SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the Quarterly Period Ended March 31, 2003
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
_____________
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
--- ---
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
--- ---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of May 02, 2003 was 62,083,981.
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,
2003 2002 2003 2002
--------- -------- --------- --------
Revenues:
Product:
Real-time systems $ 5,027 $ 5,647 $ 14,998 $15,845
Video-on-demand systems 7,631 14,319 28,959 29,783
--------- -------- --------- --------
Total product revenues 12,658 19,966 43,957 45,628
Service:
Real-time systems 4,169 4,805 13,332 15,252
Video-on-demand systems 821 257 2,634 731
--------- -------- --------- --------
Total service revenues 4,990 5,062 15,966 15,983
--------- -------- --------- --------
Total revenues 17,648 25,028 59,923 61,611
Cost of sales:
Product:
Real-time systems 1,926 2,054 5,990 6,682
Video-on-demand systems 4,308 6,822 14,485 15,589
--------- -------- --------- --------
Total product cost of sales 6,234 8,876 20,475 22,271
Service:
Real-time systems 2,725 2,838 7,835 8,651
Video-on-demand systems 754 553 2,216 1,388
--------- -------- --------- --------
Total service cost of sales 3,479 3,391 10,051 10,039
--------- -------- --------- --------
Total cost of sales 9,713 12,267 30,526 32,310
--------- -------- --------- --------
Gross margin 7,935 12,761 29,397 29,301
Operating expenses:
Sales and marketing 4,287 4,198 13,449 12,526
Research and development 4,991 3,861 14,015 10,977
General and administrative 2,381 2,341 6,976 6,439
--------- -------- --------- --------
Total operating expenses 11,659 10,400 34,440 29,942
--------- -------- --------- --------
Operating income (loss) (3,724) 2,361 (5,043) (641)
Impairment loss on minority investment (10,479) - (13,422) -
Interest income - net 109 154 407 561
Other expense - net (94) (61) (94) (120)
--------- -------- --------- --------
Income (loss) before income taxes (14,188) 2,454 (18,152) (200)
Provision for income taxes 72 150 153 450
--------- -------- --------- --------
Net income (loss) $(14,260) $ 2,304 $(18,305) $ (650)
========= ======== ========= ========
Net income (loss) per share
Basic $ (0.23) $ 0.04 $ (0.30) $ (0.01)
========= ======== ========= ========
Diluted $ (0.23) $ 0.04 $ (0.30) $ (0.01)
========= ======== ========= ========
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,
2003 2002
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 30,227 $ 30,519
Accounts receivable - net 14,962 23,894
Inventories 6,750 6,822
Deferred tax asset 870 870
Prepaid expenses and other current assets 1,542 1,009
----------- ----------
Total current assets 54,351 63,114
Property, plant and equipment - net 11,900 10,696
Purchased developed computer software - net 1,251 1,393
Goodwill 10,744 10,744
Investment in minority owned company 553 7,814
Note receivable from minority owned companies - 3,000
Deferred tax asset 1,087 1,087
Other long-term assets - net 1,338 840
----------- ----------
Total assets $ 81,224 $ 98,688
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,593 $ 15,514
Deferred revenue 7,377 4,055
----------- ----------
Total current liabilities 17,970 19,569
Long-term liabilities:
Deferred revenue 2,243 1,677
Deferred tax liability 1,778 1,634
Other 7,219 6,584
----------- ----------
Total liabilities 29,210 29,464
Stockholders' equity:
Common stock 620 618
Capital in excess of par value 173,751 172,929
Accumulated deficit (116,682) (98,377)
Treasury stock (58) (58)
Accumulated other comprehensive loss (5,617) (5,888)
----------- ----------
Total stockholders' equity 52,014 69,224
----------- ----------
Total liabilities and stockholders' equity $ 81,224 $ 98,688
=========== ==========
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,
2003 2002
--------- ---------
OPERATING ACTIVITIES
Net loss $(18,305) $ (650)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Accrual of non-cash warrants 295 1,751
Depreciation and amortization 3,535 3,713
Impairment loss on minority investment and related note 13,422 -
Other non cash expenses 126 837
Changes in operating assets and liabilities:
Accounts receivable 8,924 (8,628)
Inventories (30) (1,598)
Prepaid expenses and other current assets (533) (164)
Other long-term assets (692) (11)
Accounts payable and accrued expenses (4,921) 646
Short-term deferred revenue 3,322 265
Long-term liabilities 1,408 (435)
--------- ---------
Total adjustments to net loss 24,856 (3,624)
--------- ---------
Net cash provided by (used in) operating activities 6,551 (4,274)
INVESTING ACTIVITIES
Net additions to property, plant and equipment (4,471) (3,260)
Investment in minority owned company - (4,000)
Note receivable from minority owned company (3,000) (3,000)
Other (29) -
--------- ---------
Net cash used in investing activities (7,500) (10,260)
FINANCING ACTIVITIES
Net repayment of capital lease obligation (63) (58)
Proceeds from sale and issuance of common stock 546 27,486
--------- ---------
Net cash provided by financing activities 483 27,428
Effect of exchange rates on cash and cash equivalents 174 54
Increase (decrease) in cash and cash equivalents (292) 12,948
Cash and cash equivalents at beginning of period 30,519 9,460
--------- ---------
Cash and cash equivalents at end of period $ 30,227 $ 22,408
========= =========
Cash paid during the period for:
Interest $ 13 $ 52
========= =========
Income taxes (net of refunds) $ 290 $ 353
========= =========
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 condensed, consolidated interim financial statements of Concurrent
Computer Corporation ("Concurrent") are unaudited and reflect all adjustments
(consisting of only normal recurring adjustments) necessary for a fair statement
of Concurrent's financial position, results of operations and cash flows at the
dates and for the periods indicated. These financial statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended June 30,
2002. There have been no significant changes to Concurrent's Accounting
Policies as disclosed in the Annual Report on Form 10-K for the year ended June
30, 2002. Certain reclassifications have been made to prior year amounts to
conform with the current year presentation. The results reported in these
condensed, consolidated quarterly financial statements should not be regarded as
necessarily indicative of results that may be expected for the entire 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 dilutive common share
equivalents. Under the treasury stock method, incremental shares representing
the number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued are included in the
computation. Common share equivalents of 5,996,000 and 3,756,000 for the three
month periods ended March 31, 2003 and 2002, respectively, were excluded from
the calculation as their effect was antidilutive. Common share equivalents of
6,107,000 and 7,248,000 for the nine month periods ended March 31, 2003 and
2002, respectively, were excluded from the calculation as their effect was
antidilutive. The following table presents a reconciliation of the numerators
and denominators of basic and diluted net income (loss) per share for the
periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 2003 MARCH 31, 2003
BASIC DILUTED BASIC DILUTED
--------- --------- --------- ---------
Average outstanding shares 61,975 61,975 61,899 61,899
Dilutive effect of options and warrants - - - -
--------- --------- --------- ---------
Equivalent shares 61,975 61,975 61,899 61,899
========= ========= ========= =========
Net loss $(14,260) $(14,260) $(18,305) $(18,305)
========= ========= ========= =========
Loss per share $ (0.23) $ (0.23) $ (0.30) $ (0.30)
========= ========= ========= =========
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 2002 MARCH 31, 2002
BASIC DILUTED BASIC DILUTED
--------- --------- --------- ---------
Average outstanding shares 61,560 61,560 60,712 60,712
Dilutive effect of options and warrants - 3,207 - -
--------- --------- --------- ---------
Equivalent shares 61,560 64,767 60,712 60,712
========= ========= ========= =========
Net income (loss) $ 2,304 $ 2,304 $ (650) $ (650)
========= ========= ========= =========
Income (loss) per share $ 0.04 $ 0.04 $ (0.01) $ (0.01)
========= ========= ========= =========
-4-
3. STOCK-BASED COMPENSATION
At March 31, 2003, Concurrent had stock-based employee compensation plans,
which are described in Note 17 in our annual report on Form 10-K for the year
ended June 30, 2002. The company accounts for these plans under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. No
stock-based employee compensation is reflected in net income (loss), as all
options granted under those plans had an exercise price equal to the market
value of the underlying stock on the grant date. In accordance with SFAS
Statement No. 148, "Accounting for Stock Based Compensation-Transition and
Disclosure-An amendment of FASB Statement No. 123", the following table
illustrates the effect on net income (loss) and earnings (loss) per share if the
company had applied the fair value recognition provisions of SFAS Statement No.
