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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE , 2000
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONCURRENT COMPUTER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 3571 04-2735766
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code) Number)
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4375 RIVER GREEN PARKWAY
DULUTH, GEORGIA 30096
(678) 258-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
STEVEN R. NORTON
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
4375 RIVER GREEN PARKWAY
DULUTH, GEORGIA 30096
(678) 258-4000
(Name, address, including zip code, and telephone number, including area code of
agent for service)
COPIES TO:
JOHN D. CAPERS, JR.
ALAN J. PRINCE
KING & SPALDING
191 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303-1763
(404) 572-4600
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APPROXIMATE COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
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If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
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Common stock, par value $0.01 per
share............................ 1,028,460 $11.19 $11,508,468 $3,039
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended, and
based upon the average high and low prices on June 6, 2000, as reported on
the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Dated June 9, 2000
1,028,460 Shares
[LOGO]
Concurrent Computer Corporation
COMMON STOCK
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THE SELLING STOCKHOLDERS ARE OFFERING 1,028,460 SHARES.
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OUR COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"CCUR." ON JUNE 8, 2000 THE LAST REPORTED SALE PRICE OF THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET WAS $11.63 PER SHARE.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
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The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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, 2000
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 3
Special Note Regarding
Forward-Looking Information........ 7
Risk Factors......................... 7
Use of Proceeds...................... 19
Price Range of Common Stock.......... 19
Dividend Policy...................... 19
Capitalization....................... 20
Pro Forma Consolidated Statements of
Operations......................... 21
Selected Historical Consolidated
Financial Data..................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
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Business............................. 33
Management........................... 45
Certain Transactions................. 55
Principal Stockholders............... 56
Selling Stockholders................. 57
Description of Capital Stock......... 58
Shares Eligible for Future Sale...... 63
Plan of Distribution................. 63
Legal Matters........................ 65
Experts.............................. 65
Where You Can Find More Information.. 65
Index to Consolidated Financial
Statements......................... F-1
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You should rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
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PROSPECTUS SUMMARY
This summary highlights the most important features of this offering and
the information contained elsewhere in this prospectus. This summary is not
complete and does not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, especially the risks of investing in our common stock discussed under
"Risk Factors."
CONCURRENT COMPUTER CORPORATION
We are a leading provider of computer systems for both the emerging
video-on-demand, or VOD, market through our Xstreme division and for real-time
applications through our Real-Time division. We provide VOD systems primarily to
residential cable television operators that have upgraded their networks to
support interactive, digital services. We also provide high-performance,
real-time computer systems used for simulations, data acquisition and industrial
process applications. We market our real-time computer systems to government
agencies, government suppliers and commercial markets where the immediate
capture and delivery of information is critical. Although almost all of our
historical revenues were derived from our Real-Time division, we expect that
substantially all of our future revenue growth will come from our Xstreme
division, which began commercial sales in 1999.
Our VOD systems consist of digital video servers and related software that
enable digitally-upgraded cable operators to deliver VOD to their subscribers
with digital set-top boxes. We have been selected to supply our VOD system for
five of the domestic commercial launches and trials of VOD systems publicly
announced by multiple system operators, or MSOs, including the largest and only
system-wide commercial deployment at Time Warner Cable's Oceanic regional
division in Oahu, Hawaii. Time Warner Cable has also selected our VOD systems
for commercial deployments, scheduled to be completed by mid-2000, on two of its
systems in the Tampa Bay, Florida market. In addition, our VOD system was chosen
by Cox Communications, Inc. for a planned fall 2000 commercial launch of VOD
services in Cox's San Diego, California market, and Comcast Cable
Communications, Inc. selected our VOD system for a technical trial which began
in the spring of 2000.
Initially, we focused our VOD business on the development of VOD systems
designed to be compatible with Scientific-Atlanta, Inc. digital cable equipment.
In October 1999, we acquired Vivid Technology, Inc. and obtained server
technology which we expect will ultimately be compatible with General Instrument
digital cable equipment. As a result, we believe we are the only VOD system
provider who will be able to offer technology compatible with both
Scientific-Atlanta and General Instrument digital cable equipment, the two
largest providers of digital headend equipment and digital set-top boxes used in
the United States.
Our business objective is to become the leading provider of high-quality
VOD systems to domestic cable and international cable and digital subscriber
line, or DSL, providers. We intend to achieve this goal by establishing strong
provider relationships with MSOs and international cable and DSL providers
during the early stages of VOD deployment, focusing our research and development
efforts on enhancing the quality of our current VOD system offering and
providing additional services and identifying new applications and markets for
our VOD systems. Although delivery of VOD over DSL currently is not practical in
the United States, we also will look for opportunities in the domestic DSL
market as DSL technology advances. We also intend to focus our real-time product
sales efforts on our highest margin real-time systems and services businesses.
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Our principal executive offices are located at 4375 River Green Parkway,
Duluth, Georgia 30096. Our telephone number is (678) 258-4000.
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THE OFFERING
Common stock offered by the selling
stockholders............................ 1,028,460 shares
Common stock to be outstanding after
this offering........................... 53,862,722 shares
Use of proceeds......................... We will not receive any proceeds
from the sale of the shares being
offered by the selling
stockholders.
Nasdaq National Market symbol........... CCUR
The number of shares of our common stock that will be outstanding after
this offering does not include 5,762,288 shares of common stock issuable upon
the exercise of outstanding options, having a weighted average exercise price of
$4.17 per share, under our stock option plans as of March 31, 2000 and 2,000,000
shares of common stock issuable upon exercise of outstanding warrants, having a
weighted average exercise price of $5.00 per share, and 589,745 additional
shares reserved for issuance under our stock option plans as of March 31, 2000.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth summary historical and pro forma
consolidated financial data. The data for the years ended June 30, 1997, 1998
and 1999 is derived from our audited financial statements included elsewhere in
this prospectus. The data for the nine-months ended March 31, 1999 and 2000 and
as of March 31, 2000 is unaudited, but in the opinion of management contains all
adjustments, consisting only of normal recurring accruals, which are necessary
for a fair statement of the results of such periods. Results for the nine months
ended March 31, 2000 are not necessarily indicative of results that may be
expected for the entire year. The pro forma information gives effect to our
acquisition of Vivid Technology as of July 1, 1998. The unaudited pro forma
financial data does not necessarily represent what our results of operations
would actually have been if the acquisition in fact had occurred on that date or
our results of operations for any future period.
The financial data set forth below should be read in conjunction with, and
is qualified by reference to "Pro Forma Consolidated Statements of Operations,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this prospectus.
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ACTUAL PRO FORMA
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NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31, FISCAL NINE MONTHS
------------------------------ ------------------ YEAR ENDED JUNE 30, ENDED MARCH 31,
1997 1998 1999 1999 2000 1999 2000
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total net sales................ $108,367 $82,215 $69,963 $53,731 $ 49,626 $70,603 $ 49,980
Gross margin................... 51,211(1) 40,390 35,337 27,840 23,183 35,668 23,381
Total operating expenses....... 41,972(2) 37,079(3) 36,626(4) 26,527 44,893(8) 38,817(4) 31,784
Operating income (loss)........ 9,239 3,311 (1,289) 1,313 (21,710) (3,149) (8,403)
Net income (loss).............. 4,061(5) 3,414(6) (1,665)(7) 783 (21,387) (3,512)(7) (8,080)
Earnings (loss) per share:
Basic........................ $ 0.08 $ 0.07 $ (0.03) $ 0.02 $ (0.42) $ (0.07) $ (.15)
Diluted...................... $ 0.08 $ 0.07 $ (0.03) $ 0.02 $ (0.42) $ (0.07) $ (.15)
Weighted average shares
outstanding used in computing
net income (loss) per
share:.......................
