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 March 31, 2002
or
Transition Report Pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the Transition Period from ____ to ____
Commission File No. 0-13150
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CONCURRENT COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
4375 River Green Parkway, Duluth, GA 30096
(Address of principal executive offices)
Telephone: (678) 258-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of May 6, 2002 was 61,855,727.
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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001 2002 2001
------------------ ------------------
Revenues:
Product sales
Real-time systems $ 5,647 $ 6,028 $15,845 $17,477
Video-on-demand systems 14,576 10,349 30,514 17,618
-------- -------- -------- --------
Total product sales 20,223 16,377 46,359 35,095
Service and other 4,805 5,704 15,252 17,831
-------- -------- -------- --------
Total 25,028 22,081 61,611 52,926
Cost of sales:
Real-time and video-on-demand systems 9,429 8,744 23,659 18,945
Service and other 2,838 3,127 8,651 9,518
-------- -------- -------- --------
Total 12,267 11,871 32,310 28,463
-------- -------- -------- --------
Gross margin 12,761 10,210 29,301 24,463
Operating expenses:
Sales and marketing 4,198 4,059 12,526 12,198
Research and development 3,861 2,925 10,977 8,374
General and administrative 2,341 2,551 6,439 8,793
-------- -------- -------- --------
Total operating expenses 10,400 9,535 29,942 29,365
-------- -------- -------- --------
Operating income (loss) 2,361 675 (641) (4,902)
Interest income - net 154 60 561 77
Other expense - net (61) (14) (120) (106)
-------- -------- -------- --------
Income (loss) before income taxes 2,454 721 (200) (4,931)
Provision for income taxes 150 150 450 450
-------- -------- -------- --------
Net income (loss) $ 2,304 $ 571 $ (650) $(5,381)
======== ======== ======== ========
Net income (loss) per share
Basic $ 0.04 $ 0.01 $ (0.01) $ (0.10)
======== ======== ======== ========
Diluted
$ 0.04 $ 0.01 $ (0.01) $ (0.10)
======== ======== ======== ========
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)
MARCH 31, JUNE 30,
2002 2001
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 22,408 $ 9,460
Accounts receivable - net 22,643 14,348
Inventories 8,298 7,187
Prepaid expenses and other current assets 1,222 1,058
----------- ----------
Total current assets 54,571 32,053
Property, plant and equipment - net 10,461 10,484
Purchased developed computer software 1,441 1,583
Goodwill - net 10,744 10,744
Investment in minority owned company 7,000 -
Note receivable from minority owned company 3,000 -
Other long-term assets - net 2,099 2,188
----------- ----------
Total assets $ 89,316 $ 57,052
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 14,575 $ 13,929
Deferred revenue 3,565 3,300
----------- ----------
Total current liabilities 18,140 17,229
Long-term liabilities:
Deferred revenue 778 1,193
Other 5,269 5,347
----------- ----------
Total liabilities 24,187 23,769
Stockholders' equity:
Common stock 618 551
Capital in excess of par value 172,522 140,352
Accumulated deficit (103,410) (102,760)
Treasury stock (58) (58)
Accumulated other comprehensive loss (4,543) (4,802)
----------- ----------
Total stockholders' equity 65,129 33,283
----------- ----------
Total liabilities and stockholders' equity $ 89,316 $ 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)
NINE MONTHS ENDED
MARCH 31,
2002 2001
--------- --------
OPERATING ACTIVITIES
Net loss $ (650) $(5,381)
Adjustments to reconcile net loss to net
cash used in operating activities:
Accrual of non-cash warrants 1,751 759
Depreciation and amortization 3,713 4,394
Other non cash expenses 837 1,821
Changes in operating assets and liabilities:
Accounts receivable (8,628) (6,282)
Inventories (1,598) (4,847)
Prepaid expenses and other current assets (164) 111
Other long-term assets (11) 530
Accounts payable and accrued expenses 646 580
Deferred revenue (150) 3,923
Long-term liabilities (20) (168)
--------- --------
Total adjustments to net loss (3,624) 821
--------- --------
Net cash used in operating activities (4,274) (4,560)
INVESTING ACTIVITIES
Net additions to property, plant and equipment (3,260) (2,467)
Investment in minority owned company (4,000) -
Note receivable from minority owned company (3,000) -
--------- --------
Net cash used in investing activities (10,260) (2,467)
FINANCING ACTIVITIES
Net repayment of capital lease obligation (58) (53)
Proceeds from sale and issuance of common stock 27,486 3,892
--------- --------
Net cash provided by financing activities 27,428 3,839
Effect of exchange rates on cash and cash equivalents 54 (896)
--------- --------
Increase (decrease) in cash and cash equivalents 12,948 (4,084)
Cash and cash equivalents at beginning of period 9,460 10,082
--------- --------
Cash and cash equivalents at end of period $ 22,408 $ 5,998
========= ========
Cash paid during the period for:
Interest $ 52 $ 249
========= ========
Income taxes (net of refunds) $ 353 $ 612
========= ========
Non-cash investing/financing activities:
Common stock issued for investment in minority owned company $ 3,000 $ -
========= ========
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 dilutive common shares
issuable. Under the treasury stock method, incremental shares representing the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued are included in the
computation.