123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
--------- -------- --------- --------
Net income (loss) as reported $(14,260) $ 2,304 $(18,305) $ (650)
Deduct: Total stock-based employee compensation
expense determined under the fair value method,
net of related taxes (1,480) (2,024) (5,017) (6,483)
--------- -------- --------- --------
Pro forma net income (loss) $(15,740) $ 280 $(23,322) $(7,133)
========= ======== ========= ========
Earnings (loss) per share:
Basic-as reported $ (0.23) $ 0.04 $ (0.30) $ (0.01)
========= ======== ========= ========
Basic-pro forma $ (0.25) $ 0.00 $ (0.38) $ (0.12)
========= ======== ========= ========
Diluted-as reported $ (0.23) $ 0.04 $ (0.30) $ (0.01)
========= ======== ========= ========
Diluted-pro forma $ (0.25) $ 0.00 $ (0.38) $ (0.12)
========= ======== ========= ========
4. REVENUE RECOGNITION AND RELATED MATTERS
Video-on-demand ("VOD") 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.
In certain limited 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 for real-time customers, and between one
and three years for VOD customers.
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 such
services to the customer.
-5-
5. 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,
2003 2002
---------- ---------
Raw materials, net $ 3,919 $ 5,030
Work-in-process 1,124 1,633
Finished goods 1,707 159
---------- ---------
$ 6,750 $ 6,822
========== =========
6. INVESTMENTS IN AND RECEIVABLE FROM MINORITY OWNED COMPANIES
In March 2002, Concurrent invested in Thirdspace Living Limited
("Thirdspace"). 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. Concurrent
invested cash of $4 million and issued 291,461 shares of its common stock
(valued at $10.29 per share) in exchange for 1,220,601 series C shares of
Thirdspace, giving Concurrent a 14.4% ownership interest in all shares
outstanding as of the investment date. As part of this transaction, Concurrent
capitalized approximately $300,000 in various transaction costs and as a result,
the total equity investment in Thirdspace was $7.3 million. The resale of the
291,461 shares was registered under a resale registration statement filed with
the Securities and Exchange Commission and declared effective on June 20, 2002.
As of December 31, 2002, all of these shares had been sold by Thirdspace. In
exchange for its investment, Concurrent also received a warrant for 400,000
series C shares of Thirdspace. The warrant became exercisable on 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.
In addition to the equity investment, Concurrent also loaned Thirdspace $6
million in exchange for two $3 million long-term convertible notes receivable,
bearing interest at 8% annually, with interest payments first due December 31,
2002, and semi-annually, thereafter. The notes are convertible into Series C
shares of Thirdspace, at the option of Concurrent, beginning six months after
issuance (March 19, 2002 and September 3, 2002, respectively) and may be
converted at any time prior to 48 months after the issuance of the notes. The
notes are convertible based on the then fair market value of the common stock.
The first and second notes became convertible on September 19, 2002 and March 3,
2003, respectively. 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 approximately $3.8 million at March 31, 2003.
Other than the prior lien on Thirdspace's intellectual property, Concurrent's
security interest ranks ratably with those of other secured creditors. As of
March 31, 2003, Thirdspace had an aggregate of $1.6 million of additional debt
that ranks ratably with Concurrent's indebtedness. Thirdspace has not yet made
any interest payments. As of March 31, 2003, Concurrent has no further funding
requirements or commitments related to this transaction with Thirdspace.
The investment and notes receivable are reviewed for impairment on a
quarterly basis in accordance with Accounting Principles Board Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock" and SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities",
respectively. In light of that review, Concurrent has determined that the
future success of Thirdspace and the growth in the number of customers utilizing
their interactive and on-demand television technology is dependent upon, among
-6-
other things, their ability to obtain additional funding for operations, the
state of the economy, and the financial condition and willingness to deploy
video applications by the telecommunications industry. Although the fair market
value of the Thirdspace Series C common stock and the Thirdspace warrant is not
readily determinable, Concurrent has evaluated Thirdspace's financial condition
and actual performance relative to expected performance, the market conditions
of the telecommunications sector, and the state of the economy and has estimated
the impact on the valuation of Thirdspace. Based on this analysis, Concurrent
believes that there has been an other-than-temporary decline in the market value
of its minority equity investment in Thirdspace and as a result recorded a $2.9
million impairment charge against the investment in Thirdspace for the quarter
ended December 31, 2002. In the quarter ended March 31, 2003, Concurrent
performed an additional valuation assessment and as a result recorded an
additional impairment charge of $4.4 million for the remaining equity investment
in Thirdspace. A total of $7.3 million has been charged for the impairment of
the equity investment in Thirdspace for the nine months ended March 31, 2003.
Concurrent also believes that the Thirdspace warrants no longer have any value.