Basic...................... 44,603 47,002 47,967 47,855 51,335 50,201 52,309
Diluted.................... 45,112 47,627 47,967 49,186 51,335 50,201 52,309
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AS OF MARCH 31, 2000
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,093
Working capital............................................. 14,457
Total assets................................................ 47,108
Total liabilities........................................... 16,185
Stockholders' equity........................................ 30,923
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(1) This data includes a $1.1 million charge for expenses resulting from the
transition of our manufacturing operations from Oceanport, New Jersey to
Fort Lauderdale, Florida.
(2) This data includes a restructuring and transition charge of $2.3 million and
a curtailment gain on postretirement benefit obligations of $2.5 million.
(3) This data includes a non-cash charge of $1.6 million related to the issuance
of warrants to Scientific-Atlanta.
(4) This data includes a $0.4 million charge for the write-down of a facility
held for sale to fair market value.
(5) This data includes a $1.6 million charge for the realized and unrealized
loss on the investment in CyberGuard stock received in connection with the
acquisition of the Real-Time division of Harris Computer Systems
Corporation.
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(6) This data includes income of $1.2 million for reimbursement by Nippon Steel
Corporation for losses realized by our Japanese subsidiary in excess of
Nippon Steel Corporation's minority interest in the subsidiary and a $0.4
million realized gain on the sale of our investment in CyberGuard stock.
(7) This data includes a $0.4 million write-off of foreign currency translation
due to dissolution of Concurrent Computer Corporation France, one of our
French subsidiaries, and $0.3 million of foreign currency transaction gains.
(8) This data includes a $14.0 million non-cash charge related to the write-off
of research and development acquired in connection with our acquisition of
Vivid Technology.
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can identify these forward-looking statements by our
use of the words "believes," "anticipates," "plans," "expects," "may," "will,"
"would," "intends," "estimates," and similar expressions, whether in the
negative or affirmative. We cannot guarantee that we actually will achieve these
plans, intentions or expectations. Actual results or events could differ
materially from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important factors in the
cautionary statements in this prospectus, particularly under the heading "Risk
Factors," that we believe could cause our actual results to differ materially
from the forward-looking statements that we make. We do not assume any
obligation to update any forward-looking statement.
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the risks described below, together with
all of the other information included in this prospectus, before investing in
our common stock. If any of the following risks actually occurs, our business,
financial condition and results of operations could be materially and adversely
affected. In that case, the trading price of our common stock could decline, and
you could lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS BECAUSE OF DECLINES IN
OUR REAL-TIME BUSINESS AND OUR LIMITED VOD OPERATING HISTORY.
For much of our history, we have focused solely on providing real-time
computer systems and related services. Over the last five full fiscal years, we
have experienced a decline in real-time net sales from $140.1 million for the
fiscal year ended June 30, 1995 to $68.8 million for the fiscal year ended June
30, 1999. For the nine months ended March 31, 2000, our real-time net sales were
$42.7 million compared to $53.1 million for the nine months ended March 31,
1999. We expect that net sales from our real-time business will continue to
decline in the foreseeable future. Further, our gross margin for the nine months
ended March 31, 2000 was 46.7%, compared to our gross margin of 51.8% during the
same period in 1999.
This decline in our real-time business together with our limited VOD
operating history make it difficult to evaluate our current business and
prospects or to accurately predict our future revenue or results of operations.
We have a limited operating history in the VOD market. We began residential
cable television commercial trials of our VOD server and related software, our
VOD system, in the summer of 1999 and have a limited number of VOD systems
currently in use on a commercial basis. The revenue and income potential of our
business is unproven, and we will encounter risks and difficulties in our VOD
business frequently encountered by companies in new and rapidly evolving
markets. We may not successfully address any of these risks. If we do not
successfully address these risks, our business, financial condition and results
of operations would be adversely affected.
Our future growth will depend largely on the commercial success of our VOD
business, and we cannot assure you that VOD will become commercially successful.
We have only recently begun to commercially introduce our VOD systems, and our
future revenue growth is uncertain and will depend upon the development of
customer demand for these systems. If our target customers do not adopt,
purchase and successfully deploy our VOD systems, our revenue will not grow and
our business, results of operations and financial condition will be adversely
affected.
WE HAVE INCURRED LOSSES AND MAY INCUR LOSSES IN THE FUTURE.
We incurred net losses of $1.7 million in the fiscal year ended June 30,
1999 and $21.4 million in the nine months ended March 31, 2000. On a pro forma
basis after giving effect to the acquisition of Vivid Technology, excluding a
$14.0 million non-cash charge relating to the write off of research and
development acquired in the
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Vivid Technology acquisition, we incurred net losses of $3.5 million and $8.1
million in the fiscal year ended June 30, 1999 and nine month period ended March
31, 2000, respectively. Our actual net loss of $21.4 million for the nine months
ended March 31, 2000 includes the $14.0 million non-cash charge related to the
Vivid Technology acquisition. As of March 31, 2000 we had an accumulated deficit
of approximately $94.2 million, after eliminating accumulated deficit of
approximately $81.8 million at December 31, 1991, the date of our
quasi-reorganization. We may incur additional net losses in the future.
THE VOD MARKET IS NEW AND MAY NOT GAIN BROAD MARKET ACCEPTANCE AND OUR POTENTIAL
CUSTOMERS MAY NOT PURCHASE OUR VOD SYSTEMS.
We are focusing much of our initial VOD sales efforts on domestic cable
television providers that have upgraded some or all of their cable systems to
support digital, two-way service. Therefore, in order for our VOD business to
succeed, cable system operators, particularly large MSOs, must successfully
market VOD to their subscribers. Although we have sold our VOD system to three
multiple system operators to date, only one system operator has actually
commercially introduced VOD that incorporates our technology. In addition, none
of our cable system customers are contractually obligated to introduce, market
or promote VOD, nor are any of our customers bound to achieve any specific VOD
introduction schedule. Accordingly, even if a system operator initiates a
customer trial using our VOD system, that operator is under no obligation to
continue its relationship with us or to launch a full-scale commercial
introduction of VOD using our technology. Further, we do not have exclusive
arrangements with system operators. Therefore, system operators may enter into
arrangements with one or more of our current or future competitors.
The growth and future success of our VOD business depends largely upon our
ability to penetrate new markets and sell our VOD systems to digitally-upgraded
domestic and international cable system operators, international DSL operators,
educational institutions and others. If these potential customers determine that
VOD is not viable as a business proposition or if they decide to purchase VOD
systems from our competitors, our business, financial condition and results of
operations will be significantly adversely affected.
WE EXPECT TO RELY ON A LIMITED NUMBER OF CABLE SYSTEM OPERATORS FOR A
SIGNIFICANT PORTION OF OUR VOD REVENUE. IF WE ARE UNSUCCESSFUL IN ESTABLISHING
RELATIONSHIPS WITH THESE CUSTOMERS OR LOSE ANY OF THESE CUSTOMERS, OUR BUSINESS
WILL BE ADVERSELY AFFECTED.
A significant portion of our VOD revenue has come from, and is expected to
continue to come from, sales to the large MSOs. For the nine months ended March
31, 2000, Time Warner Cable accounted for 41% of such revenue. Many MSOs are
currently evaluating providers of VOD systems and making purchase decisions. We
believe that the relationships forged between VOD system suppliers and MSOs over
the next 12 to 18 months will be critical in determining the relative market
shares of VOD system providers. If we are unsuccessful in establishing and
maintaining these key relationships with MSOs, our VOD business will be
adversely affected. Further, if we experience problems in any of our VOD system
trials or initial commercial launches, our ability to attract new MSO customers
and sell additional products to existing customers will be materially adversely
affected.
OUR OPERATING RESULTS ARE UNPREDICTABLE.
Our operating results are likely to fluctuate significantly in the future.
