted share compared to a net loss for fiscal
year 2007 of $(12.2) million or $(1.67) per basic and diluted
share.
Fiscal
Year 2007 in Comparison to Fiscal Year 2006
The
following table sets forth summarized consolidated financial information for
each of the two fiscal years ended June 30, 2007 and 2006 as well as comparative
data showing increases and decreases between periods.
|
|
Year ended June 30,
|
|
|
|
|
|
|
|
(Dollars
in Thousands)
|
|
2007
|
|
|
2006
|
|
|
$ Change
|
|
|
% Change
|
|
Product
revenue
|
|
$ |
46,549 |
|
|
$ |
49,592 |
|
|
$ |
(3,043 |
) |
|
|
(6.1 |
%) |
Service
revenue
|
|
|
22,600 |
|
|
|
22,020 |
|
|
|
580 |
|
|
|
2.6 |
% |
Total
revenue
|
|
|
69,149 |
|
|
|
71,612 |
|
|
|
(2,463 |
) |
|
|
(3.4 |
%) |
Product
cost of sales
|
|
|
25,982 |
|
|
|
25,010 |
|
|
|
972 |
|
|
|
3.9 |
% |
Service
cost of sales
|
|
|
10,806 |
|
|
|
11,233 |
|
|
|
(427 |
) |
|
|
(3.8 |
%) |
Total
cost of sales
|
|
|
36,788 |
|
|
|
36,243 |
|
|
|
545 |
|
|
|
1.5 |
% |
Product
gross margin
|
|
|
20,567 |
|
|
|
24,582 |
|
|
|
(4,015 |
) |
|
|
(16.3 |
%) |
Service
gross margin
|
|
|
11,794 |
|
|
|
10,787 |
|
|
|
1,007 |
|
|
|
9.3 |
% |
Total
gross margin
|
|
|
32,361 |
|
|
|
35,369 |
|
|
|
(3,008 |
) |
|
|
(8.5 |
%) |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
16,366 |
|
|
|
16,576 |
|
|
|
(210 |
) |
|
|
(1.3 |
%) |
Research
and development
|
|
|
17,616 |
|
|
|
18,783 |
|
|
|
(1,167 |
) |
|
|
(6.2 |
%) |
General
and administrative
|
|
|
10,172 |
|
|
|
9,590 |
|
|
|
582 |
|
|
|
6.1 |
% |
Total
operating expenses
|
|
|
44,154 |
|
|
|
44,949 |
|
|
|
(795 |
) |
|
|
(1.8 |
%) |
Operating
loss
|
|
|
(11,793 |
) |
|
|
(9,580 |
) |
|
|
(2,213 |
) |
|
|
23.1 |
% |
Other
income (expense) - net
|
|
|
80 |
|
|
|
749 |
|
|
|
(669 |
) |
|
|
(89.3 |
%) |
Loss
before provision for income taxes and
cumulative effect of accounting change
|
|
|
(11,713 |
) |
|
|
(8,831 |
) |
|
|
(2,882 |
) |
|
|
32.6 |
% |
Provision
(benefit) for income taxes
|
|
|
458 |
|
|
|
191 |
|
|
|
267 |
|
|
|
139.8 |
% |
Loss
before cumulative effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
accounting change
|
|
|
(12,171 |
) |
|
|
(9,022 |
) |
|
|
(3,149 |
) |
|
|
34.9 |
% |
Cumulative
effect of accounting change (net of taxes)
|
|
|
- |
|
|
|
(323 |
) |
|
|
323 |
|
|
NM
|
(1) |
Net
loss
|
|
$ |
(12,171 |
) |
|
$ |
(9,345 |
) |
|
$ |
(2,826 |
) |
|
|
30.2 |
% |
(1) NM
denotes percentage is not meaningful
Product
Revenue. Total product revenue for fiscal year 2007 was $46.5
million, a decrease of approximately $3.1 million, or 6.1%, from $49.6 million
in fiscal year 2006. The decrease in product sales resulted from the
$7.8 million, or 32.8%, decrease in real-time product sales to $15.9 million in
fiscal year 2007 from $23.7 million in fiscal year 2006. This
decrease was due to significantly lower fiscal year 2007 sales of our
first-generation Aegis products to Lockheed-Martin resulting from satisfaction
of the U.S. Navy’s demand for the first-generation technology in fiscal
2006. In fiscal 2007, we generated revenues from our
second-generation Aegis products, and expect to continue to do so, but not to
the extent of those generated prior to fiscal 2007 from the first-generation
Aegis products.
Partially
offsetting the decrease in real-time product sales, on-demand product sales
increased approximately $4.7 million, or 18.3%, to $30.6 million in fiscal year
2007 from $25.9 million in fiscal year 2006. The increase in
on-demand product revenue was driven by $5.2 million and $0.4 million increases
in sales in North America and Asia, respectively. The increase in
on-demand product revenue was primarily generated by the sale of our next
generation on-demand system to a North American multiple service operator that
is newly deploying on-demand services in its largest market, and also due to
on-demand system and storage expansion at other existing North American customer
sites. On-demand product revenue increased in Asia primarily due to
delivery of a customized web client software solution to a Japanese cable
distributor. Partially offsetting the increase in on-demand product
revenue in North American and Asia was a $0.9 million decrease in European
on-demand product revenue during fiscal year 2007, compared to fiscal year
2006. The decrease in European on-demand product revenue resulted
from significant initial site deployments of on-demand systems in the prior
fiscal year. During fiscal year 2007, European on-demand product
revenue was driven by expansions of existing sites, which generated less sales
volume than initial deployments. Fluctuation in on-demand revenue is
often due to the fact that we have a small base of large customers making
periodic large purchases that account for a significant percentage of
revenue.
Service
Revenue. Total service revenue for fiscal year 2007 was $22.6
million, an increase of approximately $0.6 million, or 2.6%, from $22.0 million
in fiscal year 2006. Service revenue associated with on-demand
products increased approximately $0.9 million in fiscal 2007, compared to fiscal
2006, primarily due to maintenance revenue associated with our expanding base of
on-demand market deployments in Japan. Furthermore, the on-demand
business continued to recognize maintenance and installation revenue on our
expanding base of on-demand market deployments.
Service
revenue related to real-time products decreased by $0.3 million, or 3.0%, during
fiscal year 2007, compared to fiscal year 2006. Service revenue
associated with real-time products continued to decline primarily due to the
expiration of maintenance contracts as legacy product were removed from service
and, to a lesser extent, from customers purchasing our new products that produce
significantly less service revenue.
Product Gross
Margin. Product gross margin was $20.6 million for fiscal year
2007, a decrease of approximately $4.0 million, or 16.3%, from $24.6 million for
fiscal year 2006. Product gross margin as a percentage of product
revenue decreased to 44.2% in fiscal year 2007 from 49.6% in fiscal year
2006. Product gross margins, as a percentage of product revenue,
decreased primarily due to a favorable real-time product mix during the prior
year period. Product margins during fiscal year 2006 were generated
by a larger volume of higher margin real-time hardware and software sales of
first-generation Aegis products with gross margins that were not replaced in the
current year period by sales of second generation Aegis software.
Product
gross margins further declined due to lower on-demand product gross margins in
fiscal year 2007, compared to fiscal 2006. Our on-demand product line
has experienced pricing pressure due to the entrance of small competitors, a
number of which have been acquired by substantially larger
companies. Our fiscal 2007 on-demand gross margins were further
impacted by low margins generated from a large customized web client software
solution that was developed at higher than expected costs for a Japanese cable
distributor, and also by an additional $0.2 million of amortization expense
related to the acquired Everstream technology that was only expensed during
three quarters of the prior fiscal year, due to the timing of the Everstream
acquisition.
Service Gross
Margin. The gross margin on service revenue increased
approximately $1.0 million, or 9.3%, to approximately $11.8 million, or 52.2% of
service revenue in fiscal year 2007 from approximately $10.8 million, or 49.0%
of service revenue in fiscal year 2006. The increase in service
margins was primarily due to additional maintenance revenue generated from our
expanding on-demand market in Japan, coupled with $1.0 million in cost
efficiencies gained from the termination of part of our worldwide service and
support work-force, as we have scaled down the infrastructure that is necessary
to fulfill declining real-time product related contractual
obligations. Partially offsetting the cost efficiencies gained from a
smaller service and support work-force, during fiscal year 2007 we incurred an
additional $0.4 million in severance expense, compared to fiscal
2006.
Sales and
Marketing. Sales and marketing expenses decreased
approximately $0.2 million, or 1.3%, to approximately $16.4 million in fiscal
year 2007 from approximately $16.6 million in fiscal year 2006. This
decrease is primarily due to a $1.0 million reduction in salaries, wages and
benefits and $0.1 million decrease in travel expense during fiscal year 2007,
compared to the same period in the prior year, resulting from the termination of
a part of our sales and marketing workforce during the beginning of our fiscal
year 2007, in an effort to reduce operating expenses. Additionally,
we experienced a $0.1 million reduction in commissions primarily associated with
a decline in real-time product sales. Partially offsetting these cost
savings, we incurred an additional $0.7 million of severance as a result of
these terminations, compared to the same period of the prior year. We
also incurred an additional $0.4 million in depreciation expense in fiscal year
2007 related to our new MediaHawk 4500 on-demand systems that are being used as
demonstration systems for customers.
Research and
Development. Research and development expenses decreased
approximately $1.2 million, or 6.2% to approximately $17.6 million in fiscal
year 2007 from approximately $18.8 million in fiscal year
2006. Decreasing research and development expenses were primarily
attributable to the $1.3 million reduction in salaries, benefits and other
employee related costs during fiscal year 2007, compared to the same period in
the prior year, resulting from the termination of a part of our development and
engineering workforce during the beginning of our fiscal year 2007 in an effort
to reduce operating expenses. We also incurred $0.2 million less in
depreciation expense related to development and test equipment in fiscal 2007,
compared to fiscal 2006, as a result of a slight downward trend in capital
expenditures for development and test equipment over the past few
years. Partially offsetting these cost savings, we incurred an
additional $0.2 million in severance as a result of fiscal 2007 terminations and
an additional $0.2 million of share based compensation expense, compared to
fiscal year 2006.
General and
Administrative. General and administrative expenses increased
$0.6 million, or 6.1% to $10.2 million in fiscal year 2007 from $9.6 million in
fiscal year 2006. During fiscal year 2007, our chief operating
officer was terminated and, pursuant to his employment agreement, he will
receive one year of severance equal to the value of his salary and
benefits. This action resulted in approximately $0.4 million of
additional severance expense during fiscal year 2007. Additionally,
we recorded $0.2 million of additional legal expenses and an additional $0.2
million of salaries, wages and benefits during fiscal year 2007, compared to
fiscal year 2006. Additional salaries wages and benefits resulted
primarily from additional administrative personnel related to our Everstream
subsidiary that was added in the first half of fiscal year
2006. These additional costs were partially offset by $0.4 million
less bad debt expense resulting from a prior year increase in the reserve
related to one particular customer, and subsequent decrease in the reserve in
fiscal 2007 primarily due to settlement of this particular customer
account.
Other Income
(Expense). During fiscal year 2006, other income of $0.7
million related to a refund from the Australian Tax Authority. This
refund related to previous withholding tax payments, over many years, on
intercompany charges with our Australian subsidiary. Expense
associated with previous payments was originally recorded to “other expense”
within our Consolidated Statement of Operations; therefore, we have recorded the
refund to “other income” within our Consolidated Statement of
Operations.
Provision (Benefit) for Income
Taxes. We recorded income tax expense for our foreign
subsidiaries of $0.5 million in fiscal year 2007, primarily attributable to
income earned in foreign locations that cannot be offset by net operating loss
carryforwards and the establishment of a valuation allowance on deferred tax
assets recorded by our Australian subsidiary due to our belief that we will more
likely than not be unable to recognize these assets in the future.
Cumulative Effect of Accounting
Change. The Financial Accounting Standards Board (“FASB”)
issued Financial Interpretation No. 47, Accounting for Asset Retirement
Obligations – an interpretation of FASB Statement No. 143 (“FIN 47”),
which requires the recognition of a liability for the fair value of a
legally-required conditional asset retirement obligation when incurred, if the
liability’s fair value can be reasonably estimated. FIN 47 was
effective no later than the end of fiscal years ending after December 15,
2005. We adopted FIN 47 on June 30, 2006, recording a $0.3 million
cumulative effect of accounting change (net of tax) in our consolidated
Statement of Operations. This amount resulted from our obligation to
restore certain of our leased facilities to their original condition, upon
eventual non-renewal of the applicable lease agreements and represents accretion
of interest for the asset retirement obligation and depreciation of the
associated leasehold improvement. In fiscal 2007 we recorded
approximately $23,000 of expense related to continued accretion of our lease
restoration obligations.
Net Loss. The net
loss for fiscal year 2007 was $12.2 million or $0.17 per basic and diluted share
compared to a net loss of $9.3 million or $0.14 per basic and diluted share in
fiscal year 2006.
Liquidity
and Capital Resources
Our
liquidity is dependent on many factors, including sales volume, operating profit
and the efficiency of asset use and turnover. Our future liquidity
will be affected by, among other things:
|
·
|
the
rate of growth or decline, if any, of on-demand market expansions and the
pace at which domestic and international cable companies and telephone
companies implement on-demand
technology;
|
|
·
|
the
rate of growth or decline, if any, of deployment of our real-time
operating systems and tools;
|
|
·
|
the
actual versus anticipated decline in revenue from maintenance and product
sales of real-time proprietary
systems;
|
|
·
|
ongoing
cost control actions and expenses, including capital
expenditures;
|
|
·
|
the
margins on our product sales;
|
|
·
|
our
ability to leverage the potential of Everstream, including advanced
advertising and other to be identified
initiatives;
|
|
·
|
our
ability to raise additional capital, if
necessary;
|
|
·
|
our
ability to obtain additional bank financing, if
necessary;
|
|
·
|
our
ability to meet the covenants contained in our Credit
Agreement;
|
|
·
|
timing
of product shipments, which typically occur 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
|
|
·
|
the
number of countries in which we operate, 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.
|
Uses
and Sources of Cash
We
generated approximately $7.6 million of cash from operating activities during
fiscal year 2008 compared to using $3.9 million of cash from operating
activities during fiscal year 2007. The operating cash inflow was
primarily attributable to improved operating results and $1.9 million of net
cash proceeds received from an arbitration settlement related to a supplier
dispute. We do not anticipate further cash proceeds related to this
settlement. The prior period cash usage resulted primarily from
operating losses.
During
fiscal year 2008, we received $1.4 million of net cash proceeds from the
monetization of remaining assets of Thirdspace, an entity that we purchased a
minority interest in during fiscal 2002, and that was subsequently
liquidated. We do not anticipate further cash proceeds related to the
liquidation of Thirdspace.
We
invested $2.3 million in property, plant and equipment during fiscal year 2008
compared to $2.5 million during fiscal year 2007. Capital additions
during each of these periods related primarily to product development and
testing equipment, sales demonstration equipment, and leasehold improvements
during fiscal year 2008. We expect similar amounts of capital
additions during the upcoming fiscal year as we continue to focus on further
development of our technology.
On
December 19, 2007, we entered into a First Amendment (“Amendment”) to our
Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with
Silicon Valley Bank (the “Bank”), which amends certain terms of the existing
Credit Agreement. The Amendment extended the maturity date of the
Credit Agreement from December 23, 2008 to July 1, 2009. The
Amendment also reset the Minimum Tangible Net Worth covenant requirement from
$15.2 million as of September 30, 2007, under the previous terms, to $10.0
million as of December 31, 2007. At all times after December 31,
2007, the minimum tangible net worth requirement shall increase by 50% of
quarterly net income and 50% of issuances of equity, net of issuance costs, and
the principal amount of any subordinated debt. As of June 30, 2008,
the minimum tangible net worth requirement was $10.2 million. The
Amendment also allows us to utilize all of our operating accounts with the Bank
to meet our required monthly average balance of not less than $1.0 million in
deposits. On June 23, 2008, we entered into a Second Amendment to the
Amended and Restated Loan and Security Agreement with the Bank, which provides
us an opportunity to repurchase up to $2.5 million of our capital
stock. All other terms of the Credit Agreement remain the
same.
