SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2001
or
Transition Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Transition Period from to
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Commission File No. 0-13150
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CONCURRENT COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
4375 River Green Parkway, Duluth, GA 30096
(Address of principal executive offices)
Telephone: (678) 258-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of November 2, 2001 was 60,819,122.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
-------- --------
Revenues:
Product sales
Real-time systems $ 5,336 $ 4,711
Video-on-demand systems 3,513 5,437
-------- --------
Total product sales 8,849 10,148
Service and other 5,253 6,164
-------- --------
Total 14,102 16,312
Cost of sales:
Real-time and video-on-demand systems 4,793 5,561
Service and other 2,849 3,160
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Total 7,642 8,721
-------- --------
Gross margin 6,460 7,591
Operating expenses:
Sales and marketing 4,154 4,073
Research and development 3,461 2,631
General and administrative 1,909 2,467
-------- --------
Total operating expenses 9,524 9,171
-------- --------
Operating loss (3,064) (1,580)
Interest income (expense) - net 215 (9)
Other expense - net (11) (55)
-------- --------
Loss before income taxes (2,860) (1,644)
Provision for income taxes 150 150
-------- --------
Net loss $(3,010) $(1,794)
======== ========
Net loss per share
Basic $ (0.05) $ (0.03)
======== ========
Diluted $ (0.05) $ (0.03)
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-1-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
2001 2001
------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 29,423 $ 9,460
Accounts receivable - net 13,981 14,348
Inventories 7,005 7,187
Prepaid expenses and other current assets 1,434 1,058
------------ ----------
Total current assets 51,843 32,053
Property, plant and equipment - net 10,515 10,484
Purchased developed computer software 1,536 1,583
Goodwill - net 10,744 10,744
Other long-term assets - net 2,214 2,188
------------ ----------
Total assets $ 76,852 $ 57,052
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 11,089 $ 13,929
Deferred revenue 2,872 3,300
------------ ----------
Total current liabilities 13,961 17,229
Long-term liabilities:
Deferred revenue 1,161 1,193
Other 5,437 5,347
------------ ----------
Total liabilities 20,559 23,769
Stockholders' equity:
Common stock 608 551
Capital in excess of par value 166,042 140,352
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (105,770) (102,760)
Treasury stock (58) (58)
Accumulated other comprehensive loss (4,529) (4,802)
------------ ----------
Total stockholders' equity 56,293 33,283
------------ ----------
Total liabilities and stockholders' equity $ 76,852 $ 57,052
============ ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-2-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
-------- --------
OPERATING ACTIVITIES
Net loss $(3,010) $(1,794)
Adjustments to reconcile net loss to net
cash used in operating activities:
Accrual of non-cash warrants 571 195
Depreciation, amortization and other 1,174 1,475
Other non cash expenses 118 212
Changes in operating assets and liabilities:
Accounts receivable 332 (2,397)
Inventories (41) (350)
Prepaid expenses and other current assets (376) (229)
Other long-term assets (60) 65
Accounts payable and accrued expenses (2,840) (1,267)
Short-term deferred revenue (428) 588
Long-term liabilities 77 (127)
-------- --------
Total adjustments to net loss (1,473) (1,835)
-------- --------
Net cash used in operating activities (4,483) (3,629)
INVESTING ACTIVITIES
Net additions to property, plant and equipment (915) (1,131)
-------- --------
Net cash used in investing activities (915) (1,131)
FINANCING ACTIVITIES
Net repayment of capital lease obligation (19) (17)
Proceeds from sale and issuance of common stock 25,176 668
-------- --------
Net cash provided by financing activities 25,157 651
Effect of exchange rates on cash and cash equivalents 204 (120)
-------- --------
Increase (decrease) in cash and cash equivalents 19,963 (4,229)
Cash and cash equivalents at beginning of period 9,460 10,082
-------- --------
Cash and cash equivalents at end of period $29,423 $ 5,853
======== ========
Cash paid during the period for:
Interest $ 20 $ 124
======== ========
Income taxes (net of refunds) $ 175 $ 155
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
CONCURRENT COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Concurrent
Computer Corporation ("Concurrent") have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with accounting principles generally
accepted in the United States of America. The foregoing financial information
is unaudited but reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented. All such adjustments are of a normal recurring nature.