The number of shares used in computing basic and diluted net income per
share for the three months ended March 31, 2002 was 61,560,000 and 64,767,000,
respectively. The number of shares used in computing basic and diluted net loss
per share for the nine months ended March 31, 2002 was 60,712,000. Because of
the loss for the nine months ended March 31, 2002, the potential common shares
issuable were anti-dilutive and were not considered in the diluted earnings per
share calculations. Common share equivalents of 3,415,000 for the nine months
ended March 31, 2002 were excluded from the calculation, as their effect was
antidilutive.
The number of shares used in computing basic and diluted net income per
share for the three months ended March 31, 2001 was 55,021,000 and 57,125,000,
respectively. The number of shares used in computing basic and diluted net loss
per share for the nine months ended March 31, 2001 was 54,558,000. Because of
the loss for the nine months ended March 31, 2001, the potential common shares
issuable were antidilutive and were not considered in the diluted earnings per
share calculations. Common share equivalents of 4,334,000 for the nine months
ended March 31, 2001 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 ("SOP") 97-2, "Software Revenue Recognition". Concurrent recognizes
revenue from video-on-demand and real-time systems when persuasive evidence of
an arrangement exists, the system has been shipped, the fee is fixed or
determinable and collectibility of the fee is probable. Under multiple element
arrangements, Concurrent allocates revenue to the various elements based on
vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of
fair value is determined based on the price charged when the same element is
sold separately.
-4-
In certain instances, Concurrent's customers require significant
customization of both the software and hardware products and, therefore, the
revenues are recognized as long term contracts in conformity with Accounting
Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts", SOP
81-1 "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" and SOP 97-2 "Software Revenue Recognition". For
long-term contracts, revenue is recognized using the percentage of completion
method of accounting based on costs incurred on the project compared to the
total costs expected to be incurred through completion.
Concurrent recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
Custom engineering and integration services performed by the Real-Time
Division are typically completed within 90 days from receipt of an order.
Revenues from these services are recognized upon completion and delivery of the
software solution to the customer.
4. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components of
inventories are as follows:
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2002 2001
---------- ---------
Raw materials $ 6,744 $ 5,709
Work-in-process 1,406 1,178
Finished goods 148 300
---------- ---------
$ 8,298 $ 7,187
========== =========
5. INVESTMENT IN AND RECEIVABLE FROM MINORITY OWNED COMPANY
In March 2002, Concurrent invested cash of $4 million and issued 291,461
shares of its common stock in exchange for 1,220,601 series C shares of
Thirdspace Living Limited ("Thirdspace"), representing a 14.4% ownership
interest in all shares outstanding as of the investment date. Thirdspace is a
closely held United Kingdom global software services corporation that offers
interactive and on-demand television solutions for DSL (digital subscriber line)
and other broadband networks. In exchange for its investment, Concurrent also
received a warrant for 400,000 series C shares of Thirdspace. The warrant is
exercisable beginning December 19, 2002. If the fair market value of the warrant
on the date of exercise is less than $5.73 per share, then the exercise price
will be the then current fair market value. If the fair market value of the
warrant on the date of exercise is equal to or greater than $5.73 per share,
then the exercise price will be the greater of $5.73 or 85% of the then current
fair market value.
Concurrent also loaned Thirdspace $3 million in exchange for a long-term
convertible note receivable, bearing interest at 8% annually, with interest
payments first due December 31, 2002, and semi-annually, thereafter. The note is
convertible into series C shares of Thirdspace, at the option of Concurrent,
beginning six months after the issuance of the note and ending 48 months after
the issuance of the note. Concurrent is also obligated, as part of the
agreement, to lend an additional $3 million on September 3, 2002, under the same
terms as the initial $3 million loan. Concurrent has a security interest in all
of the assets of Thirdspace, which is subject to a prior lien on Thirdspace's
intellectual property securing an obligation of $5,000,000. Other than the prior
lien on Thirdspace's intellectual property, Concurrent's security interest ranks
ratably with those of other secured creditors. Concurrent has not yet completed
the allocation of the total investment in Thirdspace to the common stock,
warrant, and convertible note receivable as the appraisals associated with these
securities are not yet complete.
-5-
Concurrent will account for the common stock and the warrant in Thirdspace
using the cost method, as Concurrent does not believe it exercises significant
influence on Thirdspace. Both the common stock and the warrant will be reviewed
for impairment on a quarterly basis. The convertible note will be recorded at
fair value with changes in fair value in future periods being recorded as a
component of other comprehensive income.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2002 2001
---------- ---------
Accounts payable, trade $ 4,302 $ 4,277
Accrued payroll, vacation and
other employee expenses 5,261 6,090
Warranty accrual 2,324 977
Other accrued expenses 2,688 2,585
---------- ---------
$ 14,575 $ 13,929
========== =========
7. COMPREHENSIVE INCOME
Concurrent's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001 2002 2001
-------- ------- -------- ----------
Net income (loss) $ 2,304 $ 571 $ (650) $ (5,381)
Other comprehensive income (loss):
Foreign currency translation income (loss) 166 (626) 259 (1,071)
-------- ------- -------- ----------
Total comprehensive income (loss) $ 2,470 $ (55) $ (391) $ (6,452)
======== ======= ======== ==========
8. SEGMENT INFORMATION
Concurrent operates its business in two divisions: real-time and
video-on-demand ("VOD"). Concurrent's Real-Time Division is a 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 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, legal fees, Board of Director fees and similar costs.