Because our operating results are expected to be volatile and difficult to
predict, in some future quarters our operating results may fall below the
expectations of securities analysts and investors. If this occurs, the trading
price of our common stock may fall significantly. Our quarterly operating
results may vary depending on a number of factors, including:
- demand for our VOD and real-time systems and services;
- the timing and number of sales of our products;
- actions taken by our competitors, including new product introductions and
enhancements;
- changes in our price or the prices of our competitors;
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- our ability to develop and introduce new products and to deliver new
services and enhancements that meet customer requirements in a timely
manner;
- the length of the sale cycle for our products;
- our ability to control costs;
- technological changes in our markets;
- deferrals of customer orders in anticipation of product enhancements or
new products;
- customer budget cycles and changes in these budget cycles; and
- general economic factors.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY AGAINST OUR CURRENT AND FUTURE COMPETITORS.
The market for VOD systems is relatively new, highly competitive and
rapidly evolving. Given that there have been limited commercial deployments of
VOD systems to date, the respective market shares of companies competing in the
VOD market are uncertain. We believe that the primary factors influencing
competition in the VOD market include the flexibility and scalability of the VOD
system, product quality and reliability and established relationships with
providers of interactive television services, including MSOs. In the VOD market,
our competitors currently include the following:
- in the domestic cable and international cable and DSL
market -- principally, SeaChange International Inc., nCUBE and Diva
Communications; and
- in the education market -- principally, Silicon Graphics, Inc., Cisco
Systems, Inc. and International Business Machines Corp., as well as local
systems integrators.
We also compete with a number of companies in our real-time business. These
competitors can be categorized as follows:
- major computer companies that participate in the real-time business by
layering specialized hardware and software on top of, or as an extension
of, their general purpose product platforms, including principally Compaq
Computer Corporation and Hewlett-Packard Corporation;
- other computer companies that provide solutions for applications that
address specific characteristics of real-time, such as fault tolerance or
high performance graphics, including Silicon Graphics, Inc. and Compaq
Computer Corporation;
- general purpose computing companies that provide a platform on which
third-party vendors add real-time capabilities, including International
Business Machines Corp. and Sun Microsystems, Inc.; and
- single board computer companies that provide board-level processors that
are typically integrated into a customer's computer system, including
Force Computers, Inc. and Motorola, Inc.
Due to the rapidly evolving markets in which we compete, additional
competitors with significant market presence and financial resources, including
computer hardware and software companies, content providers and television
equipment manufacturers, including digital set-top box manufacturers, may enter
those markets, thereby further intensifying competition. Our future competitors
also may include one or more of the parties with which we currently have a
strategic relationship. Although we have proprietary rights with respect to much
of the technology incorporated in our VOD and real time systems, our strategic
partners have not agreed to refrain from competing against us. Increased
competition could result in price reductions which would adversely affect our
business, financial condition and results of operations. Many of our current and
potential future competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than us, and greater
brand name recognition. In addition, many of our competitors have well-
established relationships with our current and potential customers and have
extensive knowledge of our industries.
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IF WE DO NOT MANAGE OUR ANTICIPATED GROWTH, WE MAY NOT BE ABLE TO OPERATE OUR
BUSINESS EFFECTIVELY. OUR FAILURE TO MANAGE GROWTH COULD DISRUPT OUR OPERATIONS.
We anticipate a significant expansion of our VOD operations and that
substantially all of our future revenue growth will come from our VOD
operations. Our anticipated growth could place a strain on our management
systems and other resources. Our ability to successfully implement our business
plan in a rapidly evolving market will require an effective planning and
management process. We cannot assure you that we will be able to successfully
manage our expansion. If we fail to manage our anticipated growth, our
operations may be disrupted and our business may be adversely affected. We must
continue to improve and effectively utilize our existing operational,
management, marketing and financial systems and successfully recruit, hire,
train and manage personnel, which we may be unable to do. Further, we must
maintain close coordination among our technical, finance, marketing, sales and
production staffs.
IF WE FAIL TO DEVELOP AND MARKET NEW PRODUCTS AND PRODUCT ENHANCEMENTS IN A
TIMELY MANNER, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our future success will require that we develop and market additional
products that achieve market acceptance and enhance our current products. Our
inability to develop on a timely basis new products or enhancements to existing
products, or the failure of such new products or enhancements to achieve market
acceptance could have a material adverse affect on our business, financial
condition and results of operations. We currently are developing our
next-generation VOD server, a more powerful, but less expensive real-time
computer system and other products. Although we currently expect to begin
shipping our next-generation server by the end of calendar 2000, we may
experience difficulties that result in delays or prevent the successful
development, introduction and marketing of our new server and other new products
and enhancements. Although delivery of VOD over DSL currently is not practical
in the United States, we will look for opportunities in the domestic DSL market
as DSL technology continues to advance. There can be no assurance that we will
be successful in pursuing any domestic DSL opportunities.
SYSTEM ERRORS, FAILURES OR INTERRUPTIONS MAY HAVE A NEGATIVE IMPACT ON OUR
BUSINESS AND DAMAGE OUR REPUTATION AND CUSTOMER RELATIONSHIPS.
System errors or failures may adversely affect our business, financial
condition and results of operations. Despite our testing and testing by current
and potential customers, all errors or failures may not be found in our products
or, if discovered, successfully corrected in a timely manner. These errors or
failures could cause delays in product introductions and shipments or require
design modifications that could adversely affect our competitive position. Our
business also will be adversely affected if our customers view our products as
unreliable, whether based on actual or perceived errors or failures in our
products. Any frequent or persistent system failures could irreparably damage
our reputation.
Further, a defect, error or performance problem with our VOD systems could
cause our customers' cable television systems to fail for a period of time. Any
such failure would cause customer service and public relations problems for our
customers. As a result, any failure of our customers' systems caused by our
technology could result in delayed or lost revenue due to adverse customer
reaction, negative publicity regarding us and our products and services and
claims for substantial damages against us, regardless of our responsibility for
such failure. Any claim could be expensive and require us to spend a significant
amount of resources, regardless of whether we prevail.
DEMAND FOR OUR VOD PRODUCTS AND SERVICES WILL DECLINE SIGNIFICANTLY IF OUR VOD
SYSTEMS CANNOT SUPPORT A SUBSTANTIAL NUMBER OF VIEWERS.
Our General Instrument compatible VOD system has not been deployed on a
commercial basis. As a result, the ability of our General Instrument compatible
VOD system to support a substantial number of viewers is unproven. In addition,
although we have successfully completed our initial commercial launch of our
Scientific-Atlanta compatible VOD system, we cannot provide assurances that the
system will support an increased number of viewers. If either our General
Instrument compatible VOD system or our Scientific-
10
<PAGE> 12
Atlanta compatible system does not efficiently scale to support a substantial
number of viewers while maintaining a high level of performance or we are unable
to effectively combine the two systems into one standard platform, demand for
those products and related services and our ability to sell additional products
to our existing customers will be significantly reduced.
A SIGNIFICANT PORTION OF OUR REAL-TIME REVENUE HAS BEEN CONCENTRATED IN A SMALL
NUMBER OF CUSTOMERS, INCLUDING THE U.S. GOVERNMENT. IF WE LOSE ANY OF THESE
CUSTOMERS, OUR BUSINESS MAY BE ADVERSELY AFFECTED.
We currently derive, and expect to continue to derive, a significant
portion of our real-time revenue from a limited number of customers. As a
result, the loss of, or reduced demand for products or related services from any
of our major customers could adversely affect our business, financial condition
and results of operations. In the fiscal year ended June 30, 1999, six customers
accounted for more than 31% of our total real-time revenue and, in the nine
months ended March 31, 2000, seven customers accounted for approximately 35% of
our total real-time revenue.