The
Credit Agreement provides for a $10.0 million revolving credit line with a
borrowing base dependent upon our outstanding North American accounts receivable
(the “Revolver”) and is secured by substantially all of our
assets. In addition to the minimum tangible net worth requirement,
the Credit Agreement contains additional financial covenants, including a
required adjusted quick ratio (the ratio of cash and accounts receivable to
adjusted current liabilities (less the current portion of deferred revenue plus
non-current bank debt)) of at least 1.25 to 1.00 and customary restrictive
covenants concerning the Company’s operations. During fiscal year
2008 and as of June 30, 2008, we were in compliance with these covenants as our
tangible net worth was $24.4 million and our adjusted quick ratio was 2.80 to
1.00.
The
interest amount is based upon the amount advanced and the rate varies based upon
our accounts receivable and the amount of cash in excess of debt. The
interest rate on the Revolver was 5.5% (prime plus 0.5%) as of June 30,
2008. The outstanding principal amount plus all accrued but unpaid
interest is payable in full at the expiration of the credit
facility. During fiscal year 2008, we had net repayments of $0.1
million, consisting of borrowings of $0.3 million and repayments of $0.4
million, of the outstanding balance of this Revolver. Based on the
borrowing formula and our financial position as of June 30, 2008, approximately
$7.5 million was available to us under the Revolver. As of June 30,
2008, $0.9 million was drawn under the Revolver, resulting in $6.6 million of
remaining available funds under the Revolver.
In fiscal
2007, we issued 11.2 million shares of Common Stock and warrants in a private
placement for an aggregate purchase price of $14.0 million. Net
proceeds after issuance costs were approximately $12.6 million. The warrants are
exercisable into 2.8 million shares of Common Stock at an exercise price of
$16.20 per share, are exercisable as of the date of issuance, and expire five
years after the date of issuance. We intend to use the proceeds of
the private placement for general corporate purposes, including working capital
and capital expenditures. The shares issued under this private
placement were registered under a registration statement filed with the SEC and
declared effective on June 14, 2007. As of June 30, 2008, none of the
warrants associated with the private placement have been exercised, and these
warrants to purchase 280,000 shares represent the only warrants available to
purchase Concurrent’s Common Stock as of June 30, 2008.
At June
30, 2008, we had working capital (current assets, less current liabilities) of
$25.7 million and had no material commitments for capital expenditures compared
to working capital of $22.2 million at June 30, 2007. Based upon our
existing cash balances, historical cash usage, available credit facility, and
generation of operating cash flow in fiscal year 2008, we believe that existing
cash balances will be sufficient to meet our anticipated working capital and
capital expenditure requirements for the next twelve months.
Off-Balance
Sheet Arrangements
We enter
into agreements in the ordinary course of business with customers, resellers,
distributors, integrators and suppliers that often require us to defend and/or
indemnify the other party against intellectual property infringement claims
brought by a third party with respect to our products. We evaluate
estimated losses for such indemnifications under SFAS No. 5, Accounting for Contingencies,
as interpreted by FASB Interpretation No. (“FIN”) 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. We consider factors such as the degree of
probability of an unfavorable outcome and the ability to make a reasonable
estimate of the amount of loss. To date, we have not encountered material
costs as a result of such obligations and have not accrued any material
liabilities related to such indemnifications in our financial
statements.
Contractual
Obligations
The
following table summarizes our significant contractual obligations as of June
30, 2008:
|
|
Payments Due By Fiscal Year
|
|
|
|
(Dollars
in thousands)
|
|
Contractual
Obligations
|
|
Total
|
|
|
2009
|
|
|
|
2010-2011 |
|
|
|
2012-2013 |
|
|
Thereafter
|
|
Operating
leases
|
|
$ |
6,731 |
|
|
$ |
2,229 |
|
|
$ |
2,431 |
|
|
$ |
1,539 |
|
|
$ |
532 |
|
Revolving
bank line of credit
|
|
|
949 |
|
|
|
- |
|
|
|
949 |
|
|
|
- |
|
|
|
- |
|
Revolving
bank line of credit -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
payments and bank fees
|
|
|
85 |
|
|
|
85 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Pension
plan
|
|
|
3,337 |
|
|
|
220 |
|
|
|
551 |
|
|
|
652 |
|
|
|
1,914 |
|
Total
|
|
$ |
11,102 |
|
|
$ |
2,534 |
|
|
$ |
3,931 |
|
|
$ |
2,191 |
|
|
$ |
2,446 |
|
Recently
Issued Accounting Pronouncements
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
(“SFAS”) 159, The Fair Value
Option for Financial Assets and Liabilities (“SFAS
159”). SFAS 159 permits entities to choose to measure many
financial instruments and certain insurance and warranty contracts at fair value
on a contract-by-contract basis. If the fair value option is elected,
unrealized gains and losses will be recognized in earnings at each subsequent
reporting date. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. We are currently evaluating the impact of adopting
SFAS 159 but do not expect the adoption to have a material impact on
our condensed consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which
changes the accounting and reporting for minority interests. Minority interests
will be recharacterized as noncontrolling interests and will be reported as a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for
as equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement and, upon a loss of control, the interest sold, as well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning
July 1, 2009 and will apply prospectively, except for the presentation and
disclosure requirements, which will apply retrospectively. We are
currently assessing the potential impact that adoption of SFAS No. 160 may
have on our financial statements, but do not expect such impact to be
material.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations, which
replaces SFAS No 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting.
It also changes the recognition of assets acquired and liabilities assumed
arising from contingencies, requires the capitalization of in-process research
and development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for us beginning July 1,
2009 and will apply prospectively to business combinations completed on or after
that date.
In
February, 2008, the FASB posted FASB Staff Position (“FSP”) FAS 157-2 (“FSP
157-2”), Effective Date of
FASB Statement No. 157, which amends SFAS 157 by delaying its
effective date by one year for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis. Therefore, beginning on
July 1, 2008, this standard applies prospectively to new fair value measurements
of financial instruments and recurring fair value measurements of non-financial
assets and non-financial liabilities. On July 1, 2009, the beginning of our
fiscal year 2010, the standard will also apply to non-recurring non-financial
assets and non-financial liabilities. Our non-recurring non-financial
assets and non-financial liabilities include those measured at fair value in
goodwill impairment testing, indefinite lived intangible assets measured at fair
value for impairment testing, asset retirement obligations initially measured at
fair value, and those initially measured at fair value in a business
combination. We are evaluating the impact of SFAS 157 and FSP 157-2
on our financial statements, but do not believe that such impact will be
material.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FAS 133, which requires additional
disclosures about the objectives of derivative instruments and hedging
activities, the method of accounting for those instruments under SFAS
No. 133 and its related interpretations, and a tabular disclosure of the
effects of those instruments and related hedged items on our financial position,
financial performance, and cash flows. SFAS No. 161 is effective for us
beginning January 1, 2009. We are currently assessing the
potential impact that of SFAS No. 161 will have on our financial
statements, but do expect such impact to be material.
In April,
2008, the FASB posted FASB Staff Position FAS 142-3 (“FSP 142-3”), Determination of the Useful Life of
Intangible Assets. This FSP 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. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under Statement 142 and the period of expected cash flows used to measure the
fair value of the asset under FASB Statement No. 141 (Revised 2007), Business Combinations, and
other U.S. generally accepted accounting principles (GAAP). This FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. We are evaluating the impact of FSP 142-3 on our
financial statements, but do not believe that such impact will be
material.
In June,
2008, The FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities. This FSP states that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
years. Upon adoption, a company is required to retrospectively adjust
its earnings per share data (including any amounts related to interim periods,
summaries of earnings and selected financial data) to conform to the provisions
in this FSP. However, early application of the provisions in this FSP
is prohibited. Concurrent is evaluating the impact of FSP 142-3 on
its financial statements, but does not believe that such impact will be
material.
Cautionary
Statements Regarding Forward-Looking Statements
Certain
statements made or incorporated by reference in this Annual Report on Form 10-K
may constitute “forward-looking statements” within the meaning of the federal
securities laws. When used or incorporated by reference in this
document, the words “believes,” “expects,” “estimates,” “anticipates,” and
similar expressions, are intended to identify forward-looking
statements. Statements regarding future events and developments, our
future performance, market share, and new market growth, as well as our
expectations, beliefs, plans, estimates, or projections relating to the future,
are forward-looking statements within the meaning of these
laws. Examples of our forward-looking statements in this report
include, but are not limited to, our pricing trends, our expected cash position,
our expectations of on-demand service revenue flattening or decreasing, our
expectations of market share and growth, the impact of interest rate changes and
fluctuation in currency exchange rates, our sufficiency of cash, the impact of
litigation, and our previous historical trend of declining real-time service
revenue. These statements are based on beliefs and assumptions of our
management, which are based on currently available information. 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 which could affect our
financial condition or results of operations include, without limitation:
availability of VOD content; delays or cancellations of customer orders; changes
in product demand; economic conditions; our ability to satisfy the financial
covenants in the credit agreement; various inventory risks due to changes in
market conditions; uncertainties relating to the development and ownership of
intellectual property; uncertainties relating to our ability and the ability of
other companies to enforce their intellectual property rights; the pricing and
availability of equipment, materials and inventories; the concentration of our
customers; failure to effectively manage change; delays in testing and
introductions of new products; rapid technology changes; system
errors or failures; reliance on a limited number of suppliers and failure of
components provided by those suppliers; uncertainties associated with
international business activities, including foreign regulations, trade
controls, taxes, and currency fluctuations; the impact of competition
on the pricing of VOD products; failure to effectively service the installed
base; the entry of new well-capitalized competitors into our markets; the
success of new on-demand and real-time products; the availability of Linux
software in light of issues raised by SCO Group; the success of our
relationships with Alcatel-Lucent; capital spending patterns by a limited
customer base; integration of our new CEO; privacy concerns over data
collection; and the availability of debt or equity financing to support our
liquidity needs should we seek to raise additional capital.
Other
important risk factors are discussed under the heading “Risk
Factors”.
Our
forward-looking statements are based on current expectations and speak only as
of the date of such statements. We undertake no obligation to
publicly update or revise any forward-looking statement, whether as a result of
future events, new information or otherwise.
Item 7A. Quantitative and Qualitative Disclosure about Market
Risk.
We are
exposed to market risk from changes in interest rates and foreign currency
exchange rates. We are exposed to the impact of interest rate changes
on our short-term cash investments and bank loans. Short-term cash
investments are in money market funds consisting of commercial paper, corporate
bonds and other investments, all with tier-one or better credit ratings, and all
of which have weighted average maturities of three months or less, providing
daily liquidity. These short-term investments carry a degree of
interest rate risk. Bank loans include a variable rate
Revolver. We believe that the impact of a 10% increase or decrease in
interest rates would not be material to our investment income and interest
expense from bank loans.
We
conduct business in the United States and around the world. Our most
significant foreign currency transaction exposure relates to the United Kingdom,
those Western European countries that use the Euro as a common currency,
Australia, and Japan. We do not hedge against fluctuations in
exchange rates and believe that a 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.
Item 8. Financial Statements and Supplementary
Data.
The
following consolidated financial statements and supplementary data are included
herein.
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
54
|
|
|
|
Management
Report on Internal Control Over Financial Reporting
|
|
55
|
|
|
|
Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
|
|
56
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2008 and 2007
|
|
57
|
|
|
|
Consolidated
Statements of Operations for each of the three years in the period ended
June 30, 2008
|
|
58
|
|
|
|
Consolidated
Statements of Stockholders' Equity and Comprehensive Income (Loss)for each
of the three years in the period ended June 30, 2008
|
|
59
|
|
|
|
Consolidated
Statements of Cash Flows for each of the three years in the period ended
June 30, 2008
|
|
60
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
61
|
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not
applicable.
Item 9A. Controls and Procedures.
Evaluation of Controls and
Procedures
As
required by Securities and Exchange Commission rules, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. This
evaluation was carried out under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer. Based on this evaluation, these officers have
concluded that the design and operation of our disclosure controls and
procedures are effective.
Changes
in Internal Control
There were
no significant changes to our internal control over financial reporting during
the fiscal year ended June 30, 2008 that materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.
Management’s
Report on Internal Control over Financial Reporting
Management’s
report on internal control over financial reporting and the attestation report
of our independent registered public accountants are included in Part II,
Item 8 “Financial Statements and Supplementary Data” of this report under
the captions entitled “Management Report on Internal Control Over Financial
Reporting” and “Report of Independent Registered Public Accounting Firm” and are
on pages 55 and 56, respectively, and incorporated herein by
reference.
Item 9B. Other Information.
None.
PART
III
Item 10. Directors, Executive Officers and Corporate
Governance.
Information
regarding the Registrant’s executive officers is located in Item X of this Form
10-K.
The
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption “Election of Directors” in the
Registrant's Proxy Statement to be used in connection with its Annual Meeting of
Stockholders to be held on October 22, 2008 (“Registrant's 2008 Proxy
Statement”).
The
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Registrant's 2008 Proxy Statement.
The
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption “Election of Directors – Corporate
Governance and Committees of the Board of Directors – Audit Committee” in the
Registrant’s 2008 Proxy Statement.
Item 11. Executive Compensation.
The
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption “Compensation Discussion and Analysis”
(Other than the Compensation Committee Report) and “Compensation of Directors”
in the Registrant's 2008 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
The
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the captions “Common Stock Ownership of Management
and Certain Beneficial Owners” and “Equity Compensation Plan Information” in
Registrant's 2008 Proxy Statement.
The
Registrant knows of no contractual arrangements, including any pledge by any
person of securities of the Registrant, the operation of which may at a
subsequent date result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions, and
Director Independence.
The
Registrant herein incorporates by reference in this Form 10-K certain
information under the caption “Certain Relationships and Related Party
Transactions” in Registrant’s 2008 Proxy Statement.
Item 14. Principal Accountant Fees and
Services.
The
registrant hereby incorporates by reference in this Form 10-K certain
information under the caption “Principal Accountant Fees and Services” in
Registrant’s 2008 Proxy Statement.
PART
IV
Item 15. Exhibits and Financial Statement Schedules.
(a)
|
(1)
Financial Statements Filed As Part Of This
Report:
|
Report of
Independent Registered Public Accounting Firm
Management Report on Internal Control
Over Financial Reporting
Report of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of June 30, 2008 and 2007
Consolidated
Statements of Operations for each of the three years in the period ended June
30, 2008
Consolidated
Statements of Stockholders' Equity and Comprehensive Income (Loss) for each of
the three years in the period ended June 30, 2008
Consolidated
Statements of Cash Flows for each of the three years in the period ended June
30, 2008
Notes to
Consolidated Financial Statements
(2)
Financial Statement Schedules
Schedule
II Valuation and Qualifying Accounts
All other
financial statements and schedules not listed have been omitted since the
required information is included in the Consolidated Financial Statements or the
Notes thereto, is not applicable, material or required.
(3)
Exhibits
Exhibit
|
|
Description of
Document
|
|
|
|
3.1
|
|
--Restated
Certificate of Incorporation of the Registrant (incorporated by reference
to the Registrant's Registration Statement on Form S-2 (No.
33-62440)).
|
|
|
|
3.2
|
|
--Certificate
of Amendment of the Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant’s Proxy on Form
DEFR14A filed on June 2, 2008).
|
|
|
|
3.3
|
|
--Amended
and Restated Bylaws of the Registrant (incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the period ended March 31,
2003).
|
|
|
|
3.4
|
|
--Certificate
of Correction to Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2002).
|
|
|
|
3.5
|
|
--Amended
Certificate of Designations of Series A Participating Cumulative Preferred
Stock (incorporated by reference to the Form 8-A/A, dated August 9,
2002).
|
|
|
|
3.6
|
|
--Amendment
to Amended Certificate of Designations of Series A Participating
Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A,
dated August 9, 2002).
|
|
|
|
4.1
|
|
--Form
of Common Stock Certificate (incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q for the period ended March 31,
2003).
|
4.2
|
|
--Form
of Rights Certificate (incorporated by reference to the Registrant’s
Current Report on Form 8-K/A filed on August 12, 2002).
|
|
|
|
4.3
|
|
--Amended
and Restated Rights Agreement dated as of August 7, 2002 between the
Registrant and American Stock Transfer & Trust Company, as Rights
Agent (incorporated by reference to the Registrant’s Current Report on
Form 8-K/A filed on August 12, 2002).
|
|
|
|
4.4
|
|
--Form
of Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated May 15, 2007 and incorporated herein by
reference).
|
|
|
|
4.5
|
|
--Form
of Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated May 15, 2007 and incorporated herein by
reference).
|
|
|
|
10.1
|
|
--Loan
and Security Agreement (incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q filed on February 4,
2005).
|
|
|
|
10.2
|
|
--Schedule
of Officers who have entered into the Form Indemnification Agreement
(incorporated by reference to the Registrant’s Quarterly report on Form
10-Q for the quarter ended December 31, 2004).
|
|
|
|
10.3
|
|
--1991
Restated Stock Option Plan (as amended as of October 26, 2000)
(incorporated by reference Exhibit A to the Registrant’s Proxy Statement
dated September 18, 2000).
|
|
|
|
10.4
|
|
--Richard
Rifenburgh Non-Qualified Stock Option Plan and Agreement (incorporated by
reference to the Registrant’s Registration Statement on Form S-8 (No.