-6-
The following summarizes the operating income (loss) by segment for the
three-month periods ended March 31, 2002 and March 31, 2001, respectively:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
---------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- ---------- ----------- -------
Revenues:
Product sales $ 5,647 $ 14,576 $ - $20,223
Service and other 4,805 - - 4,805
---------- ---------- ----------- -------
Total 10,452 14,576 - 25,028
Cost of sales
Systems 2,054 7,375 - 9,429
Service and other 2,838 - - 2,838
---------- ---------- ----------- -------
Total 4,892 7,375 - 12,267
---------- ---------- ----------- -------
Gross margin 5,560 7,201 - 12,761
Operating expenses
Sales and marketing 1,696 2,350 152 4,198
Research and development 1,409 2,452 - 3,861
General and administrative 627 450 1,264 2,341
---------- ---------- ----------- -------
Total operating expenses 3,732 5,252 1,416 10,400
---------- ---------- ----------- -------
Operating income (loss) $ 1,828 $ 1,949 $ (1,416) $ 2,361
========== ========== =========== =======
THREE MONTHS ENDED MARCH 31, 2001(UNAUDITED)
---------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- ---------- ----------- -------
Revenues:
Product sales $ 6,028 $ 10,349 $ - $16,377
Service and other 5,704 - - 5,704
---------- ---------- ----------- -------
Total 11,732 10,349 - 22,081
Cost of sales
Systems 3,392 5,352 - 8,744
Service and other 3,127 - - 3,127
---------- ---------- ----------- -------
Total 6,519 5,352 - 11,871
---------- ---------- ----------- -------
Gross margin 5,213 4,997 - 10,210
Operating expenses
Sales and marketing 1,913 2,027 119 4,059
Research and development 880 2,045 - 2,925
General and administrative 495 744 1,312 2,551
---------- ---------- ----------- -------
Total operating expenses 3,288 4,816 1,431 9,535
---------- ---------- ----------- -------
Operating income (loss) $ 1,925 $ 181 $ (1,431) $ 675
========== ========== =========== =======
-7-
The following summarizes the operating income (loss) by segment for the
nine-month periods ended March 31, 2002 and March 31, 2001, respectively:
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
----------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- ----------- ----------- --------
Revenues:
Product sales $ 15,845 $ 30,514 $ - $46,359
Service and other 15,252 - - 15,252
---------- ----------- ----------- --------
Total 31,097 30,514 - 61,611
Cost of sales
Systems 6,682 16,977 - 23,659
Service and other 8,651 - - 8,651
---------- ----------- ----------- --------
Total 15,333 16,977 - 32,310
---------- ----------- ----------- --------
Gross margin 15,764 13,537 - 29,301
Operating expenses
Sales and marketing 5,059 7,026 441 12,526
Research and development 3,913 7,064 - 10,977
General and administrative 1,379 1,322 3,738 6,439
---------- ----------- ----------- --------
Total operating expenses 10,351 15,412 4,179 29,942
---------- ----------- ----------- --------
Operating income (loss) $ 5,413 $ (1,875) $ (4,179) $ (641)
========== =========== =========== ========
NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED)
----------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- ----------- ----------- --------
Revenues:
Product sales $ 17,477 $ 17,618 $ - $35,095
Service and other 17,831 - - 17,831
---------- ----------- ----------- --------
Total 35,308 17,618 - 52,926
Cost of sales
Systems 9,284 9,661 - 18,945
Service and other 9,518 - - 9,518
---------- ----------- ----------- --------
Total 18,802 9,661 - 28,463
---------- ----------- ----------- --------
Gross margin 16,506 7,957 - 24,463
Operating expenses
Sales and marketing 5,700 6,059 439 12,198
Research and development 2,553 5,821 - 8,374
General and administrative 1,269 1,999 5,525 8,793
---------- ----------- ----------- --------
Total operating expenses 9,522 13,879 5,964 29,365
---------- ----------- ----------- --------
Operating income (loss) $ 6,984 $ (5,922) $ (5,964) $(4,902)
========== =========== =========== ========
-8-
9. RECENT ACCOUNTING PRONOUNCEMENTS
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. All goodwill and other intangible assets are
in the VOD Division. 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 performed an
impairment assessment 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001 2002 2001
------- ------- -------- --------
Reported net income (loss) $ 2,304 $ 571 $ (650) $(5,381)
Add: Goodwill amortization - 309 - 927
------- ------- -------- --------
Adjusted net income (loss) $ 2,304 $ 880 $ (650) $(4,454)
======= ======= ======== ========
Basic and diluted income (loss) per share:
Reported net income (loss) $ 0.04 $ 0.01 $ (0.01) $ (0.10)
Goodwill amortization - 0.01 - 0.02
------- ------- -------- --------
Adjusted net income (loss) $ 0.04 $ 0.02 $ (0.01) $ (0.08)
======= ======= ======== ========
Weighted average shares outstanding - basic 61,560 55,021 60,712 54,558
======= ======= ======== ========
Weighted average shares outstanding - diluted 64,767 57,125 60,712 54,558
======= ======= ======== ========
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.
-9-
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. The adoption of SFAS 144 is not expected to
have a material effect on Concurrent's financial position and results of
operations.
10. ISSUANCE OF NON-CASH WARRANTS
On March 29, 2001, Concurrent entered into a definitive purchase agreement
with Comcast Cable, providing for the purchase of VOD equipment. As part of
that agreement, Concurrent agreed to issue three different types of warrants.