We derive a significant portion of our revenues from the supply of systems
under government contracts. For the fiscal year ended June 30, 1999 and the nine
months ended March 31, 2000, we recorded $23.1 million and $12.7 million,
respectively, in sales to agencies of the U.S. Government. These amounts
represent approximately 33% and 26%, respectively, of our total sales for the
respective periods. Government business is subject to many risks, such as delays
in funding, reduction or modification of contracts or subcontracts, failure to
exercise options, changes in governmental policies and the imposition of
budgetary constraints. A loss of government contract revenues could have a
material adverse effect on our business, results of operations and financial
condition.
We do not have written continuing purchase agreements with any of our
customers and do not have written agreements that require customers to purchase
fixed minimum quantities of our products. Our sales to specific customers tend
to, and are expected to continue to, vary from year-to-year, depending on such
customers' budgets for capital expenditures and new product introductions.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE
POSITION COULD BE HARMED OR WE COULD BE REQUIRED TO INCUR EXPENSES TO ENFORCE
OUR RIGHTS. OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE FOUND TO INFRINGE
ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
We rely on a combination of contracts and copyright, trademark, and trade
secret laws to establish and protect our proprietary rights in our technology.
We do not own any patents.
We typically enter into confidentiality or license agreements with our
employees, consultants, customers and vendors, in an effort to control access to
and distribution of our proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
proprietary technology without authorization. Policing unauthorized use of our
products is difficult. The steps we take may not prevent misappropriation of our
intellectual property, and the agreements we enter into may not be enforceable.
In addition, effective copyright and trade secret protection may be unavailable
or limited in some foreign countries. Other companies, including our
competitors, may currently own or obtain patents or other proprietary rights
that might prevent, limit or interfere with our ability to make, use or sell our
products. As a result, we may be found to infringe on the intellectual property
rights of others. In the event of a successful claim of infringement against us
and our failure or inability to license the infringed technology, our business
and operating results could be adversely affected.
Any litigation or claims, whether or not valid, could result in substantial
costs and diversion of our resources. Intellectual property litigation or claims
could force us to do one or more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms, if at all;
and
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<PAGE> 13
- redesign products or services that incorporate the disputed technology.
If we are forced to take any of the foregoing actions, we could face substantial
costs and our business could be seriously harmed. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or be adequate to indemnify us for all liability that may be imposed.
We may initiate claims or litigation against third parties in the future
for infringement of our proprietary rights or to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel. As a result, our operating results could
suffer and our financial condition could be harmed.
IN SOME CASES, WE RELY ON A LIMITED NUMBER OF SUPPLIERS.
We sometimes purchase product components from a single supplier in order to
obtain the required technology and the most favorable price and delivery terms.
Reliance on single suppliers involves several risks, including:
- the possibility of defective parts;
- a shortage of components;
- increase in component costs; and
- reduced control over delivery schedules.
Any of these events could adversely affect our business, results of operations
and financial condition. We estimate that a lead time of 16-24 weeks may be
necessary to switch to an alternative supplier of certain custom application
specific integrated circuits and printed circuit assemblies. A change in the
supplier of these components without the appropriate lead time could result in a
material delay in shipments by us of certain products. Where alternative sources
are available, qualification of the alternative suppliers and establishment of
reliable supplies of components from such sources may also result in delays.
Shipping delays may also result in a delay in revenue recognition, possibly
outside the fiscal period originally planned, and, as a result, may adversely
affect our financial results for that particular period.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE FAIL TO RETAIN OUR CURRENT KEY
PERSONNEL OR FAIL TO ATTRACT ADDITIONAL QUALIFIED PERSONNEL.
Our future performance depends on the continued service of our senior
management, including our President and Chief Executive Officer, Steve G.
Nussrallah, and our engineering, sales and marketing and manufacturing
personnel, many of whom would be difficult to replace. Competition for qualified
personnel is intense, and we may fail to retain our key employees or to attract
or retain other highly qualified personnel. We do not carry key person life
insurance on any of our employees. The loss of the services of one or more of
our key personnel could seriously impact our business. Our future success also
depends on our continuing ability to attract, hire, train and retain highly
skilled managerial, technical, sales, marketing and customer support personnel.
We currently are looking to fill the position of President of our Xstreme
division as well as several engineering, sales and marketing and operations
positions. In addition, new employees frequently require extensive training
before they achieve desired levels of productivity.
WE MAY BE UNSUCCESSFUL IN MAINTAINING OR ESTABLISHING THE STRATEGIC
RELATIONSHIPS THAT WILL BE AN IMPORTANT PART OF OUR FUTURE SUCCESS.
The success of our business is and will continue to be dependent in part on
our ability to maintain existing and enter into new strategic relationships. We
currently have important strategic relationships with Scientific-Atlanta,
General Instrument, a division of Motorola, Prasara Technologies, Inc. and
Intertainer, Inc., among others. There can be no assurance that:
- such existing or contemplated relationships will be commercially
successful;
- we will be able to find additional strategic partners; or
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<PAGE> 14
- we will be able to negotiate terms acceptable to us with potential
strategic partners.
We cannot provide assurance that existing or future strategic partners will
not pursue alternative technologies or develop alternative products in addition
to or in lieu of ours, either on their own or in collaboration with others,
including our competitors. These alternative technologies or products may be in
direct competition with our technologies or products and may significantly erode
the benefits of our strategic relationships and adversely affect our business,
financial condition and results of operations.
OUR BUSINESS IS SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.
International sales accounted for approximately 45%, 40%, 40% and 37% of
our revenue in fiscal year 1997, 1998 and 1999 and the nine months ended March
31, 2000, respectively. Substantially all of our historical international sales
have come from our real-time business. We expect that international sales will
continue to represent a significant portion of our business in the future. As a
result of our current and anticipated international operations, we are subject
to a number of risks associated with international business activities that
could increase our costs, lengthen our sales cycle and require significant
management attention. These risks include:
- compliance with, and unexpected changes in, regulatory requirements
resulting in unanticipated costs and delays;
- lack of availability of trained personnel in international locations;
- tariffs, export controls and other trade barriers;
- longer accounts receivable payment cycles than in the United States;
- potential difficulty of enforcing agreements and collecting receivables
in some foreign legal systems;
- potential difficulty in enforcing intellectual property rights in certain
foreign countries;
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- the burdens of complying with a wide variety of foreign laws;
- general economic conditions in international markets; and
- currency exchange rate fluctuations.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE THE OWNERSHIP INTEREST OF OUR
STOCKHOLDERS OR CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.
As part of our business strategy, we review acquisition prospects that
would compliment our current product offerings, enhance our technical
capabilities or otherwise offer growth opportunities. While we have no current
agreements or negotiations under way with respect to any acquisition, we
periodically review investments in new businesses, and we may acquire
businesses, products or technologies in the future. In the event of any future
acquisitions, we could:
- issue equity securities which would dilute current stockholders'
percentage ownership;
- incur substantial debt; or
- assume contingent liabilities.
These actions could materially adversely affect our operating results and
the price of our common stock. Acquisitions may require us to incur significant
amortization and depreciation charges and acquisition related costs impacting
our financial results. Acquisitions also entail numerous risks, including:
- difficulties in the assimilation of acquired operations, technologies or
services;
- unanticipated costs associated with the acquisition;
- diversion of management's attention from other business concerns;
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<PAGE> 15
- adverse effects on existing business relationships;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees of acquired companies.
We cannot assure you that we will be able to successfully integrate any
business, products, technologies or personnel that we might acquire in the
future. Our failure to do so could materially adversely affect our business,
operating results and financial condition.
WE MAY EXPERIENCE DECREASING PRICES FOR OUR PRODUCTS AND SERVICES, WHICH MAY
IMPAIR OUR ABILITY TO ACHIEVE PROFITABILITY.
We may experience decreasing prices for our products and services due to
competition, the purchasing leverage of our customers and other factors. If we
are required to decrease prices, our results of operations will be adversely
affected. We expect some price pressures in our VOD business as competing
technology continues to improve. We may reduce prices in the future to respond
to competition and to generate increased sales volume.