333-82686)).
|
|
|
|
10.5
|
|
--Concurrent
Computer Corporation 2001 Stock Option Plan (incorporated by reference to
Annex II to the Registrant’s Proxy Statement dated September 19,
2001).
|
|
|
|
10.6
|
|
--Concurrent
Computer Corporation Amended and Restated 2001 Stock Option Plan
(incorporated by reference to the Registrant’s Registration Statement on
Form S-8 (No. 333-125974)).
|
|
|
|
10.7
|
|
--Form
of Option agreement with transfer restrictions (incorporated by reference
to the Registrant’s Current Report on Form 8-K dated June 24,
2005).
|
|
|
|
10.8
|
|
--Form
of Incentive Stock Option Agreement between the Registrant and its
executive officers (incorporated by reference to the Registrant's
Registration Statement on Form S-1 (No. 33-45871)).
|
|
|
|
10.9
|
|
--Form
of Non-Qualified Stock Option Agreement between the Registrant and its
executive officers (incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30,
1997).
|
|
|
|
10.10
|
|
--Summary
of Performance Grants (incorporated by reference to the Registrant’s
Current Report on Form 8-K filed March 3, 2005).
|
|
|
|
10.11
|
|
--Amended
and Restated Employment Agreement dated as of August 8, 2006 between the
Registrant and T. Gary Trimm and adjustment to executive officers’
salaries (incorporated by reference to the Registrant's Current Report on
Form 8-K filed on August 10, 2006).
|
|
|
|
10.12
|
|
-- Entry into a
Material Definitive Agreement between the Registrant and Silicon Valley
Bank in the form of a Forbearance to Loan and Security Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on August 14, 2006).
|
|
|
|
10.13
|
|
-- Entry into a
Material Definitive Agreement between the Registrant and Silicon Valley
Bank in the form of a Waiver and Third Loan Modification Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on August 31, 2006).
|
|
|
|
10.14
|
|
--Amended
and Restated Loan and Security Agreement (incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended December
31, 2006).
|
10.15
|
|
--Consulting
Services Agreement among the Company, TechCFO and Emory Berry
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on March 9, 2007).
|
|
|
|
10.16
|
|
--Indemnification
Agreement between the Company and Emory Berry (incorporated by reference
to the Registrant’s Current Report on Form 8-K filed on March 9,
2007).
|
|
|
|
10.17
|
|
--Form
of Securities Purchase Agreement by and among Concurrent Computer
Corporation and the purchasers set forth on the signature pages thereto
(filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
dated May 15, 2007 and incorporated herein by
reference).
|
|
|
|
10.18
|
|
--First
Amendment to Amended and Restated Loan and Security Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on December 20, 2007 (No. 000-13150)).
|
|
|
|
10.19
|
|
--Separation
Agreement, dated April 8, 2008, between Concurrent Computer Corporation
and T. Gary Trimm (incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on April 9, 2008 (No.
000-13150)).
|
|
|
|
10.20
|
|
--Employment
Agreement, dated April 8, 2008, between Concurrent Computer Corporation
and Dan Mondor (incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on April 9, 2008 (No.
000-13150)).
|
|
|
|
10.21
|
|
--Second
Amendment to Amended and Restated Loan and Security Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on June 24, 2008 (No. 000-13150)).
|
|
|
|
10.22
|
|
--Employment
Agreement, dated August 1, 2008, between Concurrent Computer Corporation
and Emory O. Berry (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on August 6, 2008 (No.
001-13150)).
|
|
|
|
14.1
|
|
--Code
of Ethics for Senior Executives & Financial Officers (incorporated by
reference to the Registrant’s Proxy for the fiscal year ended June 30,
2003).
|
|
|
|
21.1*
|
|
--List
of Subsidiaries.
|
|
|
|
23.1*
|
|
--Consent
of Deloitte & Touche LLP.
|
|
|
|
31.1*
|
|
--Certification
of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
31.2*
|
|
--Certification
of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.1*
|
|
--Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2*
|
|
--Certification
of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
Included herewith.
CONCURRENT
COMPUTER CORPORATION
ANNUAL
REPORT ON FORM 10-K
Item
8
Consolidated
Financial Statements and Supplementary Data
Year
Ended June 30, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of
Concurrent
Computer Corporation:
We have
audited the accompanying consolidated balance sheets of Concurrent Computer
Corporation and subsidiaries (the "Company") as of June 30, 2008 and 2007, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the three years in the
period ended June 30, 2008. Our audits also included the consolidated financial
statement schedule listed in the Index at Item 15 (a) (2). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Concurrent Computer Corporation and
subsidiaries as of June 30, 2008 and 2007, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2008, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of June 30, 2008 based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated August 27, 2008, expressed an
unqualified opinion on the Company's internal control over financial
reporting.
/s/
Deloitte & Touche LLP
Atlanta,
Georgia
August
27, 2008
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Pursuant to the rules and regulations of the
Securities and Exchange Commission, internal control over financial reporting is
a process designed by, or under the supervision of, our principal executive and
principal financial officers to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
Concurrent;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of Concurrent
are being made only in accordance with authorizations of management and
directors of Concurrent; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of Concurrent’s assets that
could have a material effect on the financial
statements.
|
Management
has evaluated the effectiveness of its internal control over financial reporting
as of June 30, 2008 based on the control criteria established in a report
entitled Internal
Control—Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on such evaluation, we have
concluded that Concurrent’s internal control over financial reporting is
effective as of June 30, 2008.
The
registered independent public accounting firm of Deloitte & Touche LLP, as
auditors of Concurrent’s consolidated financial statements, has issued an
attestation report on Concurrent’s internal control over financial reporting,
which report is included herein.
/s/ Dan
Mondor
|
|
/s/
Emory O. Berry
|
|
|
|
Dan
Mondor
|
|
Emory O. Berry
|
President
and Chief Executive Officer
|
|
Chief
Financial Officer and Executive Vice President of
Operations
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of
Concurrent
Computer Corporation:
We have
audited the internal control over financial reporting of Concurrent Computer
Corporation and
subsidiaries (the "Company") as of June 30, 2008, based on criteria established in
Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company's internal control
over financial reporting based on our audit.
We
conducted our audit 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
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2008, based on the criteria
established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended June 30, 2008 of the
Company and our report dated August 27, 2008
expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/
Deloitte & Touche LLP
Atlanta,
Georgia
August
27, 2008
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share amounts)
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
27,359 |
|
|
$ |
20,416 |
|
Accounts
receivable, less allowance for doubtful accounts of $90 at June 30,
2008 and $96 at June 30, 2007
|
|
|
14,422 |
|
|
|
20,987 |
|
Inventories,
net
|
|
|
5,094 |
|
|
|
3,457 |
|
Prepaid
expenses and other current assets
|
|
|
1,360 |
|
|
|
934 |
|
Total
current assets
|
|
|
48,235 |
|
|
|
45,794 |
|
|
|
Property,
plant and equipment, net
|
|
|
3,867 |
|
|
|
4,303 |
|
Intangible
- purchased technology, net
|
|
|
4,081 |
|
|
|
4,996 |
|
Intangible
- customer relationships and trademark, net
|
|
|
2,530 |
|
|
|
2,703 |
|
Goodwill
|
|
|
15,990 |
|
|
|
15,560 |
|
Other
long-term assets, net
|
|
|
836 |
|
|
|
777 |
|
Total
assets
|
|
$ |
75,539 |
|
|
$ |
74,133 |
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
13,984 |
|
|
$ |
15,566 |
|
Deferred
revenue
|
|
|
8,570 |
|
|
|
7,996 |
|
Total
current liabilities
|
|
|
22,554 |
|
|
|
23,562 |
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
962 |
|
|
|
1,053 |
|
Revolving
bank line of credit
|
|
|
949 |
|
|
|
1,077 |
|
Pension
liability
|
|
|
1,878 |
|
|
|
1,190 |
|
Other
|
|
|
1,768 |
|
|
|
656 |
|
Total
liabilities
|
|
|
28,111 |
|
|
|
27,538 |
|
|
|
Commitments
and contingencies (Note 18)
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Shares
of series preferred stock, par value $.01; 25,000,000 authorized; none
issued
|
|
|
- |
|
|
|
- |
|
Shares
of class A preferred stock, par value $100; 20,000 authorized; none
issued
|
|
|
- |
|
|
|
- |
|
Shares
of Series A participating cumulative preferred stock, par value 0.01;
300,000 authorized; none issued
|
|
|
- |
|
|
|
- |
|
Shares
of common stock, par value $.01; 100,000,000 authorized; 8,305,588 and
8,294,053 issued and outstanding at June 30, 2008 and 2007, respectively
(1)
|
|
|
83 |
|
|
|
83 |
|
Capital
in excess of par value (1)
|
|
|
204,574 |
|
|
|
203,565 |
|
Accumulated
deficit
|
|
|
(157,782 |
) |
|
|
(157,971 |
) |
Treasury
stock, at cost; 0 and 185 shares at June 30, 2008 and 2007, respectively
(1)
|
|
|
- |
|
|
|
(3 |
) |
Accumulated
other comprehensive income
|
|
|
553 |
|
|
|
921 |
|
Total
stockholders' equity
|
|
|
47,428 |
|
|
|
46,595 |
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
75,539 |
|
|
$ |
74,133 |
|
(1)
Outstanding shares and treasury shares have been restated to reflect the
one-for-ten reverse stock split, made effective on July 9, 2008.
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Product
|
|
$ |
44,157 |
|
|
$ |
46,549 |
|
|
$ |
49,592 |
|
Service
|
|
|
26,659 |
|
|
|
22,600 |
|
|
|
22,020 |
|
Total
revenues
|
|
|
70,816 |
|
|
|
69,149 |
|
|
|
71,612 |
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
21,945 |
|
|
|
25,982 |
|
|
|
25,010 |
|
Service
|
|
|
10,772 |
|
|
|
10,806 |
|
|
|
11,233 |
|
Total
cost of sales
|
|
|
32,717 |
|
|
|
36,788 |
|
|
|
36,243 |
|
Gross
margin
|
|
|
38,099 |
|
|
|
32,361 |
|
|
|
35,369 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
15,693 |
|
|
|
16,366 |
|
|
|
16,576 |
|
Research
and development
|
|
|
16,624 |
|
|
|
17,616 |
|
|
|
18,783 |
|
General
and administrative
|
|
|
9,669 |
|
|
|
10,172 |
|
|
|
9,590 |
|
Total
operating expenses
|
|
|
41,986 |
|
|
|
44,154 |
|
|
|
44,949 |
|
Operating
loss
|
|
|
(3,887 |
) |
|
|
(11,793 |
) |
|
|
(9,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on arbitration settlement, net
|
|
|
1,900 |
|
|
|
- |
|
|
|
- |
|
Recovery
of minority investment, net
|
|
|
1,415 |
|
|
|
- |
|
|
|
- |
|
Interest
income
|
|
|
839 |
|
|
|
423 |
|
|
|
467 |
|
Interest
expense
|
|
|
(132 |
) |
|
|
(365 |
) |
|
|
(235 |
) |
Other
income, net
|
|
|
177 |
|
|
|
22 |
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
312 |
|
|
|
(11,713 |
) |
|
|
(8,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
47 |
|
|
|
458 |
|
|
|
191 |
|
Income
(loss) before cumulative effect of accounting change
|
|
|
265 |
|
|
|
(12,171 |
) |
|
|
(9,022 |
) |
Cumulative
effect of accounting change (net of income taxes)
|
|
|
- |
|
|
|
- |
|
|
|
(323 |
) |
Net
income (loss)
|
|
$ |
265 |
|
|
$ |
(12,171 |
) |
|
$ |
(9,345 |
) |
Net
income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(1)
|
|
$ |
0.03 |
|
|
$ |
(1.67 |
) |
|
$ |
(1.35 |
) |
Diluted
(1)
|
|
$ |
0.03 |
|
|
$ |
(1.67 |
) |
|
$ |
(1.35 |
) |
Weighted
average shares outstanding - basic (1)
|
|
|
8,302 |
|
|
|
7,296 |
|
|
|
6,899 |
|
Weighted
average shares outstanding - diluted (1)
|
|
|
8,318 |
|
|
|
7,296 |
|
|
|
6,899 |
|
(1) All
periods have been restated to reflect the one-for-ten reverse stock split, made
effective on July 9, 2008.
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’
EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(In
thousands, except share amounts)
For
each of the three years in the period ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital
In
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Excess
Of
|
|
|
Accumulated
|
|
|
Unearned
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares (1)
|
|
|
Value (1)
|
|
|
Par Value (1)
|
|
|
Deficit
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Shares (1)
|
|
|
Cost
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2005
|
|
|
6,364,265 |
|
|
$ |
64 |
|
|
$ |
176,342 |
|
|
$ |
(136,455 |
) |
|
$ |
(1,562 |
) |
|
$ |
(36 |
) |
|
|
- |
|
|
$ |
- |
|
|
$ |
38,353 |
|
Sale
of common stock under stock plans
|
|
|
16,583 |
|
|
|
0 |
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
347 |
|
Issuance
of common stock
|
|
|
500 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Issuance
of restricted stock
|
|
|
13,300 |
|
|
|
0 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Elimination
of unearned compensation (SFAS 123(R))
|
|
|
(87,249 |
) |
|
|
(1 |
) |
|
|
(1,561 |
) |
|
|
|
|
|
|
1,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Everstream
acquisition
|
|
|
845,678 |
|
|
|
9 |
|
|
|
14,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,377 |
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
528 |
|
Acquisition
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,119 |
) |
|
|
(34 |
) |
|
|
(34 |
) |
Disposition
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,722 |
|
|
|
21 |
|
|
|
39 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,345 |
) |
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
(49 |
) |
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(453 |
) |
|
|
|
|
|
|
|
|
|
|
(453 |
) |
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,847 |
) |
Balance
at June 30, 2006
|
|
|
7,153,076 |
|
|
|
72 |
|
|
|
190,053 |
|
|
|
(145,800 |
) |
|
|
- |
|
|
|
(538 |
) |
|
|
(397 |
) |
|
|
(13 |
) |
|
|
43,774 |
|
Sale
of common stock under stock plans
|
|
|
3,542 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Issuance
of common stock related to private placement
|
|
|
1,120,000 |
|
|
|
11 |
|
|
|
12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,600 |
|
Restricted
stock
|
|
|
17,434 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915 |
|
Acquisition
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,910 |
) |
|
|
(33 |
) |
|
|
(33 |
) |
Disposition
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,122 |
|
|
|
43 |
|
|
|
38 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,171 |
) |
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
249 |
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598 |
|
|
|
|
|
|
|
|
|
|
|
598 |
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,324 |
) |
Adjustment
to initially apply SFAS 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|
612 |
|
Balance
at June 30, 2007
|
|
|
8,294,053 |
|
|
|
83 |
|
|
|
203,565 |
|
|
|
(157,971 |
) |
|
|
- |
|
|
|
921 |
|
|
|
(185 |
) |
|
|
(3 |
) |
|
|
46,595 |
|
Cumulative
effect adjustment to adopt FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76 |
) |
Adjusted
Balance July 1, 2007
|
|
|
8,294,053 |
|
|
|
83 |
|
|
|
203,565 |
|
|
|
(158,047 |
) |
|
|
- |
|
|
|
921 |
|
|
|
(185 |
) |
|
|
(3 |
) |
|
|
46,519 |
|
Restricted
stock
|
|
|
11,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,022 |
|
Acquisition
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,691 |
) |
|
|
(58 |
) |
|
|
(58 |
) |
Disposition
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,876 |
|
|
|
61 |
|
|
|
48 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265 |
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Adjustment
in pensions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456 |
) |
|
|
|
|
|
|
|
|
|
|
(456 |
) |
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103 |
) |
Balance
at June 30, 2008
|
|
|
8,305,588 |
|
|
$ |
83 |
|
|
$ |
204,574 |
|
|
$ |
(157,782 |
) |
|
$ |
0 |
|
|
$ |
553 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
47,428 |
|
(1) All
periods have been restated to reflect the one-for-ten reverse stock split, made
effective on July 9, 2008.