During the three months ended March 31, 2003, Concurrent's management
evaluated the likelihood of collecting the notes receivable and related accrued
interest based on the factors above regarding Thirdspace's financial condition,
and has determined that the probability of collecting the notes receivable and
accrued interest is highly unlikely. As a result, Concurrent wrote off the $6
million notes and accrued interest of $149,000. Although Concurrent has a
security interest in all of the assets of Thirdspace, Concurrent believes in the
event of liquidation of Thirdspace that the prior lien securing $3.8 million of
indebtedness at March 31, 2003, would not leave sufficient assets to allow
Concurrent to recover any amount owed to it from Thirdspace. Also in the event
of a sale of Thirdspace, Concurrent believes that substantial concessions on the
part of Concurrent would be necessary as a prerequisite to closing a
transaction, including a substantial reduction in the amount of the note,
reduction in interest rate, extension of due date and elimination of the
security interest in the assets of Thirdspace. Therefore, the ultimate
collectibility of the notes receivable in any scenario is unlikely.
Concurrent is accounting for its investment in the common stock and
warrants of Thirdspace using the cost method, as Concurrent does not believe it
exercises significant influence on Thirdspace. The convertible notes are
recorded at fair value, in accordance with SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities", with changes in fair value recorded
as a component of other comprehensive income. Any impairment losses that are
other than temporary are charged through the Consolidated Statement of
Operations.
In the ordinary course of business, Concurrent sells equipment to
Thirdspace. During the three month and nine month periods ended March 31, 2003,
Concurrent sold $60,000 and $136,000 of equipment, respectively, to Thirdspace.
In April 2002, Concurrent invested cash of $500,000 in Everstream Holdings,
Inc. ("Everstream") in exchange for 480,770 shares of Series C Preferred stock,
giving Concurrent a 4.9% ownership interest. Everstream is a privately held
company specializing in broadband advertising systems, software, infrastructure
and related integration services. Concurrent is accounting for its investment
in the Series C Preferred stock of Everstream using the cost method, as
Concurrent does not believe it exercises significant influence on Everstream.
The investment is reviewed for impairment on a quarterly basis.
In the ordinary course of business, Concurrent purchases consulting
services from Everstream. During the three month and nine month periods ended
March 31, 2003, Concurrent purchased $225,000 and $863,000 of contract software
development services, respectively, from Everstream.
-7-
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2003 2002
---------- ---------
Accounts payable, trade $ 2,603 $ 5,351
Accrued payroll, vacation and
other employee expenses 4,283 5,872
Warranty accrual 2,133 2,272
Other accrued expenses 1,574 2,019
---------- ---------
$ 10,593 $ 15,514
========== =========
8. COMPREHENSIVE INCOME
Concurrent's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
--------- ------ --------- ------
Net income (loss) $(14,260) $2,304 $(18,305) $(650)
Other comprehensive income:
Foreign currency translation income 327 166 271 259
--------- ------ --------- ------
Total comprehensive income (loss) $(13,933) $2,470 $(18,034) $(391)
========= ====== ========= ======
9. SEGMENT INFORMATION
Concurrent operates its business in two divisions: Real-Time and Xstreme.
Its 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 Xstreme division is a leading supplier
of digital video server systems primarily to the broadband cable industry, and
to a lesser extent, the telecom industry [Video over IP], and to education,
hospitality and other related markets. Shared expenses are primarily allocated
based on either revenues or headcount. Corporate costs include costs related to
the offices of the Chief Executive Officer, Chief Financial Officer, General
Counsel, Investor Relations, Human Resources, and other administrative costs
including annual audit and tax fees, legal fees, Board of Director fees and
similar costs.
-8-
The following summarizes the operating income (loss) by segment for the
three month periods ended March 31, 2003 and March 31, 2002, respectively:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
-------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
Revenues:
Product $ 5,027 $ 7,631 $ - $12,658
Service 4,169 821 - 4,990
---------- -------- ----------- --------
Total 9,196 8,452 - 17,648
Cost of sales:
Product 1,926 4,308 - 6,234
Service 2,725 754 - 3,479
---------- -------- ----------- --------
Total 4,651 5,062 - 9,713
---------- -------- ----------- --------
Gross margin 4,545 3,390 - 7,935
Operating expenses
Sales and marketing 1,811 2,315 161 4,287
Research and development 1,371 3,620 - 4,991
General and administrative 441 494 1,446 2,381
---------- -------- ----------- --------
Total operating expenses 3,623 6,429 1,607 11,659
---------- -------- ----------- --------
Operating income (loss) $ 922 $(3,039) $ (1,607) $(3,724)
========== ======== =========== ========
THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
-------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
Revenues:
Product $ 5,647 $14,319 $ - $19,966
Service 4,805 257 - 5,062
---------- -------- ----------- --------
Total 10,452 14,576 - 25,028
Cost of sales:
Product 2,054 6,822 - 8,876
Service 2,838 553 - 3,391
---------- -------- ----------- --------
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
========== ======== =========== ========
-9-
The following summarizes the operating income (loss) by segment for the
nine month periods ended March 31, 2003 and March 31, 2002, respectively:
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
-------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
Revenues:
Product $ 14,998 $28,959 $ - $43,957
Service 13,332 2,634 - 15,966
---------- -------- ----------- --------
Total 28,330 31,593 - 59,923
Cost of sales:
Product 5,990 14,485 - 20,475
Service 7,835 2,216 - 10,051
---------- -------- ----------- --------
Total 13,825 16,701 - 30,526
---------- -------- ----------- --------
Gross margin 14,505 14,892 - 29,397
Operating expenses
Sales and marketing 5,579 7,401 469 13,449
Research and development 4,048 9,967 - 14,015
General and administrative 1,276 1,559 4,141 6,976
---------- -------- ----------- --------
Total operating expenses 10,903 18,927 4,610 34,440
---------- -------- ----------- --------
Operating income (loss) $ 3,602 $(4,035) $ (4,610) $(5,043)
========== ======== =========== ========
NINE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
-------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
Revenues:
Product $ 15,845 $29,783 $ - $45,628
Service 15,252 731 - 15,983
---------- -------- ----------- --------
Total 31,097 30,514 - 61,611
Cost of sales:
Product 6,682 15,589 - 22,271
Service 8,651 1,388 - 10,039
---------- -------- ----------- --------
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)
========== ======== =========== ========
-10-
10. ISSUANCE AND ACCRUAL OF NON-CASH WARRANTS
On March 29, 2001, Concurrent entered into a three-year 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
each quarter end as compared to the prior quarter end multiplied by a specified
percentage is the number of additional warrants that were earned during the
quarter. These warrants are referred to as the "Performance Warrants".
Concurrent issued to Comcast a performance warrant for 4,431 shares on October
9, 2001, exercisable at $6.251 per share over a four-year term, a performance
warrant for 52,511 shares on January 15, 2002, exercisable at $15.019 per share
over a four year term, and a performance warrant for 1,502 shares on August 10,
2002, exercisable at $5.707 per share over a four year term.
The resale of the shares issuable upon exercise of the warrants to purchase
50,000 shares and 4,431 shares were registered under a registration statement
filed with the Securities and Exchange Commission and declared effective on
November 20, 2001.
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.
The value of the warrants is determined using the Black-Scholes valuation model.