While Concurrent believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the Annual
Report on Form 10-K as filed with the Securities and Exchange Commission.
The results of interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each period.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares including potential common shares
issuable. Under the treasury stock method, incremental shares representing the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued are included in the
computation.
The number of shares used in computing basic and diluted net loss per share
for the three months ended September 30, 2001 and September 30, 2000 were
59,564,000 and 53,988,000, respectively. Because of the losses for these
periods, the potential common shares issuable were anti-dilutive and were not
considered in the diluted earnings per share calculations. Common share
equivalents of 3,258,000 and 5,376,000 for the three months ended September 30,
2001 and September 30, 2000, respectively, were excluded from the calculation as
their effect was antidilutive.
3. REVENUE RECOGNITION AND RELATED MATTERS
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition. Concurrent recognizes revenue from
video-on-demand and real-time systems when persuasive evidence of an arrangement
exists, the system has been shipped, the fee is fixed or determinable and
collectibility of the fee is probable. Under multiple element arrangements,
Concurrent allocates revenue to the various elements based on vendor-specific
objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is
determined based on the price charged when the same element is sold separately.
In certain instances, Concurrent's customers require significant
customization of both the software and hardware products and, therefore, the
revenues are recognized as long term contracts in conformity with Accounting
Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts",
Statement of Position ("SOP") 81-1 "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software
Revenue Recognition". For long-term contracts, revenue is recognized using the
percentage of completion method of accounting based on costs incurred on the
project compared to the total costs expected to be incurred through completion.
-4-
Concurrent recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
Custom engineering and integration services performed by the Real-Time
Division are typically completed within 90 days from receipt of an order.
Revenues from these services are recognized upon completion and delivery of the
software solution to the customer.
4. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components of
inventories are as follows:
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
2001 2001
------------ ---------
Raw materials $ 5,518 $ 5,709
Work-in-process 1,068 1,178
Finished goods 419 300
----------- ---------
$ 7,005 $ 7,187
=========== =========
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
2001 2001
------------ ---------
Accounts payable, trade $ 3,238 $ 4,277
Accrued payroll, vacation and
other employee expenses 4,508 6,090
Warranty accrual 867 977
Other accrued expenses 2,476 2,585
------------ ---------
$ 11,089 $ 13,929
============ =========
6. COMPREHENSIVE INCOME (LOSS)
Concurrent's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
-------- --------
Net loss $(3,010) $(1,794)
Other comprehensive income (loss):
Foreign currency translation income (loss) 273 (412)
-------- --------
Total comprehensive loss $(2,737) $(2,206)
======== ========
-5-
7. SEGMENT INFORMATION
Concurrent operates its business in two divisions: real-time and
video-on-demand ("VOD"). Concurrent's Real-Time Division is a leading provider
of high-performance, real-time computer systems, solutions and software for
commercial and government markets focusing on strategic market areas that
include hardware-in-the-loop and man-in-the-loop simulation, data acquisition,
industrial systems, and software and embedded applications. Concurrent's VOD
Division is a leading supplier of digital video server systems to a wide range
of industries serving a variety of markets, including the broadband/cable,
hospitality, intranet/distance learning, and other related markets. Shared
expenses are primarily allocated based on either revenues or headcount. There
were no material intersegment sales or transfers. Corporate costs include costs
related to the offices of the Chief Executive Officer, Chief Financial Officer,
Investor Relations and other administrative costs including annual audit and tax
fees, Board of Director fees and similar costs.