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
265 |
|
|
$ |
(12,171 |
) |
|
$ |
(9,345 |
) |
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,935 |
|
|
|
5,355 |
|
|
|
5,163 |
|
Share-based
compensation
|
|
|
1,022 |
|
|
|
915 |
|
|
|
528 |
|
Recovery
of minority investment, net
|
|
|
(1,415 |
) |
|
|
- |
|
|
|
- |
|
Non-cash
accretion expense
|
|
|
27 |
|
|
|
23 |
|
|
|
323 |
|
Provision
for (reversal of) bad debts
|
|
|
- |
|
|
|
(188 |
) |
|
|
184 |
|
Provision
for inventory reserves
|
|
|
167 |
|
|
|
496 |
|
|
|
(4 |
) |
Other
non-cash expenses
|
|
|
(295 |
) |
|
|
110 |
|
|
|
170 |
|
Decrease
(increase) in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
6,565 |
|
|
|
(5,688 |
) |
|
|
2,081 |
|
Inventories,
net
|
|
|
(1,804 |
) |
|
|
2,211 |
|
|
|
(1,061 |
) |
Prepaid
expenses and other current assets, net
|
|
|
(34 |
) |
|
|
498 |
|
|
|
(704 |
) |
Other
long-term assets, net
|
|
|
(382 |
) |
|
|
297 |
|
|
|
262 |
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(1,582 |
) |
|
|
3,961 |
|
|
|
(1,399 |
) |
Deferred
revenue
|
|
|
483 |
|
|
|
170 |
|
|
|
(341 |
) |
Long-term
liabilities
|
|
|
622 |
|
|
|
115 |
|
|
|
174 |
|
Net
cash provided by (used in) operating activities
|
|
|
7,574 |
|
|
|
(3,896 |
) |
|
|
(3,969 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to property and equipment
|
|
|
(2,310 |
) |
|
|
(2,525 |
) |
|
|
(1,912 |
) |
Recovery
of minority investment, net
|
|
|
1,415 |
|
|
|
- |
|
|
|
- |
|
Cash
received from acquisition of Everstream
|
|
|
- |
|
|
|
- |
|
|
|
1,159 |
|
Net
cash used in investing activities
|
|
|
(895 |
) |
|
|
(2,525 |
) |
|
|
(753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale and issuance of common stock
|
|
|
- |
|
|
|
12,613 |
|
|
|
357 |
|
Proceeds
from revolving bank line of credit
|
|
|
263 |
|
|
|
1,077 |
|
|
|
- |
|
Repayment
of bank line of credit or note payable to bank
|
|
|
(391 |
) |
|
|
(1,583 |
) |
|
|
(954 |
) |
Proceeds
from short term note payable
|
|
|
- |
|
|
|
690 |
|
|
|
- |
|
Repayment
of short term not payable
|
|
|
- |
|
|
|
(690 |
) |
|
|
- |
|
Sale
(purchase) of treasury stock, net
|
|
|
(10 |
) |
|
|
5 |
|
|
|
5 |
|
Net
cash provided by (used in) financing activities
|
|
|
(138 |
) |
|
|
12,112 |
|
|
|
(592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rates on cash and cash equivalents
|
|
|
402 |
|
|
|
302 |
|
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
|
6,943 |
|
|
|
5,993 |
|
|
|
(5,457 |
) |
Cash
and cash equivalents - beginning of year
|
|
|
20,416 |
|
|
|
14,423 |
|
|
|
19,880 |
|
Cash
and cash equivalents - end of year
|
|
$ |
27,359 |
|
|
$ |
20,416 |
|
|
$ |
14,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
69 |
|
|
$ |
227 |
|
|
$ |
206 |
|
Income
taxes (net of refunds)
|
|
$ |
265 |
|
|
$ |
150 |
|
|
$ |
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing/financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
consideration for acquisition
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14,375 |
|
The
accompanying notes are an integral part of the consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Overview
of the Business
|
Concurrent
Computer Corporation (“Concurrent”) is a supplier of high-performance computer
systems, software, and services. The computer systems and services
segments are comprised of two product lines: on-demand and
real-time.
Concurrent’s
on-demand product line provides on-demand systems consisting of hardware and
software that generate, manage and monitor on-demand TV services and integration
services, primarily to residential broadband companies that have upgraded their
networks to support interactive, digital services.
Concurrent’s
real-time product line provides high-performance, real-time operating systems
and development tools to commercial and government customers for use with a wide
range of applications that benefit from guaranteed, low latency and repeatable
processing.
Concurrent
provides sales and support from offices and subsidiaries throughout North
America, Europe, and Asia.
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of Concurrent and all
wholly-owned domestic and foreign subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Foreign
Currency
The
functional currency of all of Concurrent’s foreign subsidiaries is the
applicable local currency. The translation of the applicable foreign
currencies into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using average rates of exchange prevailing during the fiscal
year. Adjustments resulting from the translation of foreign currency
financial statements are accumulated in a separate component of stockholders’
equity. Gains or losses resulting from foreign currency transactions
are included in the Consolidated Statements of Operations, except for those
relating to intercompany transactions of a long-term investment nature which are
accumulated in a separate component of stockholders’ equity.
Gains
(losses) on foreign currency transactions of $233,000, $67,000, and ($86,000)
for the years ended June 30, 2008, 2007 and 2006, respectively, are included in
“Other income, net” in the Consolidated Statements of Operations.
Cash
and Cash Equivalents
Short-term
investments with maturities of ninety days or less at the date of purchase are
considered cash equivalents. Cash equivalents are stated at cost plus
accrued interest, which approximates market value, and represent cash invested
in U.S. government securities and bank certificates of deposit.
Inventories
Inventories
are stated at the lower of cost or market, with cost determined on the first-in,
first-out basis. Concurrent establishes excess and obsolete inventory
reserves based upon historical and anticipated usage.
Property,
Plant, and Equipment
Property,
plant and equipment are stated at acquired cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful
lives of assets ranging from one to ten years. Leasehold improvements
are amortized over the shorter of the useful lives of the improvements or the
terms of the related lease. Gains and losses resulting from the
disposition of property, plant and equipment are included in
operations. Expenditures for repairs and maintenance are charged to
operations as incurred and expenditures for major renewals and betterments are
capitalized.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Goodwill
and Trademark
Goodwill
and trademark are tested for impairment on an annual basis as of July 1, and
between annual tests if indicators of potential impairment exist, using a
fair-value-based approach. No impairment of goodwill or trademark has
been identified during any of the periods presented.
Revenue
Recognition Policy
Concurrent
recognizes revenue 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.
Software and Hardware
Sales
On-demand
and real-time product revenues are recognized based on the guidance in the
American Institute of Certified Public Accountants’ Statement of Position
(“SOP”) 97-2 and related amendments, SOP 98-4, Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain
Transactions. Concurrent’s standard contractual arrangements
with its customers generally include the delivery of a hardware and software
system, certain professional services that typically involve installation and
training, and ongoing software and hardware maintenance. The software
component of the arrangement is considered to be essential to the functionality
of the hardware. Therefore, in accordance with Emerging Issues Task
Force No. 03-5, Applicability
of AICPA Statement of Position 97-2 to Non-Software Deliverables in an
Arrangement Containing More-Than-Incidental Software, the hardware and
the hardware maintenance components are considered software related and the
provisions of SOP 97-2 apply to all elements of the
arrangement. 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. If VSOE of fair value does not exist for all elements in
a multiple element arrangement, Concurrent recognizes revenue using the residual
method. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the arrangement is recognized
as revenue. Where fair value of undelivered elements has not been
established, the total arrangement is recognized over the period during which
the services are performed.
In
certain instances, Concurrent’s customers require significant customization of
both the software and hardware products. In these situations, the
design and development is considered essential to the functionality of the
software and, therefore the revenue from these arrangements, with the exception
of maintenance, is recognized in conformity with Accounting Research Bulletin
(“ARB”) No. 45, Long Term
Construction Type Contracts and SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. 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.
Professional
Services
Professional
services revenue is primarily generated from integration of third party software
interfaces, training, and hardware installation. These services are
typically completed within 90 days from the receipt of the
order. Under multiple element arrangements, Concurrent allocates
revenue to the various elements based on VSOE of fair
value. Concurrent determines VSOE of fair value for the services
based on the standard rate per hour or fixed fee used when similar services are
sold separately. Revenues from these services are recognized when the
services are performed.
Hardware and Software
Maintenance
Concurrent
recognizes revenue from maintenance services in accordance with SOP
97-2. Depending upon the specific terms of the customer agreement,
Concurrent may include warranty as part of the purchase price. In
accordance with SOP 97-2 and, depending upon the specific terms of the customer
agreement, Concurrent either accrues the estimated costs to be incurred in
performing maintenance services at the time of revenue recognition and shipment
of product, or Concurrent defers revenue associated with the maintenance
services to be provided during the warranty period based upon the value for
which Concurrent has sold such services separately when they are renewed by
existing customers. For those arrangements in which the maintenance
period is less than or equal to one year, Concurrent accrues the estimated costs
to be incurred in providing services. In accordance with paragraph 59
of SOP 97-2, Concurrent has determined that the maintenance fee is part of the
initial license fee, the maintenance period is for one year or less, the
estimated cost of providing the services are immaterial, and upgrades and
enhancements offered during maintenance arrangements historically have been and
are expected to continue to be minimal and infrequent. Actual costs
are then charged against the warranty accrual as they are
incurred. For those arrangements in which the maintenance period is
greater than one year, Concurrent defers revenue based upon the value for which
Concurrent has sold such services separately. This revenue is then
recognized on a straight line basis over the warranty period.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Other
Concurrent
records reimbursable out–of–pocket expenses in both services and maintenance net
sales and as a direct cost of services and maintenance in accordance with EITF
Issue No. 01–14, Income Statement
Characterization of Reimbursements Received for “Out–of–Pocket” Expenses
Incurred . In accordance with EITF Issue No. 00–10, Accounting for Shipping and
Handling Fees, the reimbursement by customers of shipping and handling
costs are recorded in software and other net sales and the associated cost as a
cost of sale. Concurrent accounts for sales taxes on a net basis in
accordance with EITF No. 06-3, How Sales Taxes Collected from
Customers and Remitted to Governmental Authorities Should be Presented in the
Income Statement (That Is, Gross Versus Net Presentation).
Warranty
Accrual
For
certain customers Concurrent accrues the estimated costs to be incurred in
performing warranty services at the time of revenue recognition and shipment of
the servers. Concurrent’s estimate of costs to service warranty
obligations is based on historical experience and expectation of future
conditions.
Deferred
Revenue
Deferred
revenue consists of billings for maintenance contracts and for products that are
pending completion of the revenue recognition process. Maintenance
revenue, whether bundled with the product or priced separately, is recognized
ratably over the maintenance period. For contracts extending beyond
one year, deferred revenue related to the contract period extending beyond
twelve months is classified among long-term liabilities.
Capitalized
Software
Concurrent
accounts for software development costs in accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed (“SFAS
86”). Under SFAS 86, the costs associated with software development
are required to be capitalized after technological feasibility has been
established. Concurrent ceases capitalization upon the achievement of customer
availability. Costs incurred by Concurrent between technological
feasibility and the point at which the products are ready for market are
insignificant and as a result Concurrent had no internal software development
costs capitalized at June 30, 2008 and 2007. Concurrent has not
incurred costs related to the development of internal use software.
Research
and Development
Research
and development expenditures are expensed as incurred.
Basic
and Diluted Net Loss per Share
On July
8, 2008, stockholders of Concurrent approved a one-for-ten reverse stock split
(the “Reverse Stock Split”) that became effective on July 9, 2008 upon the
filing of a Certificate of Amendment to Concurrent’s Restated Certificate of
Incorporation with the Secretary of State of the State of
Delaware. No fractional shares of Concurrent’s common stock were
issued as a result of the Reverse Stock Split. Instead, stockholders
who otherwise were entitled to receive a fractional share of common stock as a
consequence of the Reverse Stock Split, upon surrender to the exchange agent of
the certificates representing such fractional shares, received cash from
Concurrent. The fractional shares represented approximately 443
Post-Reverse Stock Split Shares and Concurrent purchased these shares for
approximately $3,000.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Per share
computations for fiscal year 2008 are presented based upon the new number of
shares outstanding, after the Reverse Stock Split and prior period weighted
average shares outstanding and earnings per share amounts have been restated
based upon shares outstanding as a result of the Reverse Stock
Split.
Basic net
loss per share is computed in accordance with SFAS No. 128, Earnings Per Share, by
dividing net loss by the weighted average number of common shares outstanding
during each year. Diluted net loss per share is computed by dividing
net loss by the weighted average number of shares including dilutive common
share equivalents. 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. After the one-for-ten reverse stock split, common
share equivalents of 1,018,000, 1,042,000, and 784,800 for the years ended June
30, 2008, 2007 and 2006 were excluded from the calculation as their effect was
anti-dilutive. The following table presents a reconciliation of the
numerators and denominators of basic and diluted loss per share for the periods
indicated:
|
|
Year Ended June 30,
|
|
(Dollars
and share data in thousands, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Basic
and diluted earnings per share (“EPS”) calculation:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
265 |
|
|
$ |
(12,171 |
) |
|
$ |
(9,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average number of shares outstanding
|
|
|
8,302 |
|
|
|
7,296 |
|
|
|
6,899 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
shares
|
|
|
16 |
|
|
|
- |
|
|
|
- |
|
Diluted
weighted average number of shares outstanding
|
|
|
8,318 |
|
|
|
7,296 |
|
|
|
6,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
0.03 |
|
|
$ |
(1.67 |
) |
|
$ |
(1.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
0.03 |
|
|
$ |
(1.67 |
) |
|
$ |
(1.35 |
) |
Valuation
of Long-Lived Assets
In
accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (“SFAS No. 144”), which addresses financial
accounting and reporting for the impairment and disposition of long-lived
assets, Concurrent evaluates the recoverability of long-lived assets, other than
indefinite lived intangible assets, for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Conditions that would necessitate an impairment
assessment include a significant decline in the observable market value of an
asset, a significant change in the extent or manner in which an asset is used,
or a significant adverse change that would indicate that the carrying amount of
an asset or group of assets is not recoverable. For long-lived assets
to be held and used, Concurrent recognizes an impairment loss only if its
carrying amount is not recoverable through its undiscounted cash flows and
measures the impairment loss based on the difference between the carrying amount
and fair value. Long-lived assets held for sale are reported at the
lower of cost or fair value less costs to sell. As a result of these
reviews, Concurrent has not recorded any impairment losses related to long-lived
assets, for any of the years ending June 30, 2008, 2007 and 2006.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Fair
Value of Financial Instruments
The
carrying amounts of cash and cash equivalents, accounts receivable, inventories,
prepaid expenses, and accounts payable approximate fair value because of the
short maturity of these instruments. The carrying amount of
noncurrent bank debt also approximates fair value, as the interest rate on the
bank debt approximates market and the remaining term of the debt is less than
two years.
Fair
value estimates are made at a specific point in time, based on the relevant
market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumption could significantly
affect the estimates.
Income
Taxes
Concurrent
and its domestic subsidiaries file a consolidated federal income tax
return. All foreign subsidiaries file individual or consolidated tax
returns pursuant to local tax laws. Concurrent follows the asset and
liability method of accounting for income taxes. Under the asset and
liability method, a deferred tax asset or liability is recognized for temporary
differences between financial reporting and income tax bases of assets and
liabilities, tax credit carryforwards and operating loss
carryforwards. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that such deferred tax assets
will not be realized.
Share-Based
Compensation
Option
awards are granted with an exercise price equal to the market price of
Concurrent’s stock at the date of grant. Concurrent accounts for
share-based compensation in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS
123(R)”). SFAS 123(R) requires the recognition of the fair value of
stock compensation in the Statement of Operations. Concurrent
recognizes stock compensation expense over the requisite service period of the
individual grantees, which generally equals the vesting period. All
of Concurrent’s stock compensation is accounted for as equity
instruments.
Refer to
Note 12 for assumptions used in calculation of fair value. As of June
30, 2008, total compensation costs related to unvested options and restricted
stock not yet recognized is approximately $2,422,000.
Comprehensive
Income (Loss)
Concurrent
reports comprehensive income (loss), in addition to net loss from operations, as
required by SFAS No. 130, Reporting Comprehensive
Income. Comprehensive income (loss) is a more inclusive
financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of net
income (loss). Comprehensive income (loss) is defined as a change in
equity during the financial reporting period of a business enterprise resulting
from non-owner sources. Components of accumulated other comprehensive
income (loss) are disclosed in the Consolidated Statements of Shareholders’
Equity and Comprehensive Income (Loss).