IMPLEMENTATION OF OUR PRODUCTS IS COMPLEX, TIME CONSUMING AND EXPENSIVE. AS A
RESULT, WE FREQUENTLY EXPERIENCE LONG SALES AND IMPLEMENTATION CYCLES.
Real-time and VOD products are relatively complex, and their purchase
generally involves a significant commitment of capital, with the delays
frequently associated with large capital expenditures and implementation
procedures within an organization. Moreover, the purchase of such products
typically requires coordination and agreement among a potential customer's
corporate headquarters and its regional and local operations. As a result, the
sales cycles associated with the purchase of many of our products are typically
lengthy and subject to a number of significant risks, including customers'
budgetary constraints and internal acceptance reviews, over which we have little
or no control. Consequently, we believe that our quarterly revenues, expenses
and operating results may vary significantly in the future, that
period-to-period comparisons of our results of operations may not necessarily be
meaningful and that, in any event, these comparisons should not be relied upon
as indications of future performance.
RISKS RELATED TO OUR INDUSTRIES
THE SUCCESS OF OUR VOD BUSINESS IS DEPENDENT UPON THE EMERGING DIGITAL VIDEO
MARKET, WHICH MAY NOT GAIN BROAD MARKET ACCEPTANCE.
VOD is a new and emerging technology, and we cannot assure you that it will
attract widespread demand or market acceptance. Further, the potential size of
the VOD market and the timing of its development are uncertain. Our success in
the VOD market will depend upon the commercialization and broad acceptance of
VOD by residential digital subscribers and other industry participants,
including cable system operators, content providers, set-top box manufacturers,
international DSL providers and educational institutions.
Cable television operators historically have relied on traditional analog
technology for video management, storage and distribution. Interactive
technology installation requires a significant initial investment of capital.
The future growth of our VOD business will depend on the pace of the
installation of interactive digital cable and digital set-top boxes, the rate at
which television operators deploy digital infrastructure and the rate at which
digital video technology expands to additional market segments. Any failure by
the market to accept digital video technology will have a material adverse
effect on our business, financial condition and results of operations.
THE SUCCESS OF OUR VOD BUSINESS IS DEPENDENT ON THE AVAILABILITY OF, AND THE
DISTRIBUTION WINDOWS FOR, MOVIES, PROGRAMS AND OTHER CONTENT.
The success of VOD will largely be dependent on the availability of a wide
variety and substantial number of movies, programs and other material, which we
refer to as content, in digital format. We provide VOD
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<PAGE> 16
servers and related software, or VOD systems, but we do not provide digital VOD
content, which is provided by other third parties. Therefore, the future success
of our VOD business is dependent in part on content providers, such as
traditional media and entertainment companies, providing significant content for
VOD. Further, we are dependent in part on other third parties to convert
existing analog content into digital content so that it may be delivered via
VOD. If the availability of digital content develops slower than we expect or if
insufficient content is available in digital format, our VOD business could be
adversely affected.
In addition, we believe that the ultimate success of VOD will depend in
part on the timing of the VOD distribution window. The distribution window is
the time period during which different mediums, such as home movie rental
businesses, receive and have exclusive rights to motion picture releases.
Currently, video rental businesses have an advantage of receiving motion picture
releases on an exclusive basis before most other forms of non-theatrical movie
distribution, such as pay-per-view, premium television, VOD, basic cable and
network syndicated television. The length of the exclusive distribution window
for movie rental businesses varies, typically ranging from 30 to 90 days for
domestic video stores. Thereafter, movies are made sequentially available to
various television distribution channels. We believe the success of VOD will
depend in part on movies being available for VOD distribution either
simultaneously with, or shortly after, they are available for video rental
distribution. The order, length and exclusivity of each window for each
distribution channel is determined solely by the studio releasing the movie.
Given the size of the home video rental industry, the studios have a significant
interest in maintaining that market. We cannot assure you that favorable
changes, if any, will be made relating to the length and exclusivity of the
video rental and television distribution windows.
We believe that content providers' decisions relating to the distribution
window for VOD will depend, in part, on security measures affecting the digital
content. The delivery of VOD programming requires the use of encryption
technology to assure that only those who pay can receive the program. Theft of
cable programming has occurred in the past and may likewise occur with respect
to VOD programming. Content providers must be satisfied with the encryption and
other security measures available for VOD applications.
WE CANNOT ASSURE YOU THAT OUR PRODUCTS AND SERVICES WILL KEEP PACE WITH
TECHNOLOGICAL DEVELOPMENTS AND EMERGING INDUSTRY STANDARDS, ADDRESS THE CHANGING
NEEDS OF OUR CUSTOMERS OR ACHIEVE MARKET ACCEPTANCE.
The markets for our products are characterized by rapidly changing
technology, evolving industry standards and new product introductions and
enhancements. There can be no assurance that we will be successful in enhancing
our real-time or VOD products or developing, manufacturing and marketing new
products which satisfy customer needs or achieve market acceptance. In addition,
services, products or technologies developed by others may render one or more of
our products or technologies uncompetitive, unmarketable or obsolete. Future
technological advances in the real-time, television and video industries may
result in the availability of new products and services that could compete with
our solutions or reduce the cost of existing products or services. Our future
success will depend on our ability to continue to enhance our existing products,
including development of new applications for our technology, and to develop and
introduce new products to meet and adapt to changing customer requirements and
emerging technologies. Further, announcements of currently planned or other new
product offerings by our competitors may cause customers to defer purchase
decisions or to fail to purchase our existing solutions. Our failure to respond
to rapidly changing technologies could adversely affect our business, financial
condition and results of operations.
Recent attempts to establish industry-wide standards for interactive
television software include an initiative by cable network operators in the
United States to create a uniform platform for interactive television called
OpenCable. The OpenCable standard is not yet defined, and we do not know whether
our VOD system will be compatible with OpenCable or any other industry standard.
The establishment of this standard or other industry standards could hurt our
VOD business, particularly if our products require significant redevelopment in
order to conform to the newly established standards.
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<PAGE> 17
WE ARE SUBJECT TO GOVERNMENTAL REGULATION, AS IS THE TELEVISION INDUSTRY.
We are subject to various international, U.S. federal, state and local laws
affecting our VOD and real-time businesses. Any finding that we have been or are
in noncompliance with such laws could result in, among other things,
governmental penalties. Further, changes in existing laws or new laws may
adversely affect our business.
The television industry is subject to extensive regulation in the United
States and other countries. Our VOD business is dependent upon the continued
growth of the digital television industry in the United States and
internationally. Television operators are subject to extensive government
regulation by the Federal Communications Commission and other federal and state
regulatory agencies. These regulations could have the effect of limiting capital
expenditures by television operators and thus could have a material adverse
effect on our business, financial condition and results of operations. The
enactment by federal, state or international governments of new laws or
regulations could adversely affect our cable operator customers, and thereby
materially adversely affect our business, financial condition and results of
operations.
WE MAY BE SUBJECT TO LIABILITY IF PRIVATE INFORMATION SUPPLIED TO OUR CUSTOMERS,
INCLUDING MSOS, IS MISUSED.
Our VOD systems allow cable operators to collect and store video
preferences and other data that many viewers may consider confidential.
Unauthorized access or use of this information could result in liability to our
customers, and potentially us, and might deter potential VOD viewers. We will
have no control over the policy of our customers with respect to the access to
this data and the release of this data to third parties.
RISKS RELATED TO THIS OFFERING
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of Delaware law and our restated certificate of incorporation,
amended and restated bylaws, and rights plan could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders.