The weighted-average assumptions used for the quarter ended March 31, 2003 were:
expected dividend yield of 0%; risk-free interest rate of 2.36%; expected life
of 4 years; and an expected volatility of 119.53%. Concurrent will adjust the
value of the earned but unissued warrants on a quarterly basis using the
Black-Scholes valuation 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.
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.
-11-
For the three month and nine month periods ended March 31, 2003, Concurrent
recognized $21,000 and $19,000, respectively, as a decrease in revenue for the
Performance Warrants and Cliff Warrants that have been earned but unissued. The
three month decrease in revenue results from the increase in basic subscribers
during the three months ended March 31, 2003. This quarterly decrease in
revenue was partially offset over the nine month period ended March 31, 2003 by
an increase in revenue in previous quarters due to a decrease in the value of
the unissued warrants using the Black-Scholes valuation model. For the three
month period ended March 31, 2002, Concurrent recognized $242,000 as an increase
to revenue for the Performance Warrants and Cliff Warrants that were earned. For
the nine month period ended March 31, 2002, Concurrent recognized $450,000 as a
decrease in revenue for the Performance Warrants and Cliff Warrants that were
earned.
In accordance with a five year 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 of Concurrent common stock 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
Black-Scholes 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 each of the three month periods ended March 31, 2003 and 2002,
Concurrent accrued $82,000 and $576,000, respectively, as a part of VOD systems
cost of sales for SAI performance warrants that have been earned but unissued.
For each of the nine month periods ended March 31, 2003 and 2002, Concurrent
accrued $275,000 and $1,301,000, respectively, as a part of VOD systems cost of
sales for SAI performance warrants that have been earned but unissued. As a
result of the cumulative revenue from sales of VOD servers using the SAI
platform reaching the first $30 million revenue target, Concurrent issued to SAI
a warrant for 261,164 shares on April 1, 2002, exercisable at $7.106 per share
over a four year term.
11. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS No.
148 are effective for Concurrent's fiscal 2003 annual financial statements and
the interim disclosure provisions are effective for Concurrent's quarter ended
March 31, 2003, which are included in Note 3. The company plans to continue
accounting for its stock option plans in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations.
12. CONTINGENCIES
Concurrent, from time to time, is involved in litigation incidental to the
conduct of its business. Concurrent believes that such pending litigation will
not have a material adverse effect on Concurrent's results of operations or
financial condition.
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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 limited 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 three-year 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, 2003 were:
expected dividend yield - 0%; risk free interest rate - 2.36%; expected life -
4 years; and expected volatility - 119.53%. 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, but unissued, and any adjustments in value for warrants
previously earned, but unissued, 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.
In accordance with a five year 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 Black-Scholes 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.
-13-
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, 2003, 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. In accordance with SFAS 142, Concurrent performed an annual
impairment test as of July 1, 2002, reaffirming that no impairment loss is
necessary. Any subsequent impairment losses, if any, will be reflected in
operating income in the Consolidated Statement of Operations.
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 March 31,
2003 and June 30, 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
Concurrent has a 14.4% equity ownership interest in Thirdspace resulting
from a $7.3 million equity investment made in March 2002. Additionally,
Concurrent has two long-term notes receivable due from Thirdspace that total $6
million. For the quarter ending December 31, 2002, Concurrent evaluated its $7.3
million equity investment in Thirdspace and determined a $2.9 million impairment
charge of its investment was necessary. In the quarter ended March 31, 2003,
Concurrent again evaluated its remaining equity investment of $4.4 million along
with the notes receivable and accrued interest due from Thirdspace of $6.1
million and determined that an additional impairment charge of $4.4 million for
the equity investment was necessary and also determined that a charge of $6.1
million would be necessary to write-off completely the notes receivable and
related accrued interest. The assessment to impair the equity investment is
based upon Thirdspace's financial condition and actual performance relative to
expected performance, the status of its capital raising initiatives, the market
conditions of the telecommunications sector, the state of the economy, and the
reduced market value of Thirdspace. The notes receivable and accrued interest
were entirely written off in the third quarter ended March 31, 2003, due to the
-14-
uncertainty of collectibility based on the conditions listed above. Although
Concurrent continues to have a 14.4% equity ownership interest in the Company
and $6 million in notes receivable, the value of each of these investments has
been reduced to zero on the March 31, 2003 balance sheet. Concurrent also
believes that the Thirdspace warrants no longer have any value.
-15-
SELECTED OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUE
The following table sets forth selected operating data as a percentage of
total revenue, unless otherwise indicated, for certain items in Concurrent's
consolidated statements of operations for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Net sales:
Product sales (% of total sales):
Real-time systems 28.5% 22.6% 25.0% 25.7%
Video-on-demand systems 43.2 57.2 48.3 48.3
--------- --------- --------- ---------
Total product sales 71.7 79.8 73.4 74.1
Service:
Real-time systems 23.6 19.2 22.2 24.8
Video-on-demand systems 4.7 1.0 4.4 1.2
--------- --------- --------- ---------
Total service sales 28.3 20.2 26.6 25.9
--------- --------- --------- ---------
Total 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Product:
Real-time systems 38.3 36.4 39.9 42.2
Video-on-demand systems 56.5 47.6 50.0 52.3
--------- --------- --------- ---------
Total product cost of sales 49.2 44.5 46.6 48.8
Service:
Real-time systems 65.4 59.1 58.8 56.7
Video-on-demand systems 91.8 215.2 84.1 189.9
--------- --------- --------- ---------
Total service cost of sales 69.7 67.0 63.0 62.8
--------- --------- --------- ---------
Total cost of sales 55.0 49.0 50.9 52.4
--------- --------- --------- ---------
Gross margin 45.0 51.0 49.1 47.6
Operating expenses:
Sales and marketing 24.3 16.8 22.4 20.3
Research and development 28.3 15.4 23.4 17.8
General and administrative 13.5 9.4 11.6 10.5
--------- --------- --------- ---------
Total operating expenses 66.1 41.6 57.5 48.6
--------- --------- --------- ---------
Operating income (loss) (21.1) 9.4 (8.4) (1.0)
Impairment loss on minority investment (59.4) - (22.4) -
Interest income - net 0.6 0.6 0.7 0.9
Other expense - net (0.5) (0.2) (0.2) (0.2)
--------- --------- --------- ---------
Income (loss) before income taxes (80.4) 9.8 (30.3) (0.3)
Provision for income taxes 0.4 0.6 0.3 0.7
--------- --------- --------- ---------
Net income (loss) (80.8)% 9.2% (30.5)% (1.1)%
========= ========= ========= =========
-16-
RESULTS OF OPERATIONS
THE QUARTER ENDED MARCH 31, 2003 COMPARED TO THE QUARTER ENDED MARCH 31, 2002
Product Sales. Total product sales were $12.7 million for the three months
ended March 31, 2003, a decrease of $7.3 million or 36.6% from $20.0 million for
the three months ended March 31, 2002. This decrease resulted primarily from
VOD product sales decreasing by $6.7 million, or 46.7% to $7.6 million in the
three month period ended March 31, 2003 from $14.3 million for the three months
ended March 31, 2002. The decrease in VOD product sales is due primarily to
increased scrutiny by the cable operators of their capital expenditures and the
timing of revenue recognition for one cable operator where certain software
deliverables have yet to be completed. During the three months ended March 31,
2003, VOD product purchases from each of two North American multiple system
cable operators ("MSO") accounted for more than 10% of VOD system revenue and
92.2% of VOD system revenue in the aggregate.