Concurrent issued a warrant to purchase 50,000 shares of its common stock
on March 29, 2001, exercisable at $5.196 per share over a four-year term. This
warrant is referred to as the "Initial Warrant".
Concurrent is also generally obligated to issue new warrants to purchase
shares of its common stock to Comcast at the end of each quarter through March
31, 2004, based upon specified performance goals which are measured by the
number of Comcast basic cable subscribers that have the ability to utilize the
VOD service. The incremental number of subscribers that have access to VOD at
quarter end as compared to the prior quarter end multiplied by a specified
percentage is the number of additional warrants that are earned during the
quarter. These warrants are referred to as the "Performance Warrants".
Concurrent issued a performance warrant for 4,431 shares to Comcast on October
9, 2001, exercisable at $6.251 per share over a four-year term. Concurrent also
issued a performance warrant for 52,511 shares to Comcast on January 15, 2002,
exercisable at $15.019 per share over a four-year term.
Concurrent will also issue additional warrants to purchase shares of its
common stock, if at the end of any quarter the then total number of Comcast
basic cable subscribers with the ability to utilize the VOD system exceeds
specified threshold levels. These warrants are referred to as the "Cliff
Warrants".
Concurrent is recognizing the value of the Performance Warrants and the
Cliff Warrants over the term of the agreement as Comcast purchases additional
VOD servers from Concurrent and makes the service available to its customers.
For the three months ended March 31, 2002, Concurrent recognized $242,000 as an
increase in revenue for the Performance Warrants and Cliff Warrants that have
been accrued for but not yet issued. This increase was due to a revised
estimate of the number of Comcast basic cable subscribers that have the ability
to utilize the VOD system and a decrease in the value of the warrants using the
Black-Scholes valuation model. For the nine months ended March 31, 2002,
Concurrent recognized $450,000 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 valuation
model. The weighted assumptions used for the quarter ended March 31, 2002 were:
expected dividend yield - 0%; risk free interest rate - 4.57%; expected life -
4 years; expected volatility - 125.2%. Concurrent will adjust recorded revenue
for the adjusted value of the earned but unissued warrants on a quarterly basis
using the Black-Scholes valuation model until the warrants are actually issued.
The exercise price of the warrants is subject to adjustment for stock
splits, combinations, stock dividends, mergers, and other similar
recapitalization events. The exercise price is also subject to adjustment for
issuance of additional equity securities at a purchase price less than the then
current fair market value of Concurrent's common stock. Based on the
information that is currently available, Concurrent does not expect the warrants
to be issued to Comcast to exceed 1% of its outstanding shares of common stock
over the term of the agreement. The exercise price of the warrants to be issued
to Comcast will equal the average closing price of Concurrent's common stock for
the 30 trading days prior to the applicable warrant issuance date and the
warrant will be exercisable over a four-year term.
In accordance with a definitive agreement with Scientific Atlanta, Inc.
("SAI") executed in August of 1998, Concurrent agreed to issue warrants to SAI
upon achievement of pre-determined revenue targets. The value of these warrants
cannot exceed 5% of applicable revenue and the number of shares related to the
warrant are determined using the Black-Scholes valuation model and cannot exceed
888,888 shares for every $30 million of revenue from the sale of VOD servers
using the SAI platform. The value of these warrants cannot impact gross margin
by more than $1.5 million per $30 million of applicable revenue. Concurrent
accrues for this cost as a part of cost of sales at the time of recognition of
applicable revenue. For the three months and nine months ended March 31, 2002,
Concurrent accrued $576,000 and $1,301,000, respectively, as a part of VOD
systems cost of sales for SAI performance warrants that have been accrued but
not yet issued. The warrant earned as a result of the cumulative revenue from
sales of VOD servers using the SAI platform reaching the first $30 million
revenue target during the quarter ended March 31, 2002 will be for 261,164
shares of Concurrent common stock, exercisable at $7.106 per share over a
four-year term.
-10-
11. REVOLVING CREDIT FACILITY
Concurrent has a revolving credit facility with a bank that expires on
December 31, 2002 and which provides for borrowings up to $5 million at an
interest rate of prime (4.75% at March 31, 2002) 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 March 31, 2002 under the credit facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Revenue Recognition
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition". Concurrent recognizes revenue
from video-on-demand and real-time systems when: (1) persuasive evidence of an
arrangement exists; (2) the system has been shipped; (3) the fee is fixed or
determinable; and (4) collectibility of the fee is probable. Under multiple
element arrangements, Concurrent allocates revenue to the various elements based
on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE
of fair value is determined based on the price charged when the same element is
sold separately. Determination of criteria (3) and (4) are based on
management's judgements regarding the fixed nature of the fee charged for
products and services delivered and the collectibility of those fees. Should
changes in conditions cause management to determine these criteria are not met
for certain future transactions, revenue recognized for any reporting period
could be adversely affected.
In certain instances, Concurrent's customers require significant
customization of both software and hardware products and, therefore, revenues
are recognized as long term contracts using the percentage-of-completion method,
which relies on estimates of total expected contract revenue and costs.
Concurrent follows this method since reasonably dependable estimates of the
revenue and costs applicable to various stages of a contract can be made.
Recognized revenues and profit are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to income in
the period in which the facts that give rise to the revision become known.
Valuation and Accrual of Non-Cash Warrants
Concurrent entered into a definitive purchase agreement with Comcast Cable
in March of 2001, providing for the sale of VOD equipment. As part of that
agreement, Concurrent agreed to issue three types of warrants (See note 10 to
the condensed consolidated financial statements).