We are subject to certain Delaware anti-takeover laws regulating corporate
takeovers. These anti-takeover laws prevent a Delaware corporation from engaging
in a business combination involving a merger or sale of more than 10% of its
assets with any stockholder, including affiliates and associates of the
stockholder, who owns 15% or more of the outstanding voting stock, for three
years following the date that the stockholder acquired 15% or more of the
corporation's stock unless:
- the board of directors approves the transaction where the stockholder
acquired 15% or more of the corporation's stock;
- after the transaction where the stockholder acquired 15% or more of the
corporation's stock, the stockholder owned at least 85% of the
corporation's outstanding voting stock, excluding shares owned by
directors, officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held under the plan will be tendered in a tender or exchange
offer; or
- on or after this date, the merger or sale is approved by our board of
directors and the holders of at least two-thirds of the outstanding
voting stock that is not owned by the stockholder.
A Delaware corporation may opt out of these anti-takeover laws if its
certificate of incorporation or bylaws so provide. We have not opted out of
these laws. As such, these laws may prohibit or delay mergers or other takeovers
or changes of control of our company and may discourage attempts by other
companies to acquire us.
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There are provisions in our restated certificate of incorporation and our
amended and restated bylaws that also may delay, deter or impede hostile
takeovers or changes of control. These provisions include:
- all stockholder actions must be taken at a duly called meeting of
stockholders, unless holders of 100% of our shares of stock entitled to
vote execute a written consent;
- stockholders seeking to bring business before an annual meeting or
seeking to nominate candidates for election as directors, must provide
advance notice thereof; and
- the authority of our board to issue up to 25 million shares of preferred
stock and to determine the price, rights, preferences and privileges of
these shares, without stockholder approval.
In addition, we have a rights plan, also known as a poison pill. The rights
plan has the potential effect of significantly diluting the ownership interest
in our company of any person that (1) acquires beneficial ownership of 30% or
more of our common stock, (2) acquires beneficial ownership of 20% or more of
our common stock and subsequently engages in specified transactions with us or
(3) commences a tender offer that would result in a person or group owning 30%
or more of our common stock. Therefore, our rights plan could discourage an
attempt or render it more expensive or difficult to obtain control of us by
means of a tender offer, merger or otherwise.
FUTURE SALES OF SHARES OF COMMON STOCK COULD CAUSE THE MARKET PRICE OF OUR
COMMON STOCK TO DECLINE.
After this offering, we will have a total of 53,861,841 shares of common
stock outstanding. The resale by the selling stockholders or by other
significant holders of shares of our common stock in the public market could
cause the market price of our common stock to decline. The federal securities
laws impose restrictions on the ability of certain stockholders to resell their
shares of common stock.
In addition to the shares being registered in this prospectus, we have
granted to Scientific Atlanta registration rights with respect to 2,000,000
shares currently issuable to Scientific Atlanta upon the exercise of outstanding
warrants. Registration of these shares results in these stockholders being able
to immediately resell such shares in the public market. Any such sales or
anticipation thereof could cause the market price of the common stock to
decline.
IN THE FUTURE, WE MAY NEED TO RAISE ADDITIONAL CAPITAL. THIS CAPITAL MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL.
During the next twelve months, we expect to meet our cash requirements with
existing cash, cash equivalents and short-term investments, cash flow from
operations and available debt. After that, we may need to raise additional
funds. We cannot be certain that we will be able to obtain additional financing
on favorable terms, if at all. If we cannot raise funds on acceptable terms, if
and when needed, we may not be able to develop or enhance our products and
services, take advantage of future opportunities, grow our business or respond
to competitive pressures or unanticipated requirements.
OUR STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN THE FUTURE.
Future volatility in our stock price could result in substantial losses for
investors purchasing shares in this offering. Our common stock is traded on The
Nasdaq National Market. During the fiscal year ended June 30, 1999, the high and
low closing sale prices of our common stock were $7.50 and $1.75, respectively.
For the period beginning July 1, 1999 through May 31, 2000, the high and low
closing prices, as reported on The Nasdaq National Market, were $24.06 and
$5.72, respectively. The market price of our common stock may fluctuate
significantly in the future in response to various factors, some of which are
beyond our control, including the following and the other risks discussed under
the heading "Risk Factors:"
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
- the development of the VOD market in general;
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- changes in market valuations of similar companies;
- announcement by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major customer or failure to complete significant transactions;
- additions or departures of key personnel; and
- fluctuations in stock market price and volume.
In addition, in recent years the stock market in general, and The Nasdaq
National Market and the market for technology companies in particular, have
experienced extreme price and volume fluctuations. These fluctuations have often
been unrelated or disproportionate to the operating performance of these
companies. These market and industry factors may materially and adversely affect
our stock price, regardless of our operating performance.
In the past, class action litigation often has been brought against
companies following periods of volatility in the market price of those
companies' common stock. We may become involved in this type of litigation in
the future. Litigation is often expensive and diverts management's attention and
resources, which could materially and adversely affect our business, financial
condition and results of operations.
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USE OF PROCEEDS
All of the proceeds from the sale of the shares of common stock that may be
sold using this prospectus will be received by the selling stockholders. We will
not receive any of the proceeds from the sale of these shares of common stock.
PRICE RANGE OF COMMON STOCK
Our common stock currently is traded under the symbol "CCUR" on The Nasdaq
National Market. The following table sets forth the high and low closing prices
for our common stock for the periods indicated, as reported on The Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year ended June 30, 1998
First Quarter............................................. $ 2.66 $ 1.28
Second Quarter............................................ 3.46 1.88
Third Quarter............................................. 3.28 1.75
Fourth Quarter............................................ 4.44 3.00
Year ended June 30, 1999
First Quarter............................................. 3.97 2.00
Second Quarter............................................ 3.56 2.00
Third Quarter............................................. 4.59 3.38
Fourth Quarter............................................ 7.06 3.13
Year ending June 30, 2000
First Quarter............................................. 8.19 6.00
Second Quarter............................................ 18.69 6.50
Third Quarter............................................. 24.06 12.63
Fourth Quarter (through May 31, 2000)..................... 12.81 7.06
</TABLE>
On May 31, 2000, the last reported sale price of our common stock on The
Nasdaq National Market was $8.50 per share. As of May 31, 2000, there were
53,862,722 shares of common stock outstanding, and approximately 1,900
stockholders of record.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business, and we do not expect to pay any
cash dividends in the foreseeable future. In addition, our credit facility
contains restrictions on the payment of cash dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. The
table set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 6,093
========
Long-term liabilities....................................... $ 1,674
--------
Stockholders' equity
Class A preferred stock, par value $100 per share,
20,000 shares authorized, none outstanding............. --
Series preferred stock, par value $.01 per share,
20,000,000 shares authorized, none outstanding......... --
Common stock, par value $.01 per share, 100,000,000 shares
authorized, 53,755,177 outstanding..................... 537
Additional paid-in capital................................ 125,492
Accumulated deficit after eliminating accumulated deficit
of $81,826 at December 31, 1991, date of
quasi-reorganization................................... (94,243)
Treasury stock............................................ (58)
Accumulated other comprehensive income (loss)............. (805)
--------
Total stockholders' equity........................ $ 30,923
--------
Total capitalization......................... $ 32,597
========
The outstanding share information excludes:
</TABLE>
- 5,762,288 shares of common stock issuable upon the exercise of options
outstanding as of March 31, 2000 having a weighted average exercise price
of $4.17 per share;
- 2,000,000 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 2000, having an exercise price of $5.00 per
share; and
- 589,745 additional shares of common stock reserved for issuance under our
stock option plans as of March 31, 2000.