The following summarizes the operating income (loss) by segment for the
three month periods ended September 30, 2001 and September 30, 2000,
respectively:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
-------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
----------- ----------- ----------- -----------
Revenues:
Product Sales $ 5,336 $ 3,513 $ - $ 8,849
Service and other 5,253 - - 5,253
----------- ----------- ----------- -----------
Total 10,589 3,513 - 14,102
Cost of sales
Systems 2,501 2,292 - 4,793
Service and other 2,849 - - 2,849
----------- ----------- ----------- -----------
Total 5,350 2,292 - 7,642
----------- ----------- ----------- -----------
Gross margin 5,239 1,221 - 6,460
Operating expenses
Sales and marketing 1,637 2,364 153 4,154
Research and development 1,232 2,229 - 3,461
General and administrative 359 308 1,242 1,909
----------- ----------- ----------- -----------
Total operating expenses 3,228 4,901 1,395 9,524
----------- ----------- ----------- -----------
Operating income (loss) $ 2,011 $ (3,680) $ (1,395) $ (3,064)
============ ========== =========== ===========
-6-
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
-------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
----------- ----------- ----------- -----------
Revenues:
Product Sales $ 4,711 $ 5,437 $ - $ 10,148
Service and other 6,164 - - 6,164
----------- ----------- ----------- -----------
Total 10,875 5,437 - 16,312
Cost of sales
Systems 2,390 3,171 - 5,561
Service and other 3,160 - - 3,160
----------- ----------- ----------- -----------
Total 5,550 3,171 - 8,721
----------- ----------- ----------- -----------
Gross margin 5,325 2,266 - 7,591
Operating expenses
Sales and marketing 1,917 1,972 184 4,073
Research and development 829 1,802 - 2,631
General and administrative 269 661 1,537 2,467
----------- ----------- ----------- -----------
Total operating expenses 3,015 4,435 1,721 9,171
----------- ----------- ----------- -----------
Operating income (loss) $ 2,310 $ (2,169) $ (1,721) $(1,580)
=========== =========== =========== ===========
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Derivative instruments will
be recognized in the balance sheet at fair value, and changes in the fair values
of such instruments must be recognized currently in earnings unless specific
hedge accounting criteria are met. Concurrent adopted SFAS 133 on July 1, 2000.
As Concurrent does not have any hedging and derivative positions, adoption of
these pronouncements did not have a material effect on Concurrent's financial
position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. Concurrent adopted SAB 101 as
required in the fourth fiscal quarter of 2001. The adoption of this
pronouncement did not have a material impact on the operations of Concurrent.
In March 2000, the FASB issued Interpretation No. 44, "Accounting of
Certain Transactions Involving Stock Compensation - an Interpretation of APB No.
25" ("FIN 44"). FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. Concurrent adopted FIN 44 on July
1, 2000, and the adoption did not have a material effect on the financial
position or operations of Concurrent.
-7-
In June 2001, the FASB issued Statements No. 141, "Business Combinations"
("SFAS 141"), and No. 142, "Goodwill and other Intangible Assets" ("SFAS 142").
SFAS 141 provides that all business combinations initiated after June 30, 2001
shall be accounted for using the purchase method. In addition, it provides that
the cost of an acquired entity must be allocated to the assets acquired,
including identifiable intangible assets, and liabilities assumed based on their
estimated fair values at the date of acquisition. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. As permitted, Concurrent early-adopted these
statements as of July 1, 2001, the beginning of its fiscal year.
In connection with the adoption of SFAS 142, Concurrent is required to
perform an impairment assessment within six months of adoption. As of September
30, 2001, Concurrent completed this transitional impairment test and deemed that
no impairment loss was necessary. Any subsequent impairment losses will be
reflected in operating income in the income statement.
Also in accordance with SFAS 142, Concurrent discontinued the amortization
of goodwill effective July 1, 2001. A reconciliation of previously reported net
income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
-------- --------
Reported net loss $(3,010) $(1,794)
Add: Goodwill amortization - 309
-------- --------
Adjusted net loss $(3,010) $(1,485)
======== ========
Basic and diluted loss per share:
Reported net loss $ (0.05) $ (0.03)
Goodwill amortization - -
-------- --------
Adjusted net loss $ (0.05) $ (0.03)
======== ========
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred and requires that the amount recorded as a liability be
capitalized by increasing the carrying amount of the related long-lived asset.