Sales of Real-Time products decreased $0.6 million, or 11.0% to $5.0
million during the three month period ended March 31, 2003 from $5.6 million for
the three month period ended March 31, 2002. This decrease in real-time product
revenue is due to a decrease of $0.2 million in real-time product sales in the
North America markets and a decrease of $0.4 million in real-time product sales
internationally, primarily in the U.K. and Japan, due to unfavorable economic
conditions in those countries. Sales to a single customer accounted for 50.6%
of real-time product sales during the three months ended March 31, 2003,
compared to 60.0% of real-time product sales during the three months ended March
31, 2002.
Service Sales. Service sales decreased $0.1 million, or 1.4% to $5.0
million for the three months ended March 31, 2003, from $5.1 million for the
three months ended March 31, 2002. VOD service revenue increased $0.5 million,
or 219.5% to $0.8 million in the three month period ended March 31, 2003 from
$0.3 million for the same period in fiscal 2002, as the Xstreme division
continued to recognize deferred maintenance revenue and expand its VOD customer
base requiring additional installation, training, technical support, and
software and hardware maintenance services. This increase was offset by a $0.6
million, or 13.2% decrease in real-time service revenue to $4.2 million in the
three month period ended March 31, 2003 from $4.8 million for the three months
ended March 31, 2002. Real-time service revenue continued to decline primarily
due to the cancellation of maintenance contracts as machines were removed from
service and from customers purchasing Concurrent's new products which are less
expensive to maintain.
Product Gross Margin. The product gross margin decreased $4.7 million, or
42.1% to $6.4 million for the three months ended March 31, 2003 from $11.1
million for the three months ended March 31, 2002. The gross margin as a
percentage of sales decreased to 50.8% in the three month period ended March 31,
2003 from 55.5% in the three month period ended March 31, 2002, due to a
decrease in both VOD and real-time product margins in the current year quarter.
VOD product gross margins decreased to 43.5% in the three month period ended
March 31, 2003 from 52.4% in the three month period ended March 31, 2002, due to
certain fixed costs being spread over lower product sales volume, product mix
changes, and competitive downward pricing pressures. Real-time product gross
margins decreased slightly to 61.7% for the three months ended March 31, 2003
from 63.6% for the three months ended March 31, 2002, primarily due to strong
margins on software product sales in the prior year period.
Service Gross Margin. The gross margin on service sales decreased to 30.3%
for the three months ended March 31, 2003 from 33.0% for the same period in
fiscal 2002. This decrease results from a decrease in real-time service margins
to 34.6% during the three months ended March 31, 2003, compared to 40.9% during
the same period in the prior year. This decrease in margins was primarily due to
an increase in severance expense during the quarter resulting from a reduction
in service personnel as the Real-Time division has scaled down the
infrastructure that is necessary to fulfill declining contractual obligations.
The decline in contractual obligations results from the cancellation of
maintenance contracts as machines were removed from service and from customers
purchasing Concurrent's new products which are less expensive to maintain. This
decrease was offset by an increase of $0.5 million in VOD service revenue,
bringing VOD service margins to 8.2% during the three months ended March 31,
-17-
2003 compared to a negative margin of 115.2% of VOD service revenue during the
same period in the prior year. VOD service margins increased as the Xstreme
division continued to recognize deferred maintenance revenue and expand its
customer base requiring additional installation, training, technical support,
and software and hardware maintenance services, at a faster rate than growth of
the costs to support such services. Real-time service revenue made up 83.5% of
total service revenue, and as a result, a large increase in VOD service margins
minimally impacts overall service margins.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of sales to 24.3% for the three months ended March 31, 2003 from
16.8% for the three months ended March 31, 2002. These expenses increased $0.1
million, or 2.1% to $4.3 million during the three month period ended March 31,
2003 from $4.2 million in the three month period ended March 31, 2002. The
Real-Time division's sales and marketing expenses increased $0.1 million
compared to the same period in the prior year due primarily to the addition of a
new sales person. The Xstreme division's sales and marketing expenses remained
the same as compared to last year.
Research and Development. Research and development expenses increased as a
percentage of sales to 28.3% for the three month period ended March 31, 2003
from 15.4% for the three month period ended March 31, 2002. These expenses
increased $1.1 million, or 29.3% to $5.0 million during the three month period
ended March 31, 2003 from $3.9 million during the same period ended March 31,
2002. Since the three months ended March 31, 2002, the Xstreme division added
new development staff and utilized outside consultants to focus on new
application software development and customer specific integration activities.
The addition of the development staff and use of outside consultants resulted in
an increase in VOD research and development expense of $0.5 million and $0.2
million, respectively, when compared to the three months ended March 31, 2002.
In addition, Concurrent incurred $0.1 million of additional product
certification costs and $0.1 million in additional depreciation expense due to
purchases of new testing and quality assurance equipment since the three months
ended March 31, 2002. Additionally, there was an increase of $0.1 million of
rent expense while temporarily occupying two development facilities as a result
of moving our U.K. office to a new facility, and a $0.1 million increase in
development expenses in the U.K. due to appreciation of the Great Britain Pound
against the U.S. Dollar when compared to the same period in the prior year.
General and Administrative. General and administrative expenses increased
as a percentage of sales to 13.5% for the three months ended March 31, 2003 from
9.4% for the three months ended March 31, 2002. These expenses increased $0.1
million to $2.4 million during the three month period ended March 31, 2003
compared to $2.3 million in same period in the prior year. This increase was due
to a $0.1 million increase in corporate insurance costs and a $.02 million
increase as Concurrent increased its accounting personnel, partially offset by a
$0.1 million decrease in bad debt expense, as compared to the three months ended
March 31, 2002.
Impairment Loss on Minority Investment and Related Note Receivable.
Concurrent recorded a $10.5 million impairment charge, which included the
write-off of the equity investment of $4.4 million and notes receivable and
accrued interest of $6.1 million due from Thirdspace, during the quarter ended
March 31, 2003, due to an other-than-temporary decline in the estimated market
value of the equity investment in Thirdspace and the uncertainty of
collectibility of the notes receivable from Thirdspace. The impairment of the
equity investment and write off of the related notes receivable and accrued
interest is based upon Thirdspace's financial condition and actual performance
relative to expected performance, the status of Thirdspace's capital raising
initiatives, the market conditions of the telecommunications sector, the state
of the economy and the reduced market value of Thirdspace.