Concurrent recognized the value of the Initial Warrant as a reduction of
revenue in the quarter ended March 31, 2001. Concurrent recognizes the value of
Performance Warrants and Cliff Warrants as an adjustment to revenue over the
term of the agreement as Comcast purchases additional VOD servers from
Concurrent and makes the service available to its customers.
The value of the warrants is determined using the Black-Scholes valuation
model. The weighted assumptions used for the quarter ended March 31, 2002 were:
expected dividend yield - 0%; risk free interest rate - 4.57%; expected life -
4 years; expected volatility - 125.2%. Concurrent will adjust the value of the
earned but unissued warrants on a quarterly basis using the valuation
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 valuation model and recognized as
part of revenue on a quarterly basis. To the extent the above assumptions
change on a periodic basis, or the number of subscribers capable of receiving
VOD increases or decreases, revenue and gross margins may be positively or
negatively impacted.
-11-
In accordance with a definitive agreement with Scientific Atlanta, Inc.
("SAI") executed in August of 1998, Concurrent agreed to issue warrants to SAI
upon achievement of pre-determined revenue targets. The value of these warrants
cannot exceed 5% of applicable revenue and the number of shares related to the
warrant are determined using the Black-Scholes valuation model and cannot exceed
888,888 shares for every $30 million of revenue from the sale of VOD servers
using the SAI platform. The value of these warrants cannot impact gross margin
by more than $1.5 million per $30 million of applicable revenue. Concurrent
accrues for this cost as a part of cost of sales at the time of recognition of
applicable revenue.
Warranty Accrual/Maintenance Revenue Deferral
Concurrent either accrues the estimated costs to be incurred in performing
warranty services at the time of revenue recognition and shipment of the
servers, or defers revenue associated with the maintenance services to be
provided during the warranty period based upon the value for which Concurrent
would sell such services separately, depending upon the specific terms of the
customer agreement. Concurrent's estimate of costs to service its warranty
obligations is based on historical experience and expectation of future
conditions. To the extent Concurrent experiences increased warranty claim
activity or increased costs associated with servicing those claims, its warranty
accrual will increase resulting in decreased gross margin.
Inventory Valuation Reserves
Concurrent provides for inventory obsolescence based upon assumptions about
future demand, market conditions and anticipated timing of the release of next
generation products. If actual market conditions or future demand are less
favorable than those projected by management, or if next generation products are
released earlier than anticipated, additional inventory write-downs may be
required.
Impairment of Goodwill
At March 31, 2002, Concurrent had $10.7 million of goodwill. In assessing
the recoverability of Concurrent's goodwill the Company must make assumptions
regarding estimated future cash flows and other factors to determine the fair
value of the respective assets. If the estimates or their related assumptions
change in the future, Concurrent may be required to record impairment charges
for these assets not previously recorded. In connection with the adoption of
SFAS 142, Concurrent was required to perform an impairment assessment within six
months of its July 1, 2001 adoption. As of September 30, 2001, Concurrent
completed this transitional impairment test and deemed that no impairment loss
was necessary. Any subsequent impairment losses, if any, will be reflected in
operating income in the income statement.
Valuation of Deferred Tax Assets
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. At June 30, 2001 and March
31, 2002, substantially all of the deferred tax assets have been fully reserved
due to the operating losses for the past several years and the inability to
assess as more likely than not the likelihood of generating sufficient future
taxable income to realize such benefits.
Investment In and Receivable from Minority Owned Company
At March 31, 2002, Concurrent had approximately a $7 million minority
interest in Thirdspace, as well as a $3 million long-term note receivable due
from Thirdspace. The fair value of the long-term investment in and note
receivable from Thirdspace is dependent on the performance of Thirdspace, as
well as the volatility inherent in the external markets for Thirdspace. In
assessing potential impairment for this investment and note receivable,
Concurrent will
-12-
consider these factors as well as forecasted financial performance of
Thirdspace. If actual results do not meet previous forecasts, or if
substantial changes in forecasts occur, Concurrent may have to record impairment
charges not previously recognized.
-13-
SELECTED OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUE
The following table sets forth selected operating data as a percentage of
total revenue for certain items in Concurrent's consolidated statements of
operations for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------
(Unaudited) (Unaudited)
Net sales:
Product sales (% of total sales):
Real-time systems 22.6% 27.3% 25.7% 33.0%
Video-on-demand systems 58.2 46.9 49.5 33.3
-------- -------- -------- --------
Total product sales 80.8 74.2 75.2 66.3
Service and other 19.2 25.8 24.8 33.7
-------- -------- -------- --------
Total 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems 46.6 53.4 51.0 54.0
Service and other 59.1 54.8 56.7 53.4
-------- -------- -------- --------
Total 49.0 53.8 52.4 53.8
-------- -------- -------- --------
Gross margin 51.0 46.2 47.6 46.2
Operating expenses:
Sales and marketing 16.8 18.4 20.3 23.0
Research and development 15.4 13.2 17.8 15.8
General and administrative 9.4 11.6 10.5 16.6
-------- -------- -------- --------
Total operating expenses 41.6 43.2 48.6 55.5
-------- -------- -------- --------
Operating income (loss) 9.4 3.1 (1.0) (9.3)
Interest income - net 0.6 0.3 0.9 0.1
Other expense - net (0.2) (0.1) (0.2) (0.2)
-------- -------- -------- --------
Income (loss) before income taxes 9.8 3.3 (0.3) (9.3)
Provision for income taxes 0.6 0.7 0.7 0.9
-------- -------- -------- --------
Net income (loss) 9.2% 2.6% (1.1)% (10.2)%
======== ======== ======== ========
-14-
RESULTS OF OPERATIONS
THE QUARTER ENDED MARCH 31, 2002 COMPARED TO THE QUARTER ENDED MARCH 31, 2001
Product Sales. Total product sales were $20.2 million for the three months
ended March 31, 2002, an increase of $3.8 million or 23.5% from $16.4 million
for the three months ended March 31, 2001. This increase resulted from VOD
product sales increasing by $4.2 million to $14.6 million in the three month
period ended March 31, 2002 from $10.3 million for the same period in 2001. The
increase in VOD product sales is due to the increase in VOD server purchases
from a single domestic multiple system cable operator, which accounted for
approximately 81.0% of VOD system revenue in the quarter ended March 31, 2002.