Subsequent to initial measurement, the liability is accreted to the ultimate
amount anticipated to be paid, and is also adjusted for revisions to the timing
or amount of estimated cash flows. The capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. SFAS 143 is required to be adopted for fiscal years beginning
after June 15, 2002, with earlier application encouraged. The adoption of SFAS
143 is not expected to have a material effect on Concurrent's financial position
and results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." SFAS 144 retains the fundamental
provisions of SFAS No. 121 for (a) recognition and measurement of the impairment
of long-lived assets to be held and used and (b) measurement of long-lived
assets to be disposed of by sale. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. Concurrent has not yet determined the impact
on its financial position and results of operations, if any, from the adoption
of SFAS 144.
-8-
9. ISSUANCE OF NON-CASH WARRANTS
On March 29, 2001, Concurrent entered into a definitive purchase agreement
with Comcast Cable, providing for the purchase of VOD equipment. As part of that
agreement, Concurrent agreed to issue three different types of warrants.
Concurrent issued warrants to purchase 50,000 shares of its common stock on
March 29, 2001, exercisable at $5.196 per share over a four year term. These
warrants are referred to as the "Initial Warrants".
Concurrent is also generally obligated to issue new warrants to purchase
shares of its common stock to Comcast at the end of each quarter through March
31, 2004, based upon specified performance goals which are measured by the
number of Comcast basic cable subscribers that have the ability to utilize the
VOD service. The incremental number of subscribers that have access to VOD at
quarter end as compared to the prior quarter end multiplied by a specified
percentage is the number of additional warrants that are earned during the
quarter. These warrants are referred to as the "Performance Warrants".
Concurrent issued a performance warrant for 4,431 shares to Comcast on October
9, 2001, exercisable at $6.251 per share over a four year term.
Concurrent will also issue additional warrants to purchase shares of its
common stock, if at the end of any quarter the then total number of Comcast
basic cable subscribers with the ability to utilize the VOD system exceeds
specified threshold levels. These warrants are referred to as the "Cliff
Warrants".
Concurrent is recognizing the value of the Performance Warrants and the
Cliff Warrants over the term of the agreement as Comcast purchases additional
VOD servers from Concurrent and makes the service available to its customers.
For the quarter ended September 30, 2001, Concurrent recognized $405,000 as a
reduction to revenue for the Performance Warrants and Cliff Warrants that have
been accrued for but not yet issued.
The value of the warrants is determined using the Black-Scholes
option-pricing model. The weighted assumptions used for the quarter ended
September 30, 2001 were: expected dividend yield - 0%; risk free interest rate
- -5.0%; expected life - 4 years; expected volatility - 137.9%. Concurrent will
adjust the value of the earned but unissued warrants on a quarterly basis using
the Black-Scholes option-pricing model until the warrants are actually issued.
The value of the new warrants earned and any adjustments in value for warrants
previously earned will be determined using the Black-Scholes option-pricing
model and recognized as part of revenue on a quarterly basis.
The exercise price of the warrants is subject to adjustment for stock
splits, combinations, stock dividends, mergers, and other similar
recapitalization events. The exercise price is also subject to adjustment for
issuance of additional equity securities at a purchase price less than the then
current fair market value of Concurrent's common stock. Based on the information
that is currently available, Concurrent does not expect the warrants to be
issued to Comcast to exceed 1% of its outstanding shares of common stock over
the term of the agreement. The exercise price of the warrants to be issued to
Comcast will equal the average closing price of Concurrent's common stock for
the 30 trading days prior to the applicable warrant issuance date and will be
exercisable over a four-year term.