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of 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. Actual results could differ from those
estimates.
3.
|
New
Accounting Pronouncements
|
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
(“SFAS”) 159, The Fair Value
Option for Financial Assets and Liabilities (“SFAS
159”). SFAS 159 permits entities to choose to measure many
financial instruments and certain insurance and warranty contracts at fair value
on a contract-by-contract basis. If the fair value option is elected,
unrealized gains and losses will be recognized in earnings at each subsequent
reporting date. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. Concurrent is evaluating the impact of adopting
SFAS 159 but does not expect the adoption to have a material impact on its
consolidated financial statements.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which changes
the accounting and reporting for minority interests. Minority interests will be
recharacterized as noncontrolling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement and, upon a loss of control, the interest sold, as well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning
July 1, 2009 and will apply prospectively, except for the presentation and
disclosure requirements, which will apply retrospectively. Concurrent
is assessing the potential impact that adoption of SFAS No. 160 may have on
its financial statements, but does not expect such impact to be
material.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations, which
replaces SFAS No 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting.
It also changes the recognition of assets acquired and liabilities assumed
arising from contingencies, requires the capitalization of in-process research
and development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for Concurrent beginning
July 1, 2009 and will apply prospectively to business combinations
completed on or after that date.
In
February, 2008, the FASB posted FASB Staff Position (“FSP”) FAS 157-2 (“FSP
157-2”), Effective Date of
FASB Statement No. 157, which amends SFAS 157 by delaying its
effective date by one year for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis. Therefore, beginning on
July 1, 2008, this standard applies prospectively to new fair value measurements
of financial instruments and recurring fair value measurements of non-financial
assets and non-financial liabilities. On July 1, 2009, the beginning of
Concurrent’s fiscal year 2010, the standard will also apply to non-recurring
non-financial assets and non-financial liabilities. Concurrent’s
non-recurring non-financial assets and non-financial liabilities include those
measured at fair value in goodwill impairment testing, indefinite lived
intangible assets measured at fair value for impairment testing, asset
retirement obligations initially measured at fair value, and those initially
measured at fair value in a business combination. Concurrent is
evaluating the impact of SFAS 157 and FSP 157-2 on its financial statements, but
does not believe that such impact will be material.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FAS 133, which requires additional
disclosures about the objectives of derivative instruments and hedging
activities, the method of accounting for those instruments under SFAS
No. 133 and its related interpretations, and a tabular disclosure of the
effects of those instruments and related hedged items on our financial position,
financial performance, and cash flows. SFAS No. 161 is effective for us
beginning January 1, 2009. We are currently assessing the
potential impact that of SFAS No. 161 will have on our financial
statements, but do expect such impact to be material.
In April,
2008, the FASB posted FASB Staff Position FAS 142-3 (“FSP 142-3”), Determination of the Useful Life of
Intangible Assets. This FSP 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. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under Statement 142 and the period of expected cash flows used to measure the
fair value of the asset under FASB Statement No. 141 (Revised 2007), Business Combinations, and
other U.S. generally accepted accounting principles (GAAP). This FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. Concurrent is
evaluating the impact of FSP 142-3 on its financial statements, but does not
believe that such impact will be material.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
In June,
2008, The FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities. This FSP states that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
years. Upon adoption, a company is required to retrospectively adjust
its earnings per share data (including any amounts related to interim periods,
summaries of earnings and selected financial data) to conform to the provisions
in this FSP. However, early application of the provisions in this FSP
is prohibited. Concurrent is evaluating the impact of FSP 142-3 on
its financial statements, but does not believe that such impact will be
material.
Inventories
consist of the following:
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
Raw
materials, net
|
|
$ |
3,849 |
|
|
$ |
2,054 |
|
Work-in-process
|
|
|
609 |
|
|
|
935 |
|
Finished
goods
|
|
|
636 |
|
|
|
468 |
|
|
|
$ |
5,094 |
|
|
$ |
3,457 |
|
At June
30, 2008 and 2007, some portion of Concurrent’s inventory was in excess of the
current requirements based upon the planned level of sales for future
years. Accordingly, Concurrent has reduced its gross raw materials
inventory by $1,234,000 at June 30, 2008 and $1,976,000 at June 30, 2007 to its
estimated net realizable value.
5.
|
Property,
Plant and Equipment
|
Property,
plant, and equipment consist of the following:
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
Leasehold
improvements
|
|
$ |
2,408 |
|
|
$ |
3,184 |
|
Machinery,
equipment and customer support spares
|
|
|
9,557 |
|
|
|
14,229 |
|
|
|
|
11,965 |
|
|
|
17,413 |
|
Less:
Accumulated depreciation
|
|
|
(8,098 |
) |
|
|
(13,110 |
) |
|
|
$ |
3,867 |
|
|
$ |
4,303 |
|
For the
years ended June 30, 2008, 2007 and 2006, depreciation expense for property,
plant and equipment amounted to $2,847,000, $4,267,000, and $4,327,000,
respectively.
In March
2005, the FASB issued Financial Interpretation (“FIN”) No. 47, Accounting for Asset Retirement
Obligations – an Interpretation of FASB Statement No. 143 (“FIN
47”). FIN 47 requires the recognition of a liability for the fair
value of a legally-required conditional asset retirement obligation when
incurred, if the liability’s fair value can be reasonably
estimated. FIN 47 also clarifies when an entity would have sufficient
information to reasonably estimate the fair value of an asset retirement
obligation. Concurrent adopted FIN 47 on June 30, 2006, recording a
$323,000 cumulative effect of accounting change (net of tax) in Concurrent’s
Consolidated Statement of Operations for the fiscal year ended June 30,
2006. This charge was a combination of depreciation and accretion
expense. Concurrent was also required to record an asset and a
corresponding liability for the present value of the estimated asset retirement
obligation associated with the leasehold improvements at some of our
international locations. The asset is depreciated over the life of
the corresponding lease while the liability accretes to the amount of the
estimated retirement obligation. As part of the adoption of FIN 47,
Concurrent recorded leasehold improvements of $95,000 and offsetting accumulated
depreciation for the same amount, as the initial lease terms associated with
these assets has passed. The present value of the asset retirement
obligation recorded on the Consolidated Balance Sheets was $395,000 and $335,000
as of June 30, 2008 and 2007, respectively. Expense associated with
accretion of the obligation is recorded to operating expenses. The
changes to the asset retirement obligation associated with lease restoration
costs are as follows:
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Asset
retirement obligation, June 30, 2007
|
|
$ |
335 |
|
Accretion
of asset retirement obligation
|
|
|
27 |
|
Costs
incurred to restore vacated office space
|
|
|
(14 |
) |
Impact
of foreign exchange rates
|
|
|
47 |
|
Asset
retirement obligation, June 30, 2008
|
|
$ |
395 |
|
6.
|
Acquisition
of Everstream
|
On August
19, 2005, Concurrent entered into the Merger Agreement with Stream Acquisition,
Inc., Everstream Holdings, Inc. (“Everstream”), and certain selling stockholders
of Everstream, and entered into an amendment to such agreement on August 26,
2005. The acquisition of 100% of the voting equity interest of
Everstream pursuant to the Merger Agreement was completed on October 11,
2005. Everstream is an organization that provides comprehensive
business analytics and advertising solutions for cable and satellite operators.
Everstream develops solutions that enable its customers to evaluate and measure
performance characteristics of transactional services such as
video-on-demand. Everstream is also developing interactive and
on-demand television applications to deliver impression based and one-to-one
interactive advertising. Concurrent purchased Everstream to acquire
its software and customer base and has included Everstream results in its
interim and year end financial results effective October 11, 2005.
Pursuant
to the Merger Agreement, Concurrent issued 845,678 shares of Concurrent stock
equal to approximately $14,375,000 for the Everstream stock it did not already
own (Concurrent’s existing Everstream stock was valued in the transaction at
approximately $500,000), determined by dividing $14,375,000 by $17.00, the
average trading price of Concurrent stock for the 30 calendar days ending on the
third calendar day prior to closing. Share amounts and prices have
been restated to reflect the Reverse Stock Split.
Concurrent
allocated $8,800,000 of the purchase price to the acquired intangible
assets. The fair values reflected below were determined based on the
expected future cash flows over the expected lives of the intangible
assets. Concurrent expects to maintain usage of the Everstream
trademark on existing products and introduce new products in the future that
will also display the trademark. Consequently, the acquired
Everstream trademark qualifies as an indefinite-lived asset in accordance with
the criteria set forth in SFAS No. 142. Identifiable intangible
assets with finite useful lives are amortized over their estimated useful lives
under the purchase method of accounting. In accordance with SFAS No.
142, indefinite-lived intangible assets and goodwill are tested at least
annually for impairment, or more frequently if circumstances warrant, based on
the fair value of the reporting unit for goodwill and the direct fair value of
indefinite-lived intangible assets. In accordance with SFAS No. 144, which addresses financial
accounting and reporting for the impairment and disposition of long-lived
assets, Concurrent
evaluates the recoverability of long-lived assets, other than indefinite lived
intangible assets, for impairment when events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Concurrent recognizes an impairment loss only if its carrying amount is not
recoverable through its undiscounted cash flows and measures the impairment loss
based on the difference between the carrying amount and fair value.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The
following table reflects the fair values of the acquired intangible assets and
related useful lives at the acquisition date (dollar amounts in
thousands):
|
|
Estimated
Fair Value
|
|
Estimated
Useful Life
|
Identifiable
intangible assets:
|
|
|
|
|
Developed
Technologies
|
|
$ |
5,800 |
|
8
years
|
Customer
Base
|
|
|
1,900 |
|
11
years
|
Trademarks
– indefinite lived
|
|
|
1,100 |
|
Indefinite
|
Total
|
|
$ |
8,800 |
|
|
The
remaining excess purchase price of $4,816,000 was determined to be goodwill and
will be periodically reviewed for potential impairment in accordance with SFAS
No. 142. See Note 7 for further discussion of goodwill and other
intangibles.
7.
|
Goodwill
and Other Intangibles
|
Goodwill
was $15,990,000 and $15,560,000 as of June 30, 2008 and June 30, 2007,
respectively. The $430,000 increase resulted from an adjustment to
appropriately reflect a deferred tax liability which was previously recorded net
of valuation allowance for an indefinite lived intangible asset related to the
acquisition of Everstream. Concurrent operates in two segments,
as defined by FASB Statement No. 131, Disclosure about Segments of an
Enterprise and Related Information. Our two segments are
products and services, which are also considered Reporting Units for assessment
of goodwill impairment under SFAS 142. Since Concurrent does not
measure assets on a segment basis, it allocates operating expenses on a pro-rata
basis between products and services to test impairment of goodwill and allocates
goodwill between the two reporting units in the same manner. In
accordance with SFAS 142, Concurrent tests goodwill and trademark for
impairment, at least annually. The impairment test has been performed
for fiscal years 2008, 2007, and 2006, and there has not been any impairment
charge as a result of these assessments. Other intangible assets as
of June 30, 2008 and June 30, 2007 consisted of the following (in
thousands):
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
Cost
of amortizable intangibles:
|
|
|
|
|
|
|
Purchased
technology
|
|
$ |
7,700 |
|
|
$ |
7,700 |
|
Customer
relationships
|
|
|
1,900 |
|
|
|
1,900 |
|
Total
cost of intangibles
|
|
|
9,600 |
|
|
|
9,600 |
|
Less
accumulated amortization:
|
|
|
|
|
|
|
|
|
Purchased
technology
|
|
|
(3,619 |
) |
|
|
(2,704 |
) |
Customer
relationships
|
|
|
(470 |
) |
|
|
(297 |
) |
Total
accumulated amortization
|
|
|
(4,089 |
) |
|
|
(3,001 |
) |
Trademark
|
|
|
1,100 |
|
|
|
1,100 |
|
Total
intangible assets, net
|
|
$ |
6,611 |
|
|
$ |
7,699 |
|
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Amortization
expense for the years ended June 30, 2008, 2007 and 2006 was $1,088,000,
$1,088,000, and $836,000, respectively. The estimated amortization
expense related to intangible assets for the next five fiscal years is (in
thousands):
Fiscal
year:
|
|
|
|
2009
|
|
$ |
1,088 |
|
2010
|
|
|
961 |
|
2011
|
|
|
898 |
|
2012
|
|
|
898 |
|
2013
|
|
|
898 |
|
|
|
$ |
4,743 |
|
8.
|
Accounts
Payable and Accrued Expenses
|
Accounts
payable and accrued expenses consist of the following:
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Accounts
payable, trade
|
|
$ |
7,003 |
|
|
$ |
7,955 |
|
Accrued
payroll, vacation and other employee expenses
|
|
|
4,338 |
|
|
|
4,679 |
|
Warranty
accrual
|
|
|
198 |
|
|
|
343 |
|
Other
accrued expenses
|
|
|
2,445 |
|
|
|
2,589 |
|
|
|
$ |
13,984 |
|
|
$ |
15,566 |
|
Our
estimate of warranty obligations is based on historical experience and
expectation of future conditions. The changes in the warranty accrual
during fiscal year 2008 consist of the following (in thousands):
Balance
at June 30, 2007
|
|
$ |
343 |
|
Charged
to costs and expenses
|
|
|
126 |
|
Deductions
against accrual
|
|
|
(271 |
) |
Balance
at June 30, 2008
|
|
$ |
198 |
|
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Concurrent
adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109, (“FIN
No. 48”), on July 1, 2007. The cumulative effect of adopting FIN
No. 48 did not have a material impact on Concurrent’s financial position or
the results of operations. A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows (dollars in thousands):
|
|
|
|
Balance
at July 1, 2007
|
|
$ |
127 |
|
Additions
based on tax positions related to the current year
|
|
|
- |
|
Additions
for tax positions of prior years
|
|
|
26 |
|
Reductions
for tax positions for prior years
|
|
|
- |
|
Reductions
for lapse in statute of limitations
|
|
|
- |
|
Settlements
|
|
|
- |
|
Balance
at June 30, 2008
|
|
$ |
153 |
|
The
amount of gross tax effected unrecognized tax benefits as of June 30, 2008 was
approximately $153,000 of which approximately $153,000, if recognized, would
affect the effective tax rate. During the year ending June 30, 2008,
Concurrent recognized approximately $33,000 of interest and
penalties. Concurrent had approximately $229,000 and $195,000 of
accrued interest and penalties at June 30, 2008 and July 1, 2007,
respectively. Concurrent recognizes potential interest and penalties
related to unrecognized tax benefits as a component of income tax
expense. Concurrent does not believe that the amount of uncertain tax
positions will change by a significant amount within the next 12
months.
Concurrent
and its subsidiaries file income tax returns in the U.S. federal jurisdiction,
and various states and foreign jurisdictions. With few exceptions,
Concurrent is no longer subject to U.S. federal, state and local, or non-U.S.
income tax examinations by tax authorities for fiscal years before
1993.