Sales of real-time products decreased 6.3% to $5.6 million in the three month
period ended March 31, 2002 from $6.0 million in the three month period ended
March 31, 2001, partially offsetting the increase in VOD product sales. Sales to
one particular real-time customer accounted for approximately 71.4% of real-time
product sales in the quarter ended March 31, 2002.
Service and Other Sales. Service and other sales decreased $0.9 million or
15.8% to $4.8 million for the three months ended March 31, 2002 from $5.7
million for the three months ended March 31, 2001. The decline resulted
primarily from customers switching from proprietary real-time systems to
Concurrent's open systems which are less expensive to maintain, and the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service.
Gross Margin. The gross margin increased 25.0% to $12.8 million for the
three months ended March 31, 2002 from $10.2 million for the three months ended
March 31, 2001. The gross margin as a percentage of sales increased to 51.0% in
the three month period ended March 31, 2002 from 46.2% in the three month period
ended March 31, 2001, due to increases in both VOD and real-time product margins
in the current year quarter. VOD product gross margins increased to 49.4% in
the three month period ended March 31, 2002 from 48.3% in the three month period
ended March 31, 2001, due to improved efficiencies in the new MediaHawk model
3000 server. Improved VOD product gross margins also increased due to certain
fixed customer service and support costs being spread over higher VOD product
sales volume. As revenue from sales of VOD servers continues to increase as a
percentage of total revenue, overall gross margins will move closer to the
margins realized on sales of its VOD servers. Real-time product gross margins
increased to 63.6% for the three months ended March 31, 2002 from 43.7% for the
three months ended March 31, 2001, primarily due to a favorable product mix and
strong margins on hardware and software product sales to one particular
customer. The gross margin on service and other sales declined to 40.9% for the
three months ended March 31, 2002 from 45.2% for the same period in 2001
because, as service revenues continued to decline, service expenses were unable
to be reduced pro-rata in order to ensure quality service and fulfill
contractual agreements.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 16.8% for the three months ended March 31, 2002 from
18.4% for the three months ended March 31, 2001. These expenses increased
slightly to $4.2 million in the three month period ended March 31, 2002 from
$4.1 million in the three month period ended March 31, 2001, primarily due to a
$0.2 million increase in domestic VOD sales and marketing personnel costs. This
increase was partially offset by a $0.1 million decrease in international
real-time marketing personnel costs.
Research and Development. Research and development expenses increased as a
percentage of sales to 15.4% for the three month period ended March 31, 2002
from 13.2% for the three month period ended March 31, 2001. These expenses
increased to $3.9 million in the three month period ended March 31, 2002 from
$2.9 million in the three month period ended March 31, 2001 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 $0.4 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 first three quarters of fiscal year 2002 to focus on TV Guide
integrations, targeted and interactive advertising integration, development of
Concurrent's personal video channel (pTV(TM))
-15-
technology, and next generation server and server architectures. The additional
VOD research and development personnel resulted in an increase of $0.3 million
while additional facility costs increased $0.1 million during the three months
ended March 31, 2002, when compared to the same period in the prior year.
General and Administrative. General and administrative expenses decreased
as a percentage of sales to 9.4% for the three months ended March 31, 2002 from
11.6% during the same period in the prior year. These expenses decreased to $2.3
million in the three month period ended March 31, 2002 from $2.6 million in the
same period ended March 31, 2001, primarily due to the July 1, 2001
implementation of SFAS 142. In accordance with SFAS 142, goodwill relating to
the acquisition of Vivid Technology, Inc. is no longer amortized.
Discontinuation of this goodwill amortization expense decreased VOD general and
administrative expense by $0.3 million for the three month period ended March
31, 2002 versus the same period in the prior year.
Interest Income (Expense). Included in interest income (expense) for the
three month period ended March 31, 2002 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 March 31, 2002
and March 31, 2001 based on pre-tax income of $2.5 million and $0.7 million in
the three month period ended March 31, 2002 and March 31, 2001, respectively,
due to the inability to utilize domestic net operating loss carryforwards to
offset taxable income in certain foreign locations.
Net Income. Concurrent recorded net income of $2.3 million or $0.04 per
basic and diluted share for the three months ended March 31, 2002, compared to
net income of $0.6 million or $0.01 per basic and diluted share for the three
months ended March 31, 2001.