Income Taxes. Concurrent recorded income tax expense for its domestic and
foreign subsidiaries of $72,000 and $150,000 during the three month periods
ended March 31, 2003 and 2002, respectively. This expense is based on a pre-tax
loss of $14.2 million and pre-tax income of $2.5 million in the three month
periods ended March 31, 2003 and 2002, respectively. This expense is primarily
-18-
attributable to foreign withholding taxes and income earned in foreign
locations, which cannot be offset by net operating loss carryforwards.
Net Income (Loss). Concurrent recorded a net loss of $14.3 million or
$0.23 per basic and diluted share for the three months ended March 31, 2003,
compared to net income of $2.3 million or $.04 per basic and diluted share for
the three months ended March 31, 2002.
THE NINE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
2002
Product Sales. Total product sales were $44.0 million for the nine months
ended March 31, 2003, a decrease of $1.6 million or 3.7% from $45.6 million for
the nine months ended March 31, 2002. This decrease resulted, in part, from VOD
product sales decreasing slightly by $0.8 million, or 2.8% to $29.0 million in
the nine month period ended March 31, 2003 from $29.8 million for the nine
months ended March 31, 2002. The decrease in VOD product sales for the nine
months ended March 31, 2003, is due primarily to increased scrutiny by the cable
operators of their capital expenditures and the timing of revenue recognition
for one cable operator where certain software deliverables have yet to be
completed. During the nine months ended March 31, 2003, VOD product purchases
from each of four North American MSO's accounted for more than 10% of VOD system
revenue and 89.6% of VOD system revenue in the aggregate.
Sales of real-time products decreased $0.8 million, or 5.3% to $15.0
million in the nine month period ended March 31, 2003 from $15.8 million for the
nine month period ended March 31, 2002. The decrease in real-time product sales
is due to a nonrecurring sale to an Australian customer in the nine months ended
March 31, 2002, unfavorable economic factors and a longer than expected sales
cycle internationally and domestically, partially offset in the domestic market
by sales to one specific customer, as compared to the nine months ended March
31, 2002. Sales to a single customer accounted for approximately 51.4% of
real-time product sales during the nine months ended March 31, 2003.
Service Sales. Service sales remained at $16.0 million for the nine months
ended March 31, 2003 compared to the nine months ended March 31, 2002. VOD
service revenue increased $1.9 million, or 260.3%, as the Xstreme division
continued to recognize deferred maintenance revenue and expand its VOD customer
base requiring additional installation, training, technical support, and
hardware and software maintenance services. This increase was offset by a
decrease of $1.9 million in real-time service revenue due primarily to the
cancellation of maintenance contracts as machines were removed from service and
from customers purchasing Concurrent's new products which are less expensive to
maintain.
Product Gross Margin. The product gross margin increased slightly to $23.5
million for the nine months ended March 31, 2003 from $23.4 million for the nine
months ended March 31, 2002. The gross margin as a percentage of sales increased
to 53.4% in the nine month period ended March 31, 2003 from 51.2% in the nine
month period ended March 31, 2002, due to increases in both VOD and real-time
product margins in the current fiscal year. VOD product gross margins increased
to 50.0% in the nine month period ended March 31, 2003 from 47.7% in the nine
month period ended March 31, 2002, due to improved efficiencies in the new
MediaHawk model 3000 server, partially offset by a less favorable product mix
and certain fixed costs being spread over lower product sales volume in the
second and third quarters of fiscal 2003. Real-time product gross margins
increased to 60.1% for the nine months ended March 31, 2003 from 57.8% for the
nine months ended March 31, 2002, primarily due to strong margins on software
sales and a favorable product mix on hardware during the nine months ended March
31, 2003, compared to the same period in the prior year.
Service Gross Margin. The gross margin as a percent of services sales
remained relatively constant on a consolidated basis, at 37.0% for the nine
months ended March 31, 2003 compared to 37.2% for the same period in 2002. This
decrease results from a decline in real-time service margins to 41.2% during the
nine months ended March 31, 2003 compared to 43.3% during the same period in the
prior year. This decrease in margins was due to an increase in severance expense
during the nine months ended March 31, 2003 from a reduction in personnel as the
Real-Time division has scaled down the infrastructure that is necessary to
fulfill declining contractual obligations. The decline in contractual
obligations resulted from the cancellation of maintenance contracts as machines
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were removed from service and from customers purchasing Concurrent's new
products which are less expensive to maintain. This decrease in real-time
service margins is partially offset by a $1.9 million increase in VOD service
revenue, bringing VOD service margins to 15.9% during the nine months ended
March 31, 2003 compared to a negative margin of 89.9% during the same period in
the prior year. VOD service margins increased as the Xstreme division continued
to recognize deferred maintenance revenue and expand its customer base requiring
additional installation, training, technical support, and software and
maintenance services, at a faster rate than the growth of the costs to support
such services. Real-time service revenue made up 83.5% of total service revenues
in the nine months ended March 31, 2003, and as a result, the increase in VOD
margins over the same period in the prior year has only a minor impact on
overall service margins.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of sales to 22.4% for the nine months ended March 31, 2003 from 20.3%
for the nine months ended March 31, 2002. These expenses increased $0.9
million, or 7.4% to $13.4 million during the nine month period ended March 31,
2003 from $12.5 million in the nine month period ended March 31, 2002. The
Real-Time division's sales and marketing expenses increased $0.4 million due
primarily to an increase in salaries and benefits from additional personnel,
including the addition of a new sales person at Concurrent Federal Systems Inc.,
a wholly owned subsidiary of Concurrent Computer Corporation, focusing primarily
on government programs. The Xstreme division's sales and marketing expenses
increased $0.5 million in the nine months ended March 31, 2003 compared to the
same period in the prior year due to a $0.2 million increase in severance costs
for international personnel reductions and a $0.3 million increase in salary and
wage benefits related to an increase in domestic sales personnel.
Research and Development. Research and development expenses increased as a
percentage of sales to 23.4% for the nine month period ended March 31, 2003 from
17.8% for the nine month period ended March 31, 2002. These expenses increased
from $11.0 million to $14.0 million, or 27.7%, during the nine month period
ended March 31, 2003 as compared to the nine month period ended March 31, 2002.
Of the $3.0 million increase in research and development expenses, $2.9 million
was attributed to VOD research and development. The increase in VOD research and
development expense resulted primarily from the addition of new development
staff and utilization of outside consultants to focus on new application
software development and customer specific integration activities. The addition
of the development staff and use of outside consultants resulted in an increase
in research and development expense of $1.3 million and $0.8 million,
respectively, when compared to the nine months ended March 31, 2002. In
addition, there was an increase in product certification costs of $0.1 million,
an additional $0.2 million of depreciation expense from purchases of new testing
and quality assurance equipment, an increase of $0.1 million in rent expense
while temporarily occupying two development facilities as a result of moving our
U.K. office to a new facility, and a $0.1 million increase in development
expenses in the U.K. due to the appreciation of the Great Britain Pound against
the U.S. Dollar when compared to the same period in the prior year.