The
domestic and foreign components of income (loss) before provision for income
taxes are as follows:
|
|
Year ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
(27 |
) |
|
$ |
(10,507 |
) |
|
$ |
(8,298 |
) |
Foreign
|
|
|
339 |
|
|
|
(1,206 |
) |
|
|
(533 |
) |
|
|
$ |
312 |
|
|
$ |
(11,713 |
) |
|
$ |
(8,831 |
) |
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The
components of the provision for income taxes are as follows:
|
|
Year ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
State
|
|
|
22 |
|
|
|
18 |
|
|
|
12 |
|
Foreign
|
|
|
524 |
|
|
|
212 |
|
|
|
114 |
|
Total
|
|
|
546 |
|
|
|
230 |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
|
|
|
(499 |
) |
|
|
228 |
|
|
|
65 |
|
Total
|
|
|
(499 |
) |
|
|
228 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
47 |
|
|
$ |
458 |
|
|
$ |
191 |
|
A
reconciliation of the income tax expense (benefit) computed using the federal
statutory income tax rate to Concurrent’s provision for income taxes is as
follows:
|
|
Year ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
$ |
312 |
|
|
$ |
(11,713 |
) |
|
$ |
(8,831 |
) |
Provision
(benefit) at federal statutory rate
|
|
|
106 |
|
|
|
(3,982 |
) |
|
|
(3,003 |
) |
Change
in valuation allowance
|
|
|
(1,225 |
) |
|
|
1,178 |
|
|
|
(10,403 |
) |
Valuation
allowance recorded on acquisition
|
|
|
- |
|
|
|
- |
|
|
|
704 |
|
Dividend
from subsidiary
|
|
|
- |
|
|
|
428 |
|
|
|
- |
|
Permanent
differences
|
|
|
745 |
|
|
|
342 |
|
|
|
191 |
|
Net
operating loss expiration
|
|
|
370 |
|
|
|
2,674 |
|
|
|
14,425 |
|
Change
in state tax rates
|
|
|
(276 |
) |
|
|
- |
|
|
|
(1,462 |
) |
Change
in uncertain tax positions
|
|
|
58 |
|
|
|
- |
|
|
|
- |
|
Foreign
rate differential
|
|
|
70 |
|
|
|
104 |
|
|
|
(90 |
) |
Other
|
|
|
199 |
|
|
|
(286 |
) |
|
|
(171 |
) |
Provision
for income taxes
|
|
$ |
47 |
|
|
$ |
458 |
|
|
$ |
191 |
|
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
As of
June 30, 2008 and 2007, Concurrent’s deferred tax assets and liabilities were
comprised of the following:
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Deferred
tax assets related to:
|
|
|
|
|
|
|
U.S.
and foreign net operating loss carryforwards
|
|
$ |
64,241 |
|
|
$ |
62,738 |
|
Book
and tax basis differences for property and equipment
|
|
|
1,223 |
|
|
|
1,180 |
|
Bad
debt, warranty and inventory reserves
|
|
|
962 |
|
|
|
1,205 |
|
Accrued
compensation
|
|
|
862 |
|
|
|
1,258 |
|
Impairment
loss on minority investments
|
|
|
- |
|
|
|
3,551 |
|
Deferred
revenue
|
|
|
266 |
|
|
|
545 |
|
Research
and development tax credit
|
|
|
254 |
|
|
|
254 |
|
Other
|
|
|
355 |
|
|
|
1,206 |
|
Deferred
tax assets
|
|
|
68,163 |
|
|
|
71,937 |
|
Valuation
allowance
|
|
|
(65,690 |
) |
|
|
(69,157 |
) |
Total
deferred tax assets
|
|
|
2,473 |
|
|
|
2,780 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities related to:
|
|
|
|
|
|
|
|
|
Acquired
intangibles
|
|
|
2,594 |
|
|
|
2,780 |
|
Total
deferred tax liability
|
|
|
2,594 |
|
|
|
2,780 |
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes, net
|
|
$ |
(121 |
) |
|
$ |
- |
|
The net
deferred income taxes of ($121,000) are comprised of $392,000 of current
deferred tax assets, net, $106,000 of non-current deferred tax assets, net, and
($619,000) of non-current deferred tax liabilities, net. As of June
30, 2008, Concurrent has U.S. Federal Tax net operating loss carryforwards of
approximately $161.0 million for income tax purposes, of which $13.6 million
expire in fiscal year 2009, and the remainder expire at various dates through
2028. Concurrent acquired tax benefits from the Everstream
acquisition in the form of approximately $11.0 million of net operating loss
carryforwards and $254,000 in research and development tax
credits. The benefits associated with these losses and tax credits
may be limited under Section 382 of the Internal Revenue Code and Concurrent has
fully offset these losses with a valuation allowance. Additional net
operating loss carryforwards as of June 30, 2008 may be limited under Section
382 of the Internal Revenue Code as a result of the private placement of public
equity that is further described in Note 13 to the Consolidated Financial
Statements.
Deferred
income taxes have not been provided for undistributed earnings of foreign
subsidiaries, which originated subsequent to Concurrent’s 1991
quasi-reorganization, primarily due to Concurrent’s required investment in
certain subsidiaries. However, Concurrent is no longer permanently
reinvested with respect to the earnings of Concurrent New Zealand for which the
appropriate tax effect has been provided.
Additionally,
deferred income taxes have not been provided on undistributed earnings of
foreign subsidiaries, which originated prior to Concurrent’s
quasi-reorganization. The impact of both the subsequent repatriation
of such earnings and the resulting offset, in full, from the utilization of net
operating loss carryforwards will be accounted for through adjustments to
capital in excess of par value.
The
valuation allowance for deferred tax assets as of June 30, 2008 and 2007 was
approximately $65.7 million and $69.2 million, respectively. The
change in the total valuation allowance for the year ended June 30, 2008 was a
decrease of approximately $3,467,000, which is net of a $430,000 increase to the
current year valuation allowance to appropriately reflect a deferred tax
liability which was previously recorded net of valuation allowance for an
indefinite lived intangible asset related to the acquisition of
Everstream. In assessing the realizability of deferred tax assets,
Concurrent considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. In determining
whether or not a valuation allowance for tax assets is needed, Concurrent
evaluates all available evidence, both positive and negative, including: trends
in operating income or losses, currently available information about future
years, future reversals of existing taxable temporary differences; future
taxable income exclusive of reversing temporary differences and carryforwards;
taxable income in prior carryback years if carryback is permitted under the tax
law; and tax planning strategies that would accelerate taxable amounts to
utilize expiring carryforwards, change the character of taxable and deductible
amounts from ordinary income or loss to capital gain or loss, or switch from
tax-exempt to taxable investments. 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. In fiscal year 2008, Concurrent released $499,000 of
valuation allowances previously recorded against deferred tax assets for
Concurrent’s Japan and UK subsidiaries, as management believes it is more likely
than not that Concurrent will recognize these tax benefits. All
remaining deferred tax assets have been reduced by the valuation allowance since
Concurrent considers it more likely than not that these deferred tax assets will
not be realized.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
10.
|
Pensions
and Other Postretirement Benefits
|
Concurrent
maintains a retirement savings plan (the “Plan”), available to U.S. employees,
that qualifies as a defined contribution plan under Section 401(k) of the
Internal Revenue Code. For fiscal year 2008 and the last half of
fiscal year 2007, the plan allowed a discretionary matching contribution up to
100% of the first 2.5% of all employees’ contributions. For the first
six months of fiscal 2007 and last six months of fiscal 2006, the plan allowed a
discretionary matching contribution up to 100% of the first 2.5% of employees’
contributions by non-highly compensated employees only. For the first
six months of fiscal 2006, the plan allowed for a discretionary matching
contribution up to 100% of the first 3% of employees’
contributions. For the years ended June 30, 2008, 2007 and 2006,
Concurrent matched 100% of the allowable discretionary matching percentage of
the employees’ Plan contributions. Concurrent’s matching
contributions under the Plan were as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in Thousands)
|
|
Matching
contribution
|
|
$ |
504 |
|
|
$ |
439 |
|
|
$ |
498 |
|
Concurrent
also maintains a defined contribution plan (the Stakeholder Plan) for its UK
based employees. The stakeholder plan provides for discretionary
matching contributions of between 4% and 7% of the employee’s
salary. Concurrent also has agreements with certain of its UK based
employees to make supplementary contributions to the plan over the next 11
months, contingent upon their continued employment with
Concurrent. For fiscal years 2008, 2007 and 2006, Concurrent made
total contributions to the stakeholder plan of $469,000, $621,000 and $429,000,
respectively.
Adoption
of SFAS No. 158
Concurrent’s
foreign subsidiaries maintain pension plans for their employees that conform to
the common practice in their respective countries. As of June 30,
2008, Concurrent maintained a defined benefit pension plan covering certain
current and former employees in Germany. Effective June 30, 2007,
Concurrent adopted the provisions of SFAS No. 158, which requires that
Concurrent’s Consolidated Balance Sheet reflect funded status of defined benefit
pension plans. The funded status is measured as the difference
between the plan assets at fair value and the projected benefit
obligation.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The
measurement date used to determine fiscal 2008 benefit information for the plans
was June 30, 2008. A reconciliation of the changes in the plans’
benefit obligations and fair value of plan assets over the two-year period ended
June 30, 2008, and a statement of the funded status at June 30, 2008 for these
years for Concurrent’s pension plan is as follows:
Obligations
and Funded Status
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
(Dollars
in thousands)
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$ |
3,909 |
|
|
$ |
4,866 |
|
Service
cost
|
|
|
24 |
|
|
|
31 |
|
Interest
cost
|
|
|
214 |
|
|
|
233 |
|
Actuarial
(gain) loss
|
|
|
380 |
|
|
|
(1,341 |
) |
Foreign
currency exchange rate change
|
|
|
646 |
|
|
|
285 |
|
Benefits
paid
|
|
|
(200 |
) |
|
|
(165 |
) |
Benefit
obligation at end of year
|
|
$ |
4,973 |
|
|
$ |
3,909 |
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$ |
2,695 |
|
|
$ |
2,534 |
|
Actual
return on plan assets
|
|
|
49 |
|
|
|
84 |
|
Employer
contributions
|
|
|
60 |
|
|
|
68 |
|
Benefits
paid
|
|
|
(176 |
) |
|
|
(139 |
) |
Foreign
currency exchange rate change
|
|
|
439 |
|
|
|
148 |
|
Fair
value of plan assets at end of year
|
|
$ |
3,067 |
|
|
$ |
2,695 |
|
|
|
|
|
|
|
|
|
|
Funded
status at end of year
|
|
$ |
(1,906 |
) |
|
$ |
(1,214 |
) |
|
|
|
|
|
|
|
|
|
Amounts
Recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
liability - current liabilities
|
|
$ |
(28 |
) |
|
$ |
(24 |
) |
Pension
liability - non-current liabilities
|
|
|
(1,878 |
) |
|
|
(1,190 |
) |
|
|
$ |
(1,906 |
) |
|
$ |
(1,214 |
) |
|
|
|
|
|
|
|
|
|
Amounts
Recognized in Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Net
(gain) loss
|
|
$ |
(193 |
) |
|
$ |
(677 |
) |
Net
transition cost
|
|
|
45 |
|
|
|
73 |
|
|
|
$ |
(148 |
) |
|
$ |
(604 |
) |
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The
accumulated benefit for all defined benefit pension plans was $4,949,000 and
$3,886,000 at June 30, 2008 and 2007, respectively.
Information
for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan
Assets
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Projected
benefit obligation
|
|
$ |
4,973 |
|
|
$ |
3,909 |
|
Accumulated
benefit obligation
|
|
|
4,949 |
|
|
|
3,886 |
|
Fair
value of plan assets
|
|
|
3,067 |
|
|
|
2,695 |
|
For
Concurrent, the minimum liability concept, including recognition of an
intangible asset, has been eliminated under SFAS No. 158, effective June 30,
2007. Prior to the adoption of SFAS No. 158, a minimum liability
adjustment was recognized in Accumulated Other Comprehensive Income to the
extent there was an unfunded accumulated benefit obligation that had not been
recognized in the balance sheet. Additional minimum pension
liabilities of $8,000 were recognized in Accumulated Other Comprehensive Income
(Loss) as of June 30, 2007, prior to adoption of SFAS No. 158, representing an
adjustment for the change in the additional minimum liability for the year ended
June 30, 2007. This additional minimum pension liability was
subsequently eliminated upon adoption of SFAS No. 158 at June 30,
2007.
The
following tables provide the components of net periodic pension cost recognized
in earnings for the fiscal years ended June 30, 2008, 2007 and
2006:
|
|
Year ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Net
Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
24 |
|
|
$ |
31 |
|
|
$ |
29 |
|
Interest
cost
|
|
|
214 |
|
|
|
233 |
|
|
|
186 |
|
Expected
return on plan assets
|
|
|
(133 |
) |
|
|
(108 |
) |
|
|
(84 |
) |
Amortization
of unrecognized net transition obligation
|
|
|
37 |
|
|
|
33 |
|
|
|
25 |
|
Recognized
actuarial (gain) loss
|
|
|
(118 |
) |
|
|
43 |
|
|
|
- |
|
Net
periodic benefit cost
|
|
$ |
24 |
|
|
$ |
232 |
|
|
$ |
156 |
|
The
estimated net transition obligation, net (gain) loss, and prior service cost for
the defined benefit pension plans that will be amortized from accumulated other
comprehensive income into net period benefit cost over the next fiscal year are
$46,000, $0 and $0, respectively.
Assumptions
The
following table sets forth the assumptions used to determine benefit
obligations:
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Discount
rate
|
|
|
5.90 |
% |
|
|
5.10 |
% |
Compensation
increase rate
|
|
|
2.00 |
% |
|
|
2.00 |
% |
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The
following table sets forth the assumptions used to determine net periodic
benefit cost:
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Discount
rate
|
|
|
5.10 |
% |
|
|
4.70 |
% |
|
|
4.50 |
% |
Expected
return on plan assets
|
|
|
4.60 |
% |
|
|
4.20 |
% |
|
|
3.50 |
% |
Compensation
increase rate
|
|
|
2.00 |
% |
|
|
2.50 |
% |
|
|
2.50 |
% |
On an
annual basis Concurrent adjusts the discount rate used to determine the
projected benefit obligation to approximate rates on high-quality, long-term
obligations.
Plan
Assets
Concurrent’s
pension plan weighted-average asset allocations at June 30, 2008 and 2007, by
asset category are as follows:
|
|
Plan Assets at June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Asset
Category
|
|
$
|
|
|
|
%
|
|
|
$
|
|
|
|
%
|
|
Cash
|
|
$ |
18 |
|
|
|
0.6 |
% |
|
$ |
- |
|
|
|
0.0 |
% |
Equity
securities
|
|
|
3,049 |
|
|
|
99.4 |
% |
|
|
2,695 |
|
|
|
100.0 |
% |
Total
|
|
$ |
3,067 |
|
|
|
100.0 |
% |
|
$ |
2,695 |
|
|
|
100.0 |
% |
Plan
assets as of June 30, 2008 and 2007 are comprised primarily of investments in
managed funds consisting of German life insurance equity funds. In
estimating the expected return on plan assets, Concurrent considers past
performance and future expectations for the fund. Plan assets are
heavily weighted toward dividend yielding equity investments that yield
consistent, dependable dividends. Concurrent utilizes an active
management strategy through third-party investment managers to minimize risk and
maximize return.
Contributions
Concurrent
expects to contribute $63,000 to its defined benefit pension plan in fiscal year
2009.
Estimated
future benefit payments
The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid (dollars in thousands):
|
|
Pension
|
|
|
|
Benefits
|
|
2009
|
|
$ |
220 |
|
2010
|
|
|
262 |
|
2011
|
|
|
289 |
|
2012
|
|
|
319 |
|
2013
|
|
|
333 |
|
2014
- 2018
|
|
|
1,914 |
|
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
11.
|
Geographic
Information
|
In
accordance with SFAS 131, “Disclosure about Segments of an Enterprise and
Related Information”, effective July 1, 2005, Concurrent operates in two
segments, products and services, as disclosed within the Statements of
Operations. Concurrent does not identify assets on a segment
basis. Concurrent attributes revenues to individual countries and
geographic areas based upon location of its selling operating subsidiaries. A
summary of Concurrent’s financial data by geographic area follows (dollars in
thousands):
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
53,210 |
|
|
$ |
50,915 |
|
|
$ |
52,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
6,965 |
|
|
|
8,606 |
|
|
|
6,646 |
|
Other
Asia Pacific countries
|
|
|
2,891 |
|
|
|
1,801 |
|
|
|
2,539 |
|
Asia
Pacific
|
|
|
9,856 |
|
|
|
10,407 |
|
|
|
9,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
7,750 |
|
|
|
7,827 |
|
|
|
10,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$ |
70,816 |
|
|
$ |
69,149 |
|
|
$ |
71,612 |
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
Long
lived assets:
|
|
|
|
|
|
|
United
States
|
|
$ |
25,336 |
|
|
$ |
26,598 |
|
Europe
|
|
|
704 |
|
|
|
739 |
|
Japan
|
|
|
1,201 |
|
|
|
869 |
|
Asia/Pacific
- other
|
|
|
63 |
|
|
|
133 |
|
Total
|
|
$ |
27,304 |
|
|
$ |
28,339 |
|
12.
|
Share-Based
Compensation
|
Concurrent
has Stock Option Plans providing for the grant of incentive stock options to
employees and non-qualified stock options to employees and
directors. The Compensation Committee of the Board of Directors
(“Compensation Committee”) administers the Stock Option Plans. Under
the plans, the Compensation Committee may award, in addition to stock options,
shares of Common Stock on a restricted basis. The plans also
specifically provide for stock appreciation rights and authorize the
Compensation Committee to provide, either at the time of the grant of an option
or otherwise, that the option may be cashed out upon terms and conditions to be
determined by the Committee or the Board.