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PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Our unaudited pro forma consolidated statements of operations for the year
ended June 30, 1999 and the nine months ended March 31, 2000 is presented as if
the acquisition of Vivid Technology had occurred on July 1, 1998. The pro forma
information is based in part upon, and should be read in conjunction with, our
consolidated financial statements and the notes thereto and the financial
statements of Vivid Technology and the notes thereto in each case appearing
elsewhere in this prospectus. In our opinion, all adjustments necessary to
reflect the effect of the acquisition of Vivid Technology have been made. The
unaudited pro forma consolidated statements of operations are presented for
illustrative purposes only and are not necessarily indicative of what our actual
results of operations would have been had the acquisition of Vivid Technology
been consummated on the date indicated, nor do they purport to represent the
results of operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
-------------------------------------------------------------
HISTORICAL
------------------------------ CONCURRENT
CONCURRENT COMPUTER
COMPUTER VIVID PRO FORMA CORPORATION
CORPORATION TECHNOLOGY, INC. ADJUSTMENTS(1) PRO FORMA
----------- ---------------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales
Real-time systems........................ $30,389 $ -- $ 30,389
Video-on-demand systems.................. 1,208 640 1,848
------- ------- --------
Total product sales................. 31,597 640 32,237
Service and other........................... 38,366 -- 38,366
------- ------- --------
Total......................................... 69,963 640 70,603
Cost of sales:
Real-time and video-on-demand systems....... 15,001 309 15,310
Service and other........................... 19,625 -- 19,625
------- ------- --------
Total......................................... 34,626 309 34,935
------- ------- --------
Gross margin.................................. 35,337 331 35,668
Operating expenses:
Sales and marketing......................... 19,274 263 19,537
Research and development.................... 10,046 893 $190 11,129
General and administrative.................. 6,883 396 449 7,728
Loss on facility held for sale.............. 423 -- 423
------- ------- --------
Total operating expenses...................... 36,626 1,552 38,817
------- ------- --------
Operating income (loss)....................... (1,289) (1,221) (3,149)
Interest and other income (expense), net...... (13) 13 --
------- ------- --------
Income (loss) before income taxes............. (1,302) (1,208) (3,149)
Income taxes.................................. 363 -- 363
------- ------- --------
Net income (loss)............................. $(1,665) $(1,208) $ (3,512)
======= ======= ========
Income (loss) per share (2):
Basic and diluted........................... $ (0.03) $ (0.07)
======= ========
Weighted average number of common shares used
in calculating income (loss) per share of
common stock (2):
Basic and diluted........................ 47,967 50,201
======= ========
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------
HISTORICAL
------------------------------ CONCURRENT
CONCURRENT COMPUTER
COMPUTER VIVID PRO FORMA CORPORATION
CORPORATION TECHNOLOGY, INC. ADJUSTMENTS PRO FORMA
----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales
Real-time systems........................ $ 20,220 $ -- $20,220
Video-on-demand systems.................. 6,912 354 7,266
-------- ----- -------
Total product sales................. 27,132 354 27,486
Service and other........................... 22,494 -- 22,494
-------- ----- -------
Total......................................... 49,626 354 49,980
Cost of sales:
Real-time and video-on-demand systems....... 14,068 156 14,224
Service and other........................... 12,375 -- 12,375
-------- ----- -------
Total......................................... 26,443 156 26,599
-------- ----- -------
Gross margin.................................. 23,183 198 23,381
Operating expenses:
Sales and marketing......................... 14,978 71 15,049
Research and development.................... 7,316 441 63(1) 7,820
General and administrative.................. 6,232 166 150(1) 6,548
Purchased in-process computer software
technology............................... 14,000 -- (14,000)(3) --
Relocation and restructuring................ 2,367 -- 2,367
-------- ----- -------
Total operating expenses...................... 44,893 678 31,784
-------- ----- -------
Operating income (loss)....................... (21,710) (480) (8,403)
Interest and other income (expense), net...... 773 -- 773
-------- ----- -------
Income (loss) before income taxes............. (20,937) (480) (7,630)
Income taxes.................................. 450 -- 300
-------- ----- -------
Net income (loss)............................. $(21,387) $(480) $(8,080)
======== ===== =======
Income (loss) per share (2):
Basic and diluted........................... $ (0.42) $ (0.15)
======== =======
Weighted average number of common shares used
in calculating income (loss) per share of
common stock (2):
Basic and diluted........................... 51,335 52,309
======== =======
</TABLE>
------------
(1) Represents the amortization of the portion of the Vivid Technology purchase
price of $19.8 million assigned to intangible assets, including goodwill,
developed computer software technology and employee work force.
(2) Pro forma diluted income (loss) per share excludes the effect of outstanding
stock options because the effect is antidilutive.
(3) Represents the elimination of the $14.0 million non-cash charge related to
the write-off of research and development acquired in the Vivid Technology
acquisition.
22
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical consolidated financial
data. The data for the years ended June 30, 1995, 1996, 1997, 1998 and 1999 have
been derived from our audited consolidated financial statements. Our audited
financial statements for the three years ended June 30, 1999 and as of June 30,
1998 and 1999 are included elsewhere in this prospectus. The data for the
nine-months ended March 31, 1999 and 2000 and as of March 31, 2000 is unaudited,
but in the opinion of management contains all adjustments, consisting only of
normal recurring accruals, which are necessary for a fair statement of the
results of such periods. Results for the nine months ended March 31, 2000 are
not necessarily indicative of results that may be expected for the entire year.
The information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with, and is qualified by
reference to, our financial statements and related notes thereto that are
included elsewhere in this prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Product sales
Real-time systems............... $ 72,074 $ 42,430 $ 55,664 $37,868 $30,389 $23,779 $ 20,220
Video-on-demand systems......... -- -- -- -- 1,208 583 6,912
-------- -------- -------- ------- ------- ------- --------
Total product sales......... 72,074 42,430 55,664 37,868 31,597 24,362 27,132
Service and other................. 68,070 53,370 52,703 44,347 38,366 29,369 22,494
-------- -------- -------- ------- ------- ------- --------
Total....................... 140,144 95,800 108,367 82,215 69,963 53,731 49,626
Cost of sales
Real-time and video-on-demand
systems......................... 38,639 27,487 27,662 18,556 15,001 10,661 14,068
Service and other................. 40,838 33,048 28,426 23,269 19,625 15,230 12,375
Transition........................ -- -- 1,068(1) -- -- -- --
-------- -------- -------- ------- ------- ------- --------
Total....................... 79,477 60,535 57,156 41,825 34,626 25,891 26,443
-------- -------- -------- ------- ------- ------- --------
Gross margin........................ 60,667 35,265 51,211 40,390 35,337 27,840 23,183
Operating expenses:
Sales and marketing............... 27,411 21,089 22,061 18,523 19,274 13,846 14,978
Research and development.......... 19,464 13,837 13,577 10,947 10,046 7,620 7,316
General and administrative........ 9,510 8,729 6,543 6,611 6,883 5,061 6,232
In-process computer software
technology...................... -- -- -- -- -- -- 14,000(2)
Restructuring and transition...... 3,200 24,480(3) 2,292 (607) -- -- 2,367
Sales and use tax credit.......... (1,000) -- -- -- -- -- --
Curtailment gain on
post-retirement benefit
obligation...................... -- -- (2,501) -- -- -- --
Non-cash development expenses..... -- -- -- 1,605(4) -- -- --
Loss on facility held for sale.... -- -- -- -- 423 -- --
-------- -------- -------- ------- ------- ------- --------
Total operating expenses.... 58,585 68,135 41,972 37,079 36,626 26,527 44,893
-------- -------- -------- ------- ------- ------- --------
Operating income (loss)............. 2,082 (32,870) 9,239 3,311 (1,289) 1,313 (21,710)
Interest expense.................... (2,638) (2,316) (2,034) (833) (261) (194) (77)
Interest income..................... 513 226 164 185 295 127 213
Other non-recurring items........... (1,000) (3,297)(5) (1,577) 1,434 (88) (88) 761
Other income (expense) -- net....... 737 (1,502) (350) 277 41 (237) (124)
-------- -------- -------- ------- ------- ------- --------
Income (loss) before provision for
income taxes...................... (306) (39,759) 5,442 4,374 (1,302) 921 (20,937)
Provision for income taxes.......... 1,700 1,550 1,381 960 363 138 450