General and Administrative. General and administrative expenses increased
as a percentage of sales to 11.6% for the nine months ended March 31, 2003 from
10.5% during the same period in the prior year. These expenses increased $0.6
million, or 8.3% to $7.0 million, during the nine month period ended March 31,
2003 from $6.4 million during the nine month period ended March 31, 2002,
primarily due to a $0.4 million increase in corporate insurance costs and a $0.1
million increase in accounting fees. In addition, in the prior fiscal year,
Concurrent hired a new Xstreme division president and added personnel to its
legal and investor relations department, resulting in a $0.6 million increase in
general and administrative salaries and benefits in the nine months ended March
31, 2003. The increase in these cost were partially offset by a decrease of $0.1
million in one time legal costs and a $0.3 million decrease in bad debt expense.
Impairment Loss on Minority Investment and Related Note Receivable.
Concurrent recorded a $10.5 million and a $2.9 million impairment charge during
the quarters ended March 31, 2003 and December 31, 2002, respectively, totaling
$13.4 million for the nine months ended March 31, 2003. The impairment charge
recorded in the quarter ended March 31, 2003 included the write off of the notes
receivable and related accrued interest totaling $6.1 million owed to Concurrent
by Thirdspace and an other-than-temporary decline in the estimated market value
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of the remaining minority equity investment in Thirdspace of $4.4 million. The
impairment of the investment and write off of the related notes receivable and
accrued interest is based upon Thirdspace's financial condition and actual
performance relative to expected performance, the status of Thirdspace's capital
raising initiatives, the market conditions of the telecommunications sector, the
uncertainty of the collectibility of the notes receivable, the state of the
economy and the reduced market value of Thirdspace.
Income Taxes. Concurrent recorded income tax expense for its domestic and
foreign subsidiaries of $153,000 during the nine month period ended March 31,
2003, compared to $450,000 during the nine month period ended March 31, 2002.
This expense is primarily attributable to foreign withholding taxes and income
earned in foreign locations, which cannot be offset by net operating loss
carryforwards.
Net Loss. Concurrent recorded a net loss of $18.3 million or $0.30 per
basic and diluted share for the nine months ended March 31, 2003, compared to a
net loss of $650,000 or $0.01 per basic and diluted share for the nine months
ended March 31, 2002.
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 potential decline in Real-Time systems and service revenue;
- Revenue from VOD systems and the pace at which MSOs implement VOD
technology;
- 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;
- 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; and
- The potential change in the fair market value of Concurrent's
remaining minority equity investment.
Concurrent provided cash of $6.6 million from operating activities during
the nine months ended March 31, 2003 compared to using cash of $4.3 million
during the nine months ended March 31, 2002, primarily due to improved
collections of accounts receivables and improved inventory control. Concurrent's
previously available $5 million revolving credit facility with Wachovia Bank
expired on December 31, 2002. Concurrent has elected not to renew or extend this
credit facility beyond its December 31, 2002 expiration date.
Concurrent invested $4.5 million in property, plant and equipment during
the nine months ended March 31, 2003 compared to $3.3 million during the nine
months ended March 31, 2002. Current year capital expenditures relate primarily
to leasehold improvements, product development, and the acquisition of testing
and quality assurance, and demonstration equipment for Concurrent's Xstreme
division. Concurrent completed its obligation of providing an additional $3
million loan to Thirdspace in September of 2002. This note has a four-year term
and bears interest at 8% per annum. However, due to the uncertainty surrounding
the collectibility of the notes receivable from Thirdspace, the notes are valued
at zero on the March 31, 2003 balance sheet.
Concurrent received $24.0 million in net proceeds from a private placement
of 5.4 million shares of common stock on July 19, 2001, such shares having
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subsequently been registered with the Securities and Exchange Commission in a
filing on Form S-3. In addition, Concurrent received $546,000 and $3.5 million
from the issuance of common stock to employees and directors who exercised stock
options during the nine month periods ended March 31, 2003 and 2002,
respectively.
At March 31, 2003, Concurrent had working capital of $36.4 million and had
no material commitments for capital expenditures. Management of Concurrent
believes that the existing cash balances and funds generated by operations will
be sufficient to meet the anticipated working capital and capital expenditure
requirements for the next 12 months.
Included in deferred revenue are billings for maintenance contracts and
billings for products that are pending completion of the revenue recognition
process. Maintenance revenue, whether bundled with the product or priced
separately, is recognized ratably over the maintenance period. At March 31,
2003, deferred revenue includes billings to certain customers who agreed to make
progress payments for systems that had not yet been completed and revenue had
not yet been recognized. Deferred revenues have increased $3.9 million from
$5.7 million at June 30, 2002 to $9.6 million at March 31, 2003, due to billings
to a North America cable operator in advance of revenue recognition and the
growing base of cable customers with maintenance programs where the revenue is
recognized ratably over the maintenance period.
Concurrent maintains pension plans for certain employees and former
employees in the United Kingdom and Germany. The projected benefit obligation
for the benefit plans at June 30, 2002 and June 30, 2001 as determined in
accordance with FAS No. 87, "Employers Accounting for Pensions", was $17.0
million and $15.4 million, respectively, and the value of the plans assets was
$12.0 million and $12.4 million, respectively. As a result, the plans were
underfunded by $5.0 million at June 30, 2002 and by $2.9 million at June 30,
2001. Since June 30, 2002, the value of the plan assets has continued to decline
to $10.8 million at March 31, 2003. Due to the decline in the fair market value
of the plans' assets, it is likely that the amount of Concurrent's contributions
to the plans will increase from the $320,000 of contributions made in fiscal
2002. In addition, management expects the pension cost to be recognized in the
financial statements will increase from the $465,000 recognized in fiscal 2002
to approximately $800,000 in fiscal 2003, of which approximately $600,000 was
recognized in the nine months ended March 31, 2003. The expense to be recognized
in future periods could increase further, depending upon the amount of the
change in the fair market value of the plan assets and the change in the
projected benefit obligation.
As a result of the overall decline in market interest rates, Concurrent may
decide it is necessary to use a lower discount rate in the calculation of its
projected benefit obligation. The use of a lower discount rate combined with
the decrease in the market value of plan assets is likely to cause the amount of
the underfunded status to increase. Though management has not yet determined
the exact amount of such underfunding, after completion of the actuarial
valuations in the fourth quarter of fiscal 2003, Concurrent could be required to
record an additional reduction to stockholders' equity. Concurrent recorded
reductions to stockholders' equity in fiscal 2002 and 2001 amounting to $1.6
million and $2.8 million, respectively. However, management does not currently
believe the underfunded status of the pension plans will materially affect
Concurrent's financial position. Moreover, given the impact that the discount
rate and stock market performance have on the projected benefit obligation and
market value of plan assets, future changes in either one of these may reduce
our pension plan underfunding.