Option
awards are granted with an exercise price equal to the market price of
Concurrent’s stock at the date of grant. Concurrent recognizes stock
compensation expense in accordance with SFAS No. 123(R) over the requisite
service period of the individual grantees, which generally equals the vesting
period. All of Concurrent’s stock compensation is accounted for as
equity instruments.
Concurrent’s
2001 Stock Option Plan became effective November 1, 2001 and replaced the 1991
Restated Stock Option Plan that expired on January 31, 2002. As of
November 1, 2001 there were no options for shares of Common Stock available for
future grant under the 1991 Restated Stock Option Plan. The Amended
and Restated 2001 Stock Option Plan terminates on October 31,
2011. Stockholders have authorized the issuance of up to 2,489,000
shares under these plans and, after restating share activity for the July 9,
2008 one-for-ten reverse stock split, at June 30, 2008 and 2007 there were
400,000 and 568,000 shares available for future grants,
respectively.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Concurrent
recorded share-based compensation related to issuance of stock options and
restricted stock to employees and directors, as follows (amounts in thousands of
dollars):
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Share-based
compensation expense included in the
|
|
|
|
|
|
|
|
|
|
Statement
of Operations:
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
$ |
37 |
|
|
$ |
28 |
|
|
$ |
20 |
|
Sales
and marketing
|
|
|
200 |
|
|
|
145 |
|
|
|
82 |
|
Research
and development
|
|
|
140 |
|
|
|
270 |
|
|
|
80 |
|
General
and administrative
|
|
|
645 |
|
|
|
472 |
|
|
|
346 |
|
Total
|
|
|
1,022 |
|
|
|
915 |
|
|
|
528 |
|
Tax
benefit
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Share-based
compensation expense, net of taxes
|
|
$ |
1,022 |
|
|
$ |
915 |
|
|
$ |
528 |
|
Increase
in basic and diluted loss per share (1)
|
|
$ |
0.12 |
|
|
$ |
0.13 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Restated to reflect
the Reverse Stock Split.
|
|
Concurrent
uses the Black-Scholes valuation model to estimate the fair value of each option
award on the date of grant. For fiscal year 2008, Concurrent granted
5,000 stock options to the Board of Directors with immediate vesting and granted
others 217,400 stock options with 4 year vesting. For fiscal year
2007, Concurrent issued 5,000 stock options to the Board of Directors with
immediate vesting and granted others 188,400 stock options with 4 year
vesting. The assumptions used to determine current fiscal year
recorded expense and prior years’ pro forma expense were:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
3.6%-4.3 |
% |
|
|
4.6%-5.0 |
% |
|
|
4.4%-5.2 |
% |
Expected
volatility
|
|
|
72.8%-75.8 |
% |
|
|
78.0%-92.0 |
% |
|
|
79.0%-83.0 |
% |
Weighted-average
volatility
|
|
|
75.0 |
% |
|
|
90.3 |
% |
|
|
81.1 |
% |
Expected
term (in years)
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Expected
dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
The
risk-free interest rate is derived from the average U.S. Treasury rate for the
period, which approximates the rate in effect at the time of
grant. Expected volatility is based on historical volatility of
Concurrent’s common stock over the period commensurate with the expected life of
the options. The expected life calculation is based on the observed
and expected time to post-vesting exercise and forfeitures of options by
Concurrent’s employees. The dividend yield of zero is based on the
fact that Concurrent has never paid cash dividends and has no present intention
to pay cash dividends.
Based on
historical experience of option pre-vesting cancellations, Concurrent has
assumed an annualized forfeiture rate of 7.5% for unvested options granted
during fiscal year 2008. Concurrent has assumed a 10% forfeiture rate
on options granted during the twelve months ended June 30,
2007. Under the true-up provisions of SFAS 123(R), Concurrent will
record additional expense if the actual forfeiture rate is lower than estimated,
and will record a recovery of prior expense if the actual forfeiture is higher
than estimated.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
A summary
of option activity under the plans as of June 30, 2008, and changes during the
year is presented below:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Options
|
|
Shares (1)
|
|
|
Price (1)
|
|
|
Term (In Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of July 1, 2007
|
|
|
605,308 |
|
|
$ |
43.08 |
|
|
|
|
|
|
|
Granted
|
|
|
222,390 |
|
|
|
12.11 |
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(92,943 |
) |
|
|
25.73 |
|
|
|
|
|
|
|
Outstanding
as of June 30, 2007
|
|
|
734,755 |
|
|
$ |
35.90 |
|
|
|
6.01 |
|
|
$ |
- |
|
Vested
or expected to vest at June 30, 2008
|
|
|
701,565 |
|
|
$ |
37.03 |
|
|
|
0.55 |
|
|
$ |
- |
|
Exercisable
at June 30, 2008
|
|
|
438,126 |
|
|
$ |
51.70 |
|
|
|
4.08 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Restated to reflect the Reverse Stock Split.
|
|
The
following table summarizes information about stock options outstanding and
exercisable at June 30, 2008:
|
|
Outstanding Options
|
|
|
Options Exercisable
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range
of
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
Contractual
|
|
|
June
30,
|
|
|
Exercise
|
|
|
June
30
|
|
|
Exercise
|
|
Prices (1)
|
|
Life (In Years)
|
|
|
2008 (1)
|
|
|
Price (1)
|
|
|
2008 (1)
|
|
|
Price (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 7.30
- $ 13.50
|
|
|
8.80 |
|
|
|
172,812 |
|
|
$ |
11.28 |
|
|
|
29,705 |
|
|
$ |
13.20 |
|
$ 14.00
- $ 14.20
|
|
|
8.28 |
|
|
|
179,772 |
|
|
$ |
14.06 |
|
|
|
37,500 |
|
|
$ |
14.20 |
|
$ 15.20
- $ 21.50
|
|
|
4.43 |
|
|
|
174,828 |
|
|
$ |
20.48 |
|
|
|
163,578 |
|
|
$ |
20.80 |
|
$ 22.10
- $122.50
|
|
|
3.19 |
|
|
|
174,293 |
|
|
$ |
77.60 |
|
|
|
174,293 |
|
|
$ |
77.60 |
|
$124.38 - $196.25
|
|
|
2.32 |
|
|
|
33,050 |
|
|
$ |
145.19 |
|
|
|
33,050 |
|
|
$ |
145.20 |
|
$ 7.30
- $196.25
|
|
|
6.01 |
|
|
|
734,755 |
|
|
$ |
35.90 |
|
|
|
438,126 |
|
|
$ |
51.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Restated to reflect the Reverse Stock Split.
|
|
The
weighted average grant-date fair value of options granted during the fiscal
years ended June 30, 2008, 2007 and 2006 was $8.30, $10.70, and $16.50,
respectively. Weighted average grant-date fair values have been
restated to reflect the one-for-ten reverse stock split, made effective July 9,
2008. The total intrinsic value of options exercised during the
fiscal years ended June 30, 2008, 2007 and 2006 was $0, $46,000, and $115,000,
respectively. Total compensation cost of options granted but not yet
vested as of June 30, 2008 is $2,061,000, which is expected to be recognized
over the weighted average period of 3.0 years. Concurrent generally
issues new shares to satisfy option exercises.
Cash
received from option exercise under all share-based payment arrangements for the
fiscal years ended June 30, 2008, 2007 and 2006 was $0, $13,000 and
$357,000.
The
Compensation Committee approved and Concurrent issued 34,000, 9,100 and 7,300
shares of restricted stock during fiscal years 2008, 2007 and 2006,
respectively, that vest over time. During 2005, the Compensation
Committee approved and Concurrent issued 104,100 shares of restricted
stock. Restricted share amounts reflect the one-for-ten reverse
stock split, made effective on July 9, 2008. A portion of the 2005
restricted stock grant vests over time (four years) and a portion vests based
upon performance criteria. Concurrent records expense for remaining
unvested performance-based restricted stock awards, based upon the grant date
fair-value and an assessment of whether the performance criteria will ultimately
be met. During fiscal years 2008, 2007 and 2006, Concurrent retired
$143,000, $584,000 and $184,000, respectively, of restricted stock issued to
employees that left Concurrent prior to vesting of their restricted stock awards
or because specified performance criteria were not met.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
A summary
of the status of Concurrent’s non-vested restricted shares as of June 30, 2008,
and changes during the twelve months ended June 30, 2008, is presented
below:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
Non-vested Shares
|
|
Shares (1)
|
|
|
Fair-Value (1)
|
|
Non-vested
at July 1, 2007
|
|
|
38,730 |
|
|
$ |
19.18 |
|
Granted
|
|
|
34,000 |
|
|
|
7.81 |
|
Vested
|
|
|
(18,883 |
) |
|
|
20.09 |
|
Forfeited
|
|
|
(8,109 |
) |
|
|
17.58 |
|
Non-vested
at June 30, 2008
|
|
|
45,738 |
|
|
$ |
10.63 |
|
|
|
|
|
|
|
|
|
|
(1) Restated
to reflect the Reverse Stock Split.
|
|
The
weighted average grant-date fair value of restricted shares granted during the
fiscal years ended June 30, 2008, 2007 and 2006 was $7.81, $14.90, and $24.50,
respectively. Weighted average grant-date fair values reflect the
one-for-ten reverse stock split, made effective on July 9, 2008. The
total fair value of shares released during the fiscal years ended June 30, 2008,
2007 and 2006 was $379,000, $172,000, and $228,000. Total
compensation cost of restricted stock awards issued, but not yet vested as of
June 30, 2008 is $361,000, which is expected to be recognized over the weighted
average period of 1.7 years.
13.
|
Private
Placement and Warrants
|
In May
2007, Concurrent issued 1,120,000 shares of Common Stock and warrants in a
private placement of public equity for an aggregate purchase price of
$14,000,000. Net proceeds after issuance costs were approximately
$12,600,000. The warrants are exercisable into 280,000 shares of
Common Stock at an exercise price of $16.20 per share, are exercisable as of the
date of issuance, and expire five years after the date of
issuance. These warrants represent all warrants available for
exercise for Concurrent Common Stock as of June 30, 2008. Share
amounts have been restated to reflect the Reverse Stock
Split. Concurrent is using the proceeds of the private placement for
general corporate purposes, including working capital and capital
expenditures. The shares issued under this private placement were
registered under a registration statement filed with the SEC and declared
effective on June 14, 2007.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14.
|
Term
Loan and Revolving Credit Facility
|
On
December 19, 2007, Concurrent entered into a First Amendment (“Amendment”) to
its Amended and Restated Loan and Security Agreement (the “Credit Agreement”)
with Silicon Valley Bank (the “Bank”), which amends certain terms of the
existing Credit Agreement. The Amendment extends the maturity date of
the Credit Agreement from December 23, 2008 to July 1, 2009. The
Amendment also resets the Minimum Tangible Net Worth covenant requirement from
$15,172,000 as of September 30, 2007, under the previous terms, to $10,000,000
as of December 31, 2007. At all times after December 31, 2007, the
minimum tangible net worth requirement shall increase by 50% of quarterly net
income and 50% of issuances of equity, net of issuance costs, and the principal
amount of any subordinated debt. The Amendment also allows Concurrent
to utilize all of its operating accounts with the Bank to meet the required
monthly average balance of not less than $1,000,000 in deposits. The
Credit Agreement is secured by substantially all of the assets of Concurrent. On
June 23, 2008, Concurrent entered into a Second Amendment to Amended and
Restated Loan and Security Agreement with the Bank, which provides Concurrent an
opportunity to repurchase up to $2.5 million of its capital
stock. All other terms of the Credit Agreement remain the
same.
The
outstanding principal amount plus all accrued but unpaid interest is payable in
full at the expiration of the Credit Agreement on July 1, 2009. The
Credit Agreement provides for up to a $10,000,000 revolving credit line (the
“Revolver”) with a borrowing base dependent upon Concurrent’s outstanding North
American accounts receivable. Concurrent had $949,000 and $1,077,000
outstanding under the Revolver as of June 30, 2008 and June 30, 2007,
respectively. During fiscal year 2008, Concurrent had net repayments
of $128,000, consisting of $263,000 in borrowings and $391,000 in
repayments. Based on the borrowing formula and Concurrent’s financial
position as of June 30, 2008, $7,493,000 was available to Concurrent under the
Revolver, resulting in approximately $6,544,000 of remaining available funds
under the Revolver.
Interest
on any outstanding amounts under the Revolver is payable monthly at the prime
rate (5.00% at June 30, 2008) plus 0.50% per annum.
The
Credit Agreement contains certain financial covenants, including a required
adjusted quick ratio (the ratio of cash and accounts receivable to current
liabilities and outstanding bank debt (less the current portion of deferred
revenue)) of at least 1.25 to 1.00 and a minimum tangible net worth of at least
$10,151,000 as of June 30, 2008. The Credit Agreement also contains
customary restrictive covenants concerning Concurrent's
operations. As of June 30, 2008, Concurrent’s adjusted quick ratio
was 2.80 to 1.00 and its tangible net worth (defined as total assets (less
goodwill and other intangibles) minus total liabilities) was approximately
$24,376,000. Concurrent was in compliance with all applicable
covenants as of June 30, 2008.
15.
|
Rights
Plan and Repurchase Agreement
|
On July
31, 1992, the Board of Directors of Concurrent declared a dividend distribution
of one Series A Participating Cumulative Preferred Right for each share of
Concurrent’s Common Stock. The dividend was made to stockholders of
record on August 14, 1992. On August 7, 2002, the Rights Agreement
creating these Rights was extended for another 10 years to August 14, 2012 and
American Stock Transfer & Trust Company was appointed as the successor
rights agent pursuant to an Amended and Restated Rights
Agreement. Under the Rights Agreement, each Right becomes exercisable
when any person or group acquires 15% of Concurrent’s common
stock. Such an event triggers the rights plan and entitles each right
holder to purchase from Concurrent one one-hundredth of a share of Series A
Participating Cumulative Preferred Stock at a cash price of $30 per
right. On July 8, 2008, the Rights Agreement was proportionately
adjusted to reflect the Reverse Stock Split.
Under
certain circumstances, each holder of a Right upon exercise of such Right will
receive, in lieu of Series A Participating Cumulative Preferred Stock, common
stock of Concurrent or its equivalent, or common stock of the acquiring entity,
in each case having a value of two times the exercise price of the
Right. The Rights will expire on August 14, 2012 unless earlier
exercised or redeemed, or earlier termination of the plan.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
On June
23, 2008, Concurrent’s Board authorized the repurchase of up to
$2.5 million of its common stock, through a stock repurchase program. Under
the share repurchase program, Concurrent may repurchase shares from time to time
at the discretion of a stock repurchase committee in accordance with applicable
securities laws in the open market or in privately negotiated
transactions. Repurchases will depend upon market conditions and
other factors, and repurchases may be commenced or suspended from time to time
at our discretion, without prior notice. Concurrent does not intend
to repurchase any shares from our management, directors or other
insiders. Concurrent has not repurchased any shares of our common
stock as of June 30, 2008.
16.
|
Concentration
of Risk
|
Intercompany
transfers between geographic areas are accounted for at prices similar to those
available to comparable unaffiliated customers. Sales to unaffiliated
customers outside the U.S by our international subsidiaries were $17,606,000,
$18,234,000 and $19,238,000 for the years ended June 30, 2008, 2007 and 2006,
respectively, which amounts represented 25%, 26% and 27% of total sales for the
respective fiscal years.
Sales to
the U.S. government, prime contractors and agencies of the U.S. government
amounted to approximately $9,263,000, $8,936,000 and $15,079,000 for the years
ended June 30, 2008, 2007 and 2006, respectively, which amounts represented 13%,
13% and 21% of total sales for the respective fiscal years.
In
addition, the following summarizes revenues by significant customer where such
revenue exceeded 10% of total revenues for any one of the indicated
periods:
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Customer
A
|
|
|
12 |
% |
|
|
19 |
% |
|
|
16 |
% |
Customer
B
|
|
|
10 |
% |
|
|
8 |
% |
|
|
7 |
% |
Customer
C
|
|
|
8 |
% |
|
|
11 |
% |
|
|
13 |
% |
Customer
D
|
|
|
6 |
% |
|
|
7 |
% |
|
|
13 |
% |
Concurrent
assesses credit risk through ongoing credit evaluations of customers’ financial
condition and collateral is generally not required. Two customers
accounted for $1,807,000 or 12% and $1,398,000 or 10% of trade receivables,
respectively, at June 30, 2008. One customer accounted for $9,190,000
or 44% of trade receivables at June 30, 2007. There were no other
customers at June 30, 2008 and 2007 representing 10% or more of Concurrent’s
trade receivables at June 30, 2008 and 2007.