10. REVOLVING CREDIT FACILITY
Concurrent has a revolving credit facility with a bank that expires on
December 31, 2002 and which provides for borrowings up to $5 million at an
interest rate of prime (6.00% at September 30, 2001) plus 0.75% or between LIBOR
plus 2.25% and LIBOR plus 3.00% depending on Concurrent's ratio of Consolidated
Funded Debt (as defined in the credit facility) to EBITDA. Concurrent has
pledged substantially all of its assets as collateral for the facility. No
borrowings were outstanding at September 30, 2001 under the credit facility. At
September 30, 2001 the Company was in violation of its EBITDA covenant for the
VOD division. This violation is considered a "commitment suspension period"
which means Concurrent is unable to borrow under the credit facility until the
EBITDA covenant violation for the VOD division is cured.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SELECTED OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUE
The following table sets forth selected operating data as a percentage of
total revenue for certain items in Concurrent's consolidated statements of
operations for the periods indicated.
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
-------- --------
(Unaudited)
Revenues:
Product sales:
Real-time systems 37.8 % 28.9 %
Video-on-demand systems 24.9 33.3
-------- --------
Total product sales 62.7 62.2
Service and other 37.3 37.8
-------- --------
Total 100.0 100.0
Cost of sales (% of respective revenue category):
Real-time and video-on-demand systems 54.2 54.8
Service and other 54.2 51.3
-------- --------
Total 54.2 53.5
-------- --------
Gross margin 45.8 46.5
Operating expenses:
Sales and marketing 29.5 25.0
Research and development 24.5 16.1
General and administrative 13.5 15.1
-------- --------
Total operating expenses 67.5 56.2
-------- --------
Operating loss (21.7) (9.7)
Interest income (expense) - net 1.5 (0.1)
Other expense - net (0.1) (0.3)
-------- --------
Loss before income taxes (20.3) (10.1)
Provision for income taxes 1.1 0.9
-------- --------
Net loss (21.3)% (11.0)%
======== ========
-10-
RESULTS OF OPERATIONS
THE QUARTER ENDED SEPTEMBER 30, 2001 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
2000
Product Sales. Total product sales were $8.8 million for the three months
ended September 30, 2001, a decrease of $1.3 million or 12.8% from $10.1 million
for the three months ended September 30, 2000. This decrease primarily results
from a $1.9 million decrease in VOD product sales to $3.5 million in the three
month period ended September 30, 2001 from $5.4 million for the same period in
2000 due to the timing of purchases from domestic cable system operators. Sales
of real-time products increased to $5.3 million in the three month period ended
September 30, 2001 from $4.7 million in the three month period ended September
30, 2000, partially offsetting the decrease in VOD product sales.
Service and Other Sales. Service and other sales decreased $0.9 million or
14.8% to $5.3 million for the three months ended September 30, 2001 from $6.2
million for the three months ended September 30, 2000. The decline resulted
primarily from customers switching from proprietary real-time systems to
Concurrent's open systems which are less expensive to maintain, and the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service.
Gross Margin. Gross margin decreased 14.9% to $6.5 million for the three
months ended September 30, 2001 from $7.6 million for the three months ended
September 30, 2000. The gross margin as a percentage of sales decreased to
45.8% in the three month period ended September 30, 2001 compared to 46.5% in
the three month period ended September 30, 2000 primarily due to lower VOD
margins. VOD product gross margins decreased to 34.8% in the three month period
ended September 30, 2001 from 41.7% in the three month period ended September
30, 2000, due to certain fixed customer service and support costs being spread
over lower revenues and also the reduction in revenue of $405,000 during the
quarter from warrants accrued for but not yet issued to Comcast (see footnote 9
to the condensed consolidated financial statements). The lower VOD margins were
partially offset by higher real-time margins. Real-time product gross margins
increased to 53.1% for the three months ended September 30, 2001 compared to
49.3% for the three months ended September 30, 2000 due to an increase in market
mix to the new 3200-2000 upgrade program for our older legacy system customers.