THE NINE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
2001
Product Sales. Total product sales were $46.4 million for the nine months
ended March 31, 2002, an increase of $11.3 million or 32.1% from $35.1 million
for the nine months ended March 31, 2001. This increase primarily results from a
$12.9 million, or 73.2% increase in VOD product sales to $30.5 million in the
nine month period ended March 31, 2002 from $17.6 million for the same period in
2001. The increase in VOD product sales is primarily due to the increase in VOD
server purchases from a single domestic cable operator, which accounted for
approximately 80.0% of VOD system revenue during the nine months ended March 31,
2002. Sales of real-time products decreased 9.3% to $15.8 million in the nine
month period ended March 31, 2002 from $17.5 million in the nine month period
ended March 31, 2001, primarily due to an order from a single customer in fiscal
2001 of approximately $2.0 million, which was not repeated in fiscal 2002.
Service and Other Sales. Service and other sales decreased $2.6 million or
14.5% to $15.3 million for the nine months ended March 31, 2002 from $17.8
million for the nine months ended March 31, 2001. The decline resulted primarily
from customers switching from proprietary real-time systems to Concurrent's open
systems which are less expensive to maintain, and from the cancellation of other
proprietary computer maintenance contracts as the machines are removed from
service.
Gross Margin. The gross margin increased 19.8% to $29.3 million for the
nine months ended March 31, 2002 from $24.5 million for the nine months ended
March 31, 2001. The gross margin as a percentage of sales increased to 47.6%
for the nine month period ended March 31, 2002 compared to 46.2% for the same
period ended March 31, 2001, primarily due to higher real-time product margins.
VOD product gross margins decreased to 44.4% for the nine months ended March 31,
2002 from 45.2% during the same period ended March 31, 2001. This decrease is
due to the $0.5 million reduction in revenue during the nine months ended March
31, 2002 from warrants accrued for but not yet issued to Comcast (see footnote
10 to the condensed consolidated financial statements) compared to a smaller
-16-
$0.3 million reduction in revenue from these warrants for the nine months ended
March 31, 2001. Real-time product gross margins increased to 57.8% for the nine
months ended March 31, 2002 compared to 46.9% for the nine months ended March
31, 2001, primarily due to a favorable product mix and strong margins on
hardware and software product sales to one particular customer. The gross
margin on service and other sales declined to 43.3% for the nine months ended
March 31, 2002 compared to 46.6% for the same period in 2001 because, as service
revenues continued to decline, service expenses were unable to be reduced
pro-rata in order to ensure quality service and fulfill contractual agreements.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 20.3% for the nine months ended March 31, 2002 from 23.0%
for the nine months ended March 31, 2001. These expenses increased slightly to
$12.5 million in the nine month period ended March 31, 2002 from $12.2 million
in the nine month period ended March 31, 2001, primarily due to a $0.6 million
increase in domestic VOD sales and marketing personnel costs, as well as a $0.2
million increase in VOD sales and marketing department facilities costs. This
increase was partially offset by a $0.2 million decrease in domestic real-time
compensation expense and a $0.4 million decrease in international real-time
marketing personnel and facilities costs.
Research and Development. Research and development expenses increased as a
percentage of sales to 17.8% for the nine month period ended March 31, 2002 from
15.8% for the nine month period ended March 31, 2001. These expenses increased
to $11.0 million in the nine month period ended March 31, 2002 from $8.4 million
in the nine month period ended March 31, 2001 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 $1.1 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
first three quarters of fiscal year 2002 to focus on TV Guide integrations,
targeted and interactive advertising integration, development of Concurrent's
personal video channel (pTV(TM)) technology, and next generation server and
server architectures. The additional VOD research and development personnel
resulted in an increase of $1.3 million during the nine months ended March 31,
2002 compared to the same period in the prior year.
General and Administrative. General and administrative expenses decreased
as a percentage of sales to 10.5% of sales for the nine-month period ended March
31, 2002 from 16.6% for the nine-month period March 31, 2001. These expenses
decreased to $6.4 million in the nine months ended March 31, 2002 from $8.8
million in the same period ended March 31, 2001, primarily due to a
non-recurring $1.2 million severance charge recorded in the nine-month period
ended March 31, 2001. In addition, after the July 1, 2001 implementation of
SFAS 142, goodwill relating to the acquisition of Vivid Technology, Inc. is no
longer amortized. Discontinuation of this goodwill amortization expense
decreased VOD general and administrative expense by $0.9 million for the nine
months ended March 31, 2002 compared to the same period in the prior year.
Furthermore, accounting related costs decreased $0.2 million primarily due to
consolidation of accounting departments that existed in both Duluth, GA and Ft.
Lauderdale, FL during part of the nine months ended March 31, 2001.
Interest Income (expense). Included in interest income (expense) for the
nine month period ended March 31, 2002 is $0.5 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 $450,000 in each of the nine month periods ended March 31, 2002
and March 31, 2001 on pre-tax losses of $0.2 million and $4.9 million,
respectively, due to the inability to recognize the future tax benefit of the
respective periods' net operating loss.
Net Loss. Concurrent recorded a net loss of $0.7 million or $0.01 per basic
and diluted share for the nine months ended March 31, 2002, compared to a net
loss of $5.4 million or $0.10 per basic and diluted share for the nine months
ended March 31, 2001.
-17-
LIQUIDITY AND CAPITAL RESOURCES
Concurrent's liquidity is dependent on many factors, including sales
volume, operating profit and the efficiency of asset use and turnover.