Concurrent
sometimes purchases product components from a single supplier in order to obtain
the required technology and the most favorable price and delivery
terms. For the year ended June 30, 2008, purchases from three
suppliers accounted for 25%, 21% and 15% of Concurrent’s purchases,
respectively. For the year ended June 30, 2007, purchases from two
suppliers accounted for 23% and 19% of Concurrent’s purchases,
respectively. For the year ended June 30, 2006, purchases from two
suppliers accounted for 30% and 22% of Concurrent’s purchases,
respectively. There were no other suppliers during fiscal years 2007,
2006 or 2005 representing 10% or more of Concurrent’s total
purchases.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
17.
|
Quarterly
Consolidated Financial Information
(Unaudited)
|
The
following is a summary of quarterly financial results for the years ended June
30, 2008 and 2007:
|
|
Three Months Ended
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
16,255 |
|
|
$ |
17,578 |
|
|
$ |
19,374 |
|
|
$ |
17,609 |
|
Gross
margin
|
|
$ |
8,555 |
|
|
$ |
9,459 |
|
|
$ |
10,599 |
|
|
$ |
9,486 |
|
Operating
income (loss)
|
|
$ |
(1,797 |
) |
|
$ |
(847 |
) |
|
$ |
56 |
|
|
$ |
(1,299 |
) |
Net
income (loss)
|
|
$ |
1,744 |
(1) |
|
$ |
(769 |
) |
|
$ |
301 |
|
|
$ |
(1,011 |
) |
Net
income (loss) per share-basic (2)
|
|
$ |
0.21 |
(1) |
|
$ |
(0.09 |
) |
|
$ |
0.04 |
|
|
$ |
(0.12 |
) |
Net
income (loss) per share-diluted (2)
|
|
$ |
0.21 |
(1) |
|
$ |
(0.09 |
) |
|
$ |
0.04 |
|
|
$ |
(0.12 |
) |
|
|
Three Months Ended
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
14,781 |
|
|
$ |
17,134 |
|
|
$ |
16,148 |
|
|
$ |
21,086 |
|
Gross
margin
|
|
$ |
6,954 |
|
|
$ |
7,415 |
|
|
$ |
7,873 |
|
|
$ |
10,119 |
|
Operating
loss
|
|
$ |
(4,754 |
) |
|
$ |
(3,327 |
) |
|
$ |
(2,759 |
) |
|
$ |
(953 |
) |
Net
loss
|
|
$ |
(4,852 |
) |
|
$ |
(3,531 |
) |
|
$ |
(3,076 |
) |
|
$ |
(712 |
) |
Net
loss per share-basic (2)
|
|
$ |
(0.68 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.43 |
) |
|
$ |
(0.09 |
) |
Net
loss per share-diluted (2)
|
|
$ |
(0.68 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.43 |
) |
|
$ |
(0.09 |
) |
|
(1)
|
Net
income and earnings per share during the three months ended September 30,
2007 include a $1.9 million gain on arbitration settlement- net, related
to alleged defective parts provided to Concurrent by one of its suppliers
and a $1.4 million recovery of minority investment- net, related to
proceeds received from the liquidation of the remaining assets of
Thirdspace Living Limited (“Thirdspace”), for the partial recovery of the
previously recognized impairment charge of our investment in
Thirdspace.
|
|
(2)
|
All
periods have been restated to reflect the one-for-ten reverse stock split,
made effective on July 9, 2008.
|
18.
|
Commitments
and Contingencies
|
Concurrent
leases certain sales and service offices, warehousing, and equipment under
various operating leases. The leases expire at various dates through
2014 and generally provide for the payment of taxes, insurance and maintenance
costs. Additionally, certain leases contain escalation clauses that
provide for increased rents resulting from the pass through of increases in
operating costs, property taxes and consumer price indexes.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
At June
30, 2008, future minimum lease payments for the years ending June 30 are as
follows (dollars in thousands):
2009
|
|
$ |
2,229 |
|
2010
|
|
|
1,571 |
|
2011
|
|
|
860 |
|
2012
|
|
|
881 |
|
2013
|
|
|
658 |
|
2014
and thereafter
|
|
|
532 |
|
|
|
$ |
6,731 |
|
Rent
expense under all operating leases amounted to $3,403,000, $3,870,000 and
$3,942,000 for the years ended June 30, 2008, 2007 and 2006,
respectively.
Concurrent,
from time to time, is involved in litigation incidental to the conduct of its
business. Concurrent believes that such pending litigation will not
have a material adverse effect on Concurrent’s results of operations or
financial condition.
Concurrent
enters into agreements in the ordinary course of business with customers that
often require Concurrent to defend and/or indemnify the customer against
intellectual property infringement claims brought by a third party with respect
to Concurrent’s products. For example, Concurrent was notified that certain of
its customers have been sued by the following companies regarding the listed
patents:
Asserting Party
|
|
Jurisdiction
|
|
Patents at Issue
|
|
|
|
|
|
Acacia
Media Technologies, Corp.
|
|
U.S.
District Court
|
|
U.S.
Patent Nos. 5,132,992, 5,253,275,
|
|
|
Northern
District of California
|
|
5,550,863,
6,002,720, and 6,144,702
|
|
|
|
|
|
U.S.A
Video Inc.
|
|
U.S.
District Court
|
|
U.S.
Patent No. 5,130,792
|
|
|
Eastern
District of Texas
|
|
|
|
|
|
|
|
Vtran
Media Technologies, LLC
|
|
U.S.
District Court
|
|
U.S.
Patent Nos. 4,890,320 and
|
|
|
Eastern
District of Texas
|
|
4,995,078
|
Some of
these customers have requested indemnification under their agreements with
Concurrent. Concurrent continues to review its potential obligations
under its indemnification agreements with these customers and the indemnity
obligations to these customers from other vendors that also provided systems and
services to these customers. From time to time, Concurrent also
indemnifies customers and business partners for damages, losses and liabilities
they may suffer or incur relating to personal injury, personal property damage,
product liability, and environmental claims relating to the use of Concurrent’s
products and services or resulting from the acts or omissions of Concurrent, its
employees, authorized agents or subcontractors. To date, Concurrent
has not encountered material costs as a result of such obligations and has not
accrued any material liabilities related to such indemnifications in the
financial statements under FIN No. 45, “Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.” The maximum potential amount of future payments that
Concurrent could be required to make is unlimited.
Pursuant
to the terms of the employment agreements with the executive officers of
Concurrent, employment may be terminated by either Concurrent or the respective
executive officer at any time. In the event the executive officer
voluntarily resigns (except as described below) or is terminated for cause,
compensation under the employment agreement will end. In the event an
agreement is terminated by Concurrent without cause or in certain circumstances
constructively by Concurrent, the terminated employee will receive severance
compensation for a period from 6 to 12 months, depending on the officer, in an
annualized amount equal to the respective employee's base salary then in
effect. At June 30, 2008, the maximum contingent liability under
these agreements is $1,366,000. Concurrent’s employment agreements
with certain of its officers contain certain offset provisions, as defined in
their respective agreements.
CONCURRENT
COMPUTER CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - continued
On July
8, 2008, Concurrent’s shareholders approved the Reverse Stock
Split, which became effective on July 9, 2008. Under the
approved Reverse Stock Split, every ten shares of common stock of
Concurrent were combined into one share of common stock. The number of shares
subject to Concurrent’s outstanding options and warrants were reduced in the
same ratio as the reduction in the outstanding shares, and the per share
exercise price of those options and warrants was increased in direct proportion
to the reverse stock split ratio. Earnings per share
computations, balance sheets, and footnote presentation of shares and share
equivalents for fiscal 2008 and prior periods have been restated to reflect the
Reverse Stock Split. The Reverse Stock Split will have no impact on
the authorized number of shares.
SCHEDULE
II
CONCURRENT
COMPUTER CORPORATION
VALUATION
AND QUALIFYING ACCOUNTS
For
The Years Ended June 30, 2008, 2007 and 2006
(Dollars
in thousands)
Description
|
|
Balance At
Beginning Of Year
|
|
|
Charged To
Costs And Expenses
|
|
|
Deductions (a)
|
|
|
Balance At
End Of Year
|
|
Reserves
and allowances deducted
|
|
|
|
|
|
|
|
|
|
|
|
|
from
asset accounts or accrued as expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
96 |
|
|
$ |
- |
|
|
$ |
(6 |
) |
|
$ |
90 |
|
Warranty
accrual
|
|
|
343 |
|
|
|
126 |
|
|
|
(271 |
) |
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
380 |
|
|
|
(188 |
) |
|
|
(96 |
) |
|
|
96 |
|
Warranty
accrual
|
|
|
376 |
|
|
|
192 |
|
|
|
(225 |
) |
|
|
343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
200 |
|
|
|
184 |
|
|
|
(4 |
) |
|
|
380 |
|
Warranty
accrual
|
|
|
702 |
|
|
|
95 |
|
|
|
(421 |
) |
|
|
376 |
|
(a)
|
Charges
and adjustments to the reserve accounts for write-offs and credits issued
during the year.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
CONCURRENT
COMPUTER CORPORATION
|
|
(Registrant)
|
|
|
|
|
|
By:
|
/s/ Dan Mondor
|
|
|
|
Dan
Mondor
|
|
|
|
President
and Chief Executive Officer
|
|
Date:
August 27, 2008
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of Registrant and in the capacities
indicated on August 27, 2008.
NAME
|
|
TITLE
|
|
|
|
/s/ Steve G. Nussrallah
|
|
Chairman
of the Board and Director
|
Steve
G. Nussrallah
|
|
|
|
|
|
/s/ Dan Mondor
|
|
President,
Chief Executive Officer and Director
|
Dan
Mondor
|
|
(Principal
Executive Officer) |
|
|
|
/s/ Emory O. Berry
|
|
Chief
Financial Officer and Executive Vice President of
Operations
|
Emory
O. Berry
|
|
(Principal
Financial and Accounting Officer) |
|
|
|
/s/ Charles Blackmon
|
|
Director
|
Charles
Blackmon
|
|
|
|
|
|
/s/ Larry L. Enterline
|
|
Director
|
Larry
L. Enterline
|
|
|
|
|
|
|
|
Director
|
C.
Shelton James
|
|
|
Exhibit
|
|
Description
Of Document
|
|
|
|
3.1
|
|
--Restated
Certificate of Incorporation of the Registrant (incorporated by reference
to the Registrant's Registration Statement on Form S-2 (No.
33-62440)).
|
|
|
|
3.2
|
|
--Certificate
of Amendment of the Restated Certificate of Incorporation of the
Registrant (incorporated by reference to the Registrant’s Proxy on Form
DEFR14A filed on June 2, 2008).
|
|
|
|
3.3
|
|
--Amended
and Restated Bylaws of the Registrant (incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the period ended March 31,
2003).
|
|
|
|
3.4
|
|
--Certificate
of Correction to Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2002).
|
|
|
|
3.5
|
|
--Amended
Certificate of Designations of Series A Participating Cumulative Preferred
Stock (incorporated by reference to the Form 8-A/A, dated August 9,
2002).
|
|
|
|
3.6
|
|
--Amendment
to Amended Certificate of Designations of Series A Participating
Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A,
dated August 9, 2002).
|
|
|
|
4.1
|
|
--Form
of Common Stock Certificate (incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q for the period ended March 31,
2003).
|
|
|
|
4.2
|
|
--Form
of Rights Certificate (incorporated by reference to the Registrant’s
Current Report on Form 8-K/A filed on August 12, 2002).
|
|
|
|
4.3
|
|
--Amended
and Restated Rights Agreement dated as of August 7, 2002 between the
Registrant and American Stock Transfer & Trust Company, as Rights
Agent (incorporated by reference to the Registrant’s Current Report on
Form 8-K/A filed on August 12, 2002).
|
|
|
|
4.4
|
|
--Form of Warrant
(filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated
May 15, 2007 and incorporated herein by
reference)
|
|
|
|
4.5
|
|
--Form of Warrant
(filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated
May 15, 2007 and incorporated herein by
reference)
|
|
|
|
10.1
|
|
--Loan
and Security Agreement (incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q filed on February 4,
2005).
|
|
|
|
10.2
|
|
--Schedule
of Officers who have entered into the Form Indemnification Agreement
(incorporated by reference to the Registrant’s Quarterly report on Form
10-Q for the quarter ended December 31, 2004).
|
|
|
|
10.3
|
|
--1991
Restated Stock Option Plan (as amended as of October 26, 2000)
(incorporated by reference Exhibit A to the Registrant’s Proxy Statement
dated September 18, 2000).
|
|
|
|
10.4
|
|
--Richard
Rifenburgh Non-Qualified Stock Option Plan and Agreement (incorporated by
reference to the Registrant’s Registration Statement on Form S-8 (No.
333-82686)).
|
|
|
|
10.5
|
|
--Concurrent
Computer Corporation 2001 Stock Option Plan (incorporated by reference to
Annex II to the Registrant’s Proxy Statement dated September 19,
2001).
|
|
|
|
10.6
|
|
--Concurrent
Computer Corporation Amended and Restated 2001 Stock Option Plan
(incorporated by reference to the Registrant’s Registration Statement on
Form S-8 (No. 333-125974)).
|
|
|
|
10.7
|
|
--Form
of Option agreement with transfer restrictions (incorporated by reference
to the Registrant’s Current Report on Form 8-K dated June 24,
2005).
|
|
|
|
10.8
|
|
--Form
of Incentive Stock Option Agreement between the Registrant and its
executive officers (incorporated by reference to the Registrant's
Registration Statement on Form S-1 (No.
33-45871)).
|
10.9
|
|
--Form
of Non-Qualified Stock Option Agreement between the Registrant and its
executive officers (incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30,
1997).
|
|
|
|
10.10
|
|
--Summary
of Performance Grants (incorporated by reference to the Registrant’s
Current Report on Form 8-K filed March 3, 2005).
|
|
|
|
10.11
|
|
--Amended
and Restated Employment Agreement dated as of August 8, 2006 between the
Registrant and T. Gary Trimm and adjustment to executive officers’
salaries (incorporated by reference to the Registrant's Current Report on
Form 8-K filed on August 10, 2006).
|
|
|
|
10.12
|
|
-- Entry
into a Material Definitive Agreement between the Registrant and Silicon
Valley Bank in the form of a Forbearance to Loan and Security Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on August 14, 2006).
|
|
|
|
10.13
|
|
-- Entry
into a Material Definitive Agreement between the Registrant and Silicon
Valley Bank in the form of a Waiver and Third Loan Modification Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on August 31, 2006).
|
|
|
|
10.14
|
|
--Amended
and Restated Loan and Security Agreement (incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended December
31, 2006).
|
|
|
|
10.15
|
|
--Consulting
Services Agreement among the Company, TechCFO and Emory Berry
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on March 9, 2007).
|
|
|
|
10.16
|
|
--Indemnification
Agreement between the Company and Emory Berry (incorporated by reference
to the Registrant’s Current Report on Form 8-K filed on March 9,
2007).
|
|
|
|
10.17
|
|
--Form
of Securities Purchase Agreement by and among Concurrent Computer
Corporation and the purchasers set forth on the signature pages thereto
(filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
dated May 15, 2007 and incorporated herein by
reference).
|
|
|
|
10.18
|
|
First
Amendment to Amended and Restated Loan and Security Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on December 20, 2007 (No. 000-13150)).
|
|
|
|
10.19
|
|
Separation
Agreement, dated April 8, 2008, between Concurrent Computer Corporation
and T. Gary Trimm (incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on April 9, 2008 (No.
000-13150)).
|
|
|
|
10.20
|
|
Employment
Agreement, dated April 8, 2008, between Concurrent Computer Corporation
and Dan Mondor (incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on April 9, 2008 (No.
000-13150)).
|
|
|
|
10.21
|
|
Second
Amendment to Amended and Restated Loan and Security Agreement
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on June 24, 2008 (No. 000-13150)).
|
|
|
|
10.22
|
|
--Employment
Agreement, dated August 1, 2008, between Concurrent Computer Corporation
and Emory O. Berry (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on August 6, 2008 (No.
001-13150)).
|
|
|
|
14.1
|
|
--Code
of Ethics for Senior Executives & Financial Officers (incorporated by
reference to the Registrant’s Proxy for the fiscal year ended June 30,
2003).
|
|
|
|
|
|
--List
of Subsidiaries.
|
|
|
|
|
|
--Consent
of Deloitte & Touche LLP.
|
|
|
|
|
|
--Certification
of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
--Certification
of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
--Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
--Certification
of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
Included herewith.