The gross margin on service and other sales remained relatively flat at 37.3%
for the three months ended September 30, 2001 compared to 37.8% for the same
period in 2000.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of sales to 29.5% for the three months ended September 30, 2001 as
compared to 25.0% for the three months ended September 30, 2000. These expenses
increased slightly to $4.2 million in the three month period ended September 30,
2001 from $4.1 million in the three month period ended September 30, 2000,
primarily due to a $0.3 million increase in domestic VOD sales and marketing
personnel costs. This increase was partially offset by a $0.2 million decrease
in international real-time sales and marketing expense due to a $0.1 million
decrease in severance expense and a $0.1 million reduction of international
real-time marketing staff.
Research and Development. Research and development expenses increased as a
percentage of sales to 24.5% in the three month period ended September 30, 2001
from 16.1% in the three month period ended September 30, 2000. These expenses
increased to $3.5 million in the three month period ended September 30, 2001
from $2.6 million in the three month period ended September 30, 2000 due to
personnel additions in both the real-time and VOD research and development
departments. The Real-Time Division's research and development expense
increased $0.3 million due to additional resources required for development of
the new Linux based real-time operating system. The VOD division also added
new development staff in the fourth quarter of fiscal year 2001 and the first
quarter of fiscal year 2002 to focus on TV Guide version 16.82 integration,
development of back-office software and certain custom client software
application initiatives. The additional VOD resources resulted in an increase
of $0.5 million.
General and Administrative. General and administrative expenses decreased
to 13.5% of sales in the three month period ended September 30, 2001 from 15.1%
in the three month period ended September 30, 2000. These expenses decreased to
$1.9 million in the three month period ended September 30, 2001 from $2.5
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million in the three month period ended September 30, 2000, primarily due to
implementation of SFAS 142, Goodwill and Other Intangible Assets. Under SFAS
142, goodwill relating to the acquisition of Vivid Technology, Inc. is no longer
amortized, reducing VOD general and administrative expense by $0.3 million for
the three month period ended September 30, 2001. In addition, accounting
related costs decreased $0.2 million primarily due to consolidation of duplicate
accounting departments that existed in Duluth, GA and Ft. Lauderdale, FL during
part of the three months ended September 30, 2000.
Interest Income (Expense). Included in interest income (expense) for the
three month period ended September 30, 2001 is $0.2 million of interest income
earned on the net proceeds from the private placement of 5.4 million shares of
common stock that was completed in July 2001.
Income Taxes. Concurrent recorded income tax expense for its foreign
subsidiaries of $150,000 in each of the three month periods ended September 30,
2001 and September 30, 2000 on pre-tax losses of $2.9 million and $1.6 million,
respectively, due to the inability to recognize the future tax benefit of the
respective period's net operating loss.
Net Loss. Concurrent recorded a net loss of $3.0 million or $0.05 per share
for the three months ended September 30, 2001, compared to a net loss of $1.8
million or $0.03 per share for the three months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Concurrent's liquidity is dependent on many factors, including sales
volume, operating and the efficiency of asset use and turnover. Concurrent's
future liquidity will be affected by, among other things:
- The actual versus anticipated decline in sales of real-time proprietary
systems and service maintenance revenue;
- Revenue growth from VOD systems;
- Ongoing cost control actions and expenses, including for example, research
and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- The ability to raise additional capital, if necessary;
- Timing of product shipments which occur primarily during the last month of
the quarter;
- The percentage of sales derived from outside the United States where there
are generally longer accounts receivable collection cycles and which
receivables are not included in the borrowing base of the revolving credit
facility; and
- The number of countries in which Concurrent operates, which may require
maintenance of minimum cash levels in each country and, in certain cases,
may restrict the repatriation of cash, such as cash held on deposit to
secure office leases.