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 report on Form
10-Q 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
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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 Concurrent's 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;
- instability and financial instability in the cable industry;
- 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;
- failure to effectively service the installed base;
- the entry of new well-capitalized competitors into our markets; and
- the valuation of equity investments and collectibility of notes
receivable, including but not limited to our equity and debt
investment in Thirdspace.
Other important risk factors are discussed in our Annual Report on Form
10-K for the fiscal year ended June 30, 2002.
Our forward-looking 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 three 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 the financial statements.
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
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fluctuation in foreign currency exchange rates relative to the United States
dollar would not have a material impact on future earnings, fair values, or cash
flows.
ITEM 4. CONTROLS AND PROCEDURES
As required by SEC rules, Concurrent has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures within 90 days of
the filing date of this quarterly report. This evaluation was carried out under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on this
evaluation, these officers have concluded that the design and operation of
Concurrent's disclosure controls and procedures are effective. There were no
significant changes to Concurrent's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation.
Disclosure controls and procedures are Concurrent's controls and other
procedures that are designed to ensure that information required to be disclosed
by Concurrent in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by Concurrent in the reports that Concurrent files
under the Exchange Act is accumulated and communicated to our management,
including Concurrent's principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Concurrent may be involved in litigation relating to
claims arising out of its ordinary course of business. Concurrent is not
presently involved in any material litigation, but has the following matters
pending:
- SeaChange International, Inc. v. Putterman, et al, Arkansas Court of
---------------------------------------------------
Appeals, Case No. CA 01-1126. The suit was filed on June 14, 1999
alleging that Concurrent defamed SeaChange International, Inc.
("SeaChange"). On June 14, 2000, Concurrent counterclaimed against
SeaChange alleging that SeaChange defamed Concurrent. On January 4,
2001, the court granted Concurrent's motion to dismiss all claims
against it. SeaChange subsequently appealed and the appeal was granted
on October 2, 2002. Concurrent filed a Petition for Review of the
appellate court ruling with the Supreme Court of Arkansas which was
denied on November 14, 2002. A trial date has yet to be determined.
- Eason v. Concurrent Computer Corp, et al.,Superior Court of New
---------------------------------------------------
Jersey, Case Mon-L-3284-94. This suit arose out of a personal injury
claim filed in 1994 alleging that plaintiff was injured when a lamp
post in Concurrent's parking lot fell. The case against Concurrent was
dismissed in 1995, but in 2000 the plaintiff amended the cause of
action and refiled against Concurrent alleging spoliation of evidence.
The plaintiff obtained a default judgment for $119,800 in December
2001, which was vacated in August 2002. Plaintiff subsequently refiled
and Concurrent sought to have the matter dismissed. On February 10,
2003, Concurrent prevailed on its summary judgment motion and the case
was dismissed. On February 20, 2003, the plaintiff appealed and the
case is scheduled to be briefed in June 2003.
Concurrent is involved in various other legal proceedings. Management of
Concurrent believes that any liability to Concurrent which may arise as a result
of these proceedings, including the proceedings specifically discussed above,
will not have a material adverse effect on Concurrent's financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Registrant's Registration
Statement on Form S-2 (No. 33-62440)).
3.2 - Amended and Restated Bylaws of the Registrant.
3.3 - Certificate of Correction to Restated Certificate of Incorporation
of the Registrant (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002).
3.4 - Amended Certificate of Designations of Series A Participating
Cumulative Preferred Stock (incorporated by reference to the Form
8-A/A, dated August 9, 2002).
3.5 - Amendment to Amended Certificate of Designations of Series A
Participating Cumulative Preferred Stock (incorporated by reference
to the Form 8-A/A, dated August 9, 2002).
4.1 - Form of Common Stock Certificate.
4.2 - Form of Rights Certificate (incorporated by reference to the
Registrant's Current Report on Form 8-K/A filed August 12, 2002).
4.3 - Amended and Restated Rights Agreement dated as of August 7, 2002
between the Registrant and American Stock Transfer & Trust Company,
as Rights Agent (incorporated by reference to the Registrant's
Current Report on Form 8-K/A filed on August 12, 2002).
11.1*- Statement Regarding Computation of Per Share Earnings.
99.1 - Certification of Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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99.2 - Certification of Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*Data required by Statement of Financial Accounting Standards No. 128,
"Earnings per Share," is provided in the Notes to the condensed
consolidated financial statements in this report.
(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 24, 2003 relating to
financial results for the quarter ended December 31, 2002.
- Current Report on Form 8-K filed on January 31, 2003 regarding the
retirement of Board Member Morton Handel.
- Current Report on Form 8-K filed on March 21, 2003 relating to the
equity investment in Thirdspace.
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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 March 31,
2003, to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 15, 2003 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
----------------------
Steven R. Norton
Executive Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer,
Authorized Officer)
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CERTIFICATIONS
--------------
I, Jack A. Bryant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Concurrent
Computer Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Jack A. Bryant
-------------------------------------------
Name: Jack A. Bryant
Title: President and Chief Executive Officer
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I, Steven R. Norton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Concurrent
Computer Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Steven R. Norton
-------------------------------------
Name: Steven R. Norton
Title: Executive Vice President, Chief Financial
Officer and Secretary
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EXHIBIT INDEX
-------------
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Registrant's Registration
Statement on Form S-2 (No. 33-62440)).
3.2 - Amended and Restated Bylaws of the Registrant.
3.3 - Certificate of Correction to Restated Certificate of Incorporation
of the Registrant (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002).
3.4 - Amended Certificate of Designations of Series A Participating
Cumulative Preferred Stock (incorporated by reference to the Form
8-A/A, dated August 9, 2002).
3.5 - Amendment to Amended Certificate of Designations of Series A
Participating Cumulative Preferred Stock (incorporated by reference
to the Form 8-A/A, dated August 9, 2002).
4.1 - Form of Common Stock Certificate.
4.2 - Form of Rights Certificate (incorporated by reference to the
Registrant's Current Report on Form 8-K/A filed August 12, 2002).
4.3 - Amended and Restated Rights Agreement dated as of August 7, 2002
between the Registrant and American Stock Transfer & Trust Company,
as Rights Agent (incorporated by reference to the Registrant's
Current Report on Form 8-K/A filed on August 12, 2002).
11.1*- Statement Regarding Computation of Per Share Earnings.
99.1 - Certification of Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 - Certification of Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*Data required by Statement of Financial Accounting Standards No. 128,
"Earnings per Share," is provided in the Notes to the condensed
consolidated financial statements in this report.
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