Concurrent's future liquidity will be affected by, among other things:
- The actual versus anticipated decline in sales of real-time
proprietary systems and service maintenance revenue;
- Revenues from open real-time systems;
- Revenue growth from VOD systems;
- Ongoing cost control actions and expenses, including for example,
research and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- The ability to raise additional capital, if necessary;
- Timing of product shipments which occur primarily during the last
month of the quarter;
- The percentage of sales derived from outside the United States where
there are generally longer accounts receivable collection cycles and
which receivables are not included in the borrowing base of the
revolving credit facility; and
- The number of countries in which Concurrent operates, which may
require maintenance of minimum cash levels in each country and, in
certain cases, may restrict the repatriation of cash, such as cash
held on deposit to secure office leases.
Concurrent used cash of $4.3 million and $4.6 million in operating
activities during the nine-month periods ended March 31, 2002 and March 31,
2001, respectively, primarily due to the losses generated by Concurrent's VOD
business and uses of working capital. Concurrent has available a $5 million
revolving credit facility with Wachovia Bank which expires December 31, 2002.
Borrowings under the facility are limited to 85% of eligible accounts receivable
and bear interest at prime plus .75% or between LIBOR plus 2.25% and LIBOR plus
3.00% depending on Concurrent's ratio of Consolidated Funded Debt (as defined in
the credit facility) to EBITDA. Concurrent has pledged substantially all of its
assets as collateral for the facility. No borrowings were outstanding at March
31, 2002 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.
Concurrent invested $3.3 million and $2.5 million in property, plant and
equipment during the nine-month periods ended March 31, 2002 and March 31, 2001,
respectively. Current year capital expenditures primarily relate to computer
equipment and development equipment for Concurrent's VOD Division, and for
real-time and VOD manufacturing equipment in Fort Lauderdale. In March 2002,
Concurrent also made a $4.0 million cash investment in exchange for a minority
interest in Thirdspace and loaned Thirdspace $3.0 million in exchange for a
long-term note receivable. On September 3, 2002, Concurrent expects to loan an
additional $3 million to the same company. Both notes receivable will bear
interest at 8% per annum, with interest payments commencing on December 31,
2002, and semi-annually, thereafter.
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, such shares
having subsequently been registered in a filing on form S-3. Concurrent also
received $3.5 million and $3.9 million from the issuance of common stock to
employees and directors who exercised stock options during each of the
nine-month periods ended March 31, 2002 and March 31, 2001, respectively.
On March 31, 2002, Concurrent's working capital was $36.4 million, and
Concurrent did not have any material commitments for capital expenditures.
Concurrent believes that existing cash balances and funds expected to be
generated by operations will be sufficient to meet Concurrent's anticipated
working capital and capital expenditure requirements for the next twelve months.
-18-
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Concurrent's only significant contractual obligations and commitments
relate to certain operating leases for sales, service and manufacturing
facilities in the United States, Europe and Asia.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this prospectus may
constitute "forward-looking statements" within the meaning of the federal
securities laws. When used or incorporated by reference in this prospectus, the
words "believes," "expects," "estimates" and similar expressions are intended to
identify forward-looking statements. Statements regarding future events and
developments and our future performance, as well as our 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 our financial condition or results of operations include, without
limitation:
- availability of video-on-demand content;
- delays or cancellations of customer orders;
- changes in product demand;
- economic conditions;
- 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 limited operating history of our video-on-demand segment;
- the concentration of our customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- demand shifts from high-priced, proprietary real-time systems to
low-priced, open server systems;
- system errors or failures;
- reliance on a limited number of suppliers;
- uncertainties associated with international business activities,
including foreign regulations, trade controls, taxes, and currency
fluctuations;
- the highly competitive environment in which we operate; and
- the entry of new well-capitalized competitors into our markets.
Other important risk factors are discussed in our Current Report on Form
8-K, dated October 22, 2001, incorporated herein by reference.
In any one quarter a substantial portion of VOD revenue may be derived from
a single customer. For the three months and nine months ended March 31, 2002,
revenue from a single customer accounted for 81.0% and 80.0% of VOD revenue,
respectively. The single customer in any given quarter that makes up such
revenue may vary between several different multiple system cable operators. At
June 30, 2001 and March 31, 2002, this same customer made up 26.2% and 54.2% of
trade accounts receivable, respectively.
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.
-19-
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.
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 $24.0 million.
Raymond James & Associates, Inc. acted as placement agent in the sale. The sale
was a privately negotiated sale to selected institutional investors and other
accredited investors. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Rule 506 of
Regulation D promulgated thereunder. Concurrent intends to use the proceeds for
working capital, sales and marketing activities, product development and
support, potential acquisitions and investments, capital expenditures and
general corporate purposes. Concurrent subsequently registered the resale of
all of the shares on a Form S-3 registration statement (no. 333-61172), filed on
May 17, 2001 and declared effective on July 19, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(11) Statement on computation of per share earnings
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the period covered by
this report:
- Current Report on Form 8-K filed on January 29, 2002 relating to
financial results for the quarter ended December 31, 2001.
- Current Report on Form 8-K filed on March 20, 2002 relating to
the investment in Thirdspace Living Limited.
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended March 31,
2002 to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 6, 2002 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
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Steven R. Norton
Chief Financial Officer
(Principal Financial and Accounting Officer,
Authorized Officer)
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