Concurrent used cash of $4.5 million and $3.6 million in operating
activities during the three month periods ended September 30, 2001 and September
30, 2000, respectively, primarily due to the losses generated by Concurrent's
VOD business. Concurrent has available a $5 million revolving credit facility
with Wachovia Bank which expires December 31, 2002. Borrowings under the
facility are limited to 85% of eligible accounts receivable and bear interest at
prime plus .75% or between LIBOR plus 2.25% and LIBOR plus 3.00% depending on
Concurrent's ratio of Consolidated Funded Debt (as defined in the credit
facility) to EBITDA. Concurrent has pledged substantially all of its assets as
collateral for the facility. No borrowings were outstanding at September 30,
2001 under the credit facility. The credit facility contains financial
covenants which limit the ratio of total liabilities to tangible net worth and
which require Concurrent to achieve on a quarterly basis minimum EBITDA in each
of Concurrent's operating divisions. At September 30, 2001, Concurrent was in
violation of its EBITDA covenant for the VOD division. This violation is
considered a "commitment suspension event" and not an "event of default".
Concurrent is currently in a "commitment suspension period" which means
Concurrent is unable to borrow under the credit facility until the EBITDA
covenant violation for the VOD division is cured.
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Concurrent invested $.9 million and $1.1 million in property, plant and
equipment during the three month periods ended September 30, 2001 and September
30, 2000, respectively. Current year capital expenditures primarily relate to
computer equipment and development equipment for Concurrent's VOD Division.
Concurrent received $24.0 million in net proceeds from a private placement
of 5.4 million shares of Concurrent's common stock on July 19, 2001. Concurrent
also received $1.2 million from the issuance of common stock to employees and
directors who exercised stock options during the three month period ended
September 30, 2001, compared to $.7 million during the three month period ended
September 30, 2000.
At September 30, 2001, Concurrent's working capital was $37.9 million, and
Concurrent did not have any material commitments for capital expenditures.
Concurrent believes that existing cash balances and funds expected to be
generated by operations will be sufficient to meet Concurrent's anticipated
working capital and capital expenditure requirements for the next twelve months.
On March 29, 2001, Concurrent entered into a definitive purchase agreement
with Comcast Cable providing for the purchase of VOD equipment. In connection
with the purchase agreement, Concurrent issued warrants to purchase 50,000
shares of its common stock, exercisable at $5.196 per share over a four year
term. The exercise price is subject to adjustment for stock splits,
combinations, stock dividends, mergers, and other similar recapitalization
events. The exercise price is also subject to adjustment for issuances of
additional equity securities at a purchase price less than the then current fair
market value of Concurrent's common stock. The warrants to purchase 50,000
shares were valued using the Black Scholes model. The weighted average
assumptions used were: expected dividend yield - 0%; risk free interest
rate-5.5%; expected life - 4 years; and expected volatility - 142.9%. In
addition, Concurrent is generally obligated to issue new warrants to purchase
shares of its common stock to Comcast at the end of each quarter through March
31, 2004, based upon performance goals measured by the number of subscribers to
Comcast's cable service with the ability to utilize Concurrent's VOD systems.
Concurrent issued a performance warrant for 4,431 shares to Comcast on October
9, 2001, exercisable at $6.251 per share over a four year term. Concurrent will
also issue additional warrants to purchase shares of its common stock, if at the
end of any quarter the total number of Comcast cable subscribers with the
ability to utilize its VOD system exceeds specified threshold levels. Based upon
the information currently available, Concurrent does not expect the warrants to
be issued to Comcast to exceed 1% of its outstanding shares of common stock. The
exercise price of warrants to be issued to Comcast will equal the average
closing price of Concurrent's common stock for the 30 trading days prior to the
applicable warrant issuance date and will be exercisable over a four-year term.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Concurrent or its representatives, may
constitute "forward-looking statements" within the meaning of the federal
securities laws. When used in this report, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Statements regarding future events and developments and
Concurrent's future performance, as well as its expectations, beliefs, plans,
estimates or projections relating to the future, are forward-looking statements
within the meaning of these laws. All forward-looking statements are subject to
certain risks and uncertainties that could cause actual events to differ
materially from those projected. The risks and uncertainties which could affect
Concurrent's performance or results include, without limitation:
- availability of VOD content;
- delays or cancellations of customer orders;
- changes in product demand;
- general political and economic conditions in the United States and abroad,
including but not limited to, results of the terrorist events of September
11, 2001;
- various inventory risks due to changes in market conditions;
- uncertainties relating to the development and ownership of intellectual
property;
- uncertainties relating to the ability of Concurrent and other companies to
enforce their intellectual property rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of the VOD segment;
- the concentration of Concurrent's customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- the highly competitive environment in which Concurrent operates; and
- the entry of new well-capitalized competitors into Concurrent's markets
and other risks and uncertainties.
These risk factors and other important risk factors are discussed in
Concurrent's current report on Form 8-K filed with the Securities and Exchange
Commission on October 22, 2001.
These statements are based on current expectations and speak only as of the
date of such statements. Concurrent undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of future events,
new information or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Concurrent is exposed to market risk from changes in interest rates and
foreign currency exchange rates. Concurrent is exposed to the impact of
interest rate changes on its short-term cash investments, which are backed by
U.S. government obligations, and other investments in respect of institutions
with the highest credit ratings, all of which have maturities of 3 months or
less. These short-term investments carry a degree of interest rate risk.
Concurrent believes that the impact of a 10% increase or decline in interest
rates would not be material to its investment income.
Concurrent conducts business in the United States and around the world. The
most significant foreign currency transaction exposures relate to the United
Kingdom, those Western European countries that use the Euro as a common
currency, Australia and Japan. Concurrent does not hedge against fluctuations in
exchange rates and believes that a hypothetical 10% upward or downward
fluctuation in foreign currency exchange rates relative to the United States
dollar would not have a material impact on future earnings, fair values, or cash
flows.
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 19, 2001, Concurrent closed on the sale of 5,400,000 shares of
Common Stock to private investors at a price of $4.80 per share. Net proceeds
to Concurrent, after fees and expenses, were approximately $24 million. Raymond
James & Associates, Inc. acted as placement agent in the sale. The sale was a
privately negotiated sale to selected institutional investors and other
accredited investors. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Rule 506 of
Regulation D promulgated thereunder. Concurrent intends to use the proceeds for
working capital, sales and marketing activities, product development and
support, potential acquisitions and investments, capital expenditures and
general corporate purposes. Concurrent subsequently registered the resale of
all of the shares on a Form S-3 registration statement (no. 333-61172), filed on
May 17, 2001 and declared effective on July 19, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Concurrent's Annual Meeting of Stockholders was held on October 25,
2001. The results of voting were as follows:
- The following persons were elected as directors to serve until the
next annual meeting of stockholders: Alex B. Best (53,831,078 votes
for, 232,746 votes withheld), Michael A. Brunner (53,827,298 votes
for, 236,526 votes withheld), Jack A. Bryant (47,854,919 votes for,
6,208,905 votes withheld), Morton E. Handel (53,777,628 votes for,
286,196 votes withheld), Bruce N. Hawthorne (53,832,098 votes for,
231,726 votes withheld), C. Shelton James (53,807,738 votes for,
256,086 votes withheld) and Steve G. Nussrallah (53,423,258 votes for,
640,566 votes withheld).
- The selection by the Board of Directors of Deloitte & Touche LLP as
Concurrent's independent auditors for the fiscal year ending June 30,
2002 was ratified (52,694,542 votes for, 1,316,902 votes against,
52,380 votes abstained).
- The adoption of Concurrent's 2001 Stock Option Plan was approved
(32,612,353 votes for, 21,223,715 votes against, 227,756 votes
abstained).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(11) Statement on computation of per share earnings
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the period covered by
this report:
- Current Report on Form 8-K filed on October 22, 2001 relating to
amending and restating the Registration Statement on Form 8-A filed
with the Securities and Exchange Commission on January 23, 1986 to
update the description of Concurrent's capital stock, and to update
certain risk factors relating to Concurrent.
- Current Report on Form 8-K filed on October 25, 2001 relating to
financial results for the quarter ended September 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended September
30, 2001 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: November 7, 2001 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
--------------------------------------------
Steven R. Norton
Chief Financial Officer
(Principal Financial and Accounting Officer,
Authorized Officer)
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