-------- -------- -------- ------- ------- ------- --------
Net income (loss)................... (2,006) (41,309) 4,061 3,414 (1,665) 783 (21,387)
Preferred stock dividends and
accretion of mandatory redeemable
preferred shares.................. -- -- (311) (18) -- -- --
-------- -------- -------- ------- ------- ------- --------
Net income (loss) income available
to common shareholders............ $ (2,006) $(41,309) $ 3,750 $ 3,396 $(1,665) $ 783 $(21,387)
======== ======== ======== ======= ======= ======= ========
Basic and diluted net income (loss)
per share......................... $ (0.07) $ (1.35) $ 0.08 $ 0.07 $ (0.03) $ 0.02 $ (0.42)
======== ======== ======== ======= ======= ======= ========
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 5,728 $ 3,562 $ 4,024 $ 5,733 $ 6,872 $ 6,093
Other current assets.............. 44,269 51,951 39,123 26,746 20,573 22,875
------- ------- ------- ------- ------- -------
Total current assets.... 49,997 55,513 43,147 32,479 27,445 28,968
Total long-term assets............ 48,362 24,560 20,381 13,756 13,124 18,140
------- ------- ------- ------- ------- -------
Total assets............ $98,359 $80,073 $63,528 $46,235 $40,569 $47,108
======= ======= ======= ======= ======= =======
Total current liabilities......... $48,132 $56,479 $38,453 $18,827 $12,751 $14,511
Long-term liabilities............. 15,057 11,057 5,712 1,898 1,807 1,674
------- ------- ------- ------- ------- -------
Total liabilities....... $63,189 $67,536 $44,165 $20,725 $14,558 $16,185
======= ======= ======= ======= ======= =======
Stockholders' equity.............. $35,170 $ 6,927 $18,120 $25,510 $26,011 $30,923
======= ======= ======= ======= ======= =======
OTHER DATA:
Working capital................... $ 1,865 $ (966) $ 4,694 $13,652 $14,694 $14,457
</TABLE>
---------------
(1) Represents the charge for expenses incurred resulting from the transition of
our manufacturing operations from Oceanport, New Jersey to Fort Lauderdale,
Florida.
(2) In October 1999, we acquired Vivid Technology. In connection with the
acquisition, we engaged an independent appraisal firm to value the assets. A
value of $14.0 million was assigned to in-process computer software
technology which was written off as required by the purchase accounting
rules.
(3) During fiscal 1996, we restructured our operations which included a
workforce reduction, rationalization of facilities, asset write-downs and
other costs which resulted in a $24.5 million charge.
(4) Represents the value, as determined using the Black-Scholes model, of a
warrant for 2,000,000 shares of our common stock issued to
Scientific-Atlanta in exchange for their technical and marketing
contributions.
(5) Consists of a $1.7 million charge for the adjustment of the carrying value
of our Oceanport and Tinton Falls, New Jersey facilities to estimated fair
value and an additional $1.6 million charge for certain foreign assets that
were disposed of in 1996.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements which appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
OVERVIEW
In 1996, we acquired the real-time computer division of Harris Computer
Systems Corporation creating one of the largest real-time computer systems
companies in the country. Over the past several years, the real-time computer
processing industry has seen a significant shift in demand from high-priced,
proprietary real-time systems to lower-priced, open server systems. High
performance processing in the past required a large, expensive computer system
with significant proprietary and customized software. Today these requirements
are often met by much smaller and less expensive computers with off-the-shelf
computer hardware and software. As a result, our revenues from both real-time
products and services have been declining. Real-time revenues consist of
real-time computer system sales to domestic and foreign government agencies and
commercial corporations and fees for maintenance and other services provided to
our real-time customers. The gross margins on sales of our real-time computer
systems have historically been in excess of 50% and are expected to remain
stable in the near future. The gross margins on our real-time service offerings
are expected to decline over time as the larger and more profitable maintenance
contracts are not renewed.
As our real-time business has been declining, we have shifted our focus to
developing our VOD business and now operate our business as two distinct
divisions, our Xstreme division and our Real-Time division. We created the
Xstreme division to capitalize on the increasing opportunities in the emerging
digital television services market and focus on the development and sale of
digital VOD systems to cable providers that are upgrading their networks to
support digital services. We believe that our future growth will come from our
Xstreme division. Our VOD revenues result from the sale of VOD systems and
related services primarily to cable television providers in North America. We
also plan to expand our VOD operations in Europe and Asia to capture a share of
those cable and DSL markets. To date, revenues in our Xstreme division have been
concentrated in a very limited number of MSOs and internationally in the
non-residential market. We expect the revenues from our Xstreme division to
increase as digital set-top boxes are increasingly deployed by cable operators
in the United States and by cable and DSL providers in other countries. Our VOD
margin has been lower than we ultimately expect because of the early stage
nature of our VOD business. We expect our VOD gross margins to increase as our
volume of VOD systems sold increases. We have incurred, and expect to continue
to incur, losses in our VOD business due to the ramp up of our sales and
marketing efforts and our initial investments in the VOD business.
In October 1999, we acquired one of our competitors, Vivid Technology, for
2,233,699 shares of common stock and options to purchase 378,983 shares of our
common stock. The acquisition resulted in a $14.0 million non-cash one-time
charge for the write-off of in-process research and development related to
acquired computer software technology. The acquisition was treated as a purchase
for accounting purposes, and accordingly, the assets and liabilities acquired
were recorded based on their fair values at the date of acquisition.
During the nine months ended March 31, 2000, we elected to reclassify
certain items in our consolidated statements of operations. All amounts from
prior periods have been restated to reflect these new classifications.
Computer systems sales are recorded when the earnings process is complete,
typically upon shipment to customers. Service contract revenue is recognized
separately and as earned, on a straight-line basis, over the respective
maintenance period in accordance with the terms of the applicable contract.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on
25
<PAGE> 27
the relative fair values of the elements. The fair value of an element must be
based on vendor specific objective evidence ("VSOE") of the relative fair values
of the elements. VSOE is determined by the price charged when the element is
sold separately. The revenue allocated to hardware and software products is
generally recognized upon installation and substantial fulfillment of all
obligations under the sales contract.
Cost of sales consists of the cost of the computer systems sold, including
labor, material, overhead and third party product costs. Cost of sales also
includes the salaries, benefits and other costs of the maintenance, service and
help desk personnel associated with product installation and support activities.
Sales and marketing expenses consist primarily of the salaries, benefits
and travel expenses of our employees responsible for acquiring new business and
maintaining existing customer relationships, as well as marketing expenses
related to trade publications, advertisements and trade shows. We expect these
expenses to increase as we continue to expand our VOD business and attract new
customers. We expect that the increase in Xstreme division expenses will be
partially offset by declining expenses in our Real-Time division.
Research and development expenses are comprised of salaries and benefits of
our employees involved in hardware and software product and enhancement
development. All development costs are expensed as incurred. We expect to
increase our development staff to investigate and develop follow-on VOD
offerings, including next generation products, as well as new software
applications.
General and administrative expenses consist primarily of salaries and
benefits of management and administrative personnel, general office
administration expenses such as rent and occupancy costs, telephone expenses and
fees for legal, accounting and other professional services. We anticipate that
administrative costs will increase as we expand our VOD business.
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
The following table sets forth selected operating data as a percentage of
net sales for certain items in our consolidated statements of operations for the
periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, MARCH 31,
----------------------- --------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales
Real-time systems............................. 51.4% 46.1% 43.5% 44.3% 40.7%
Video-on-demand systems....................... -- -- 1.7 1.1 13.9
----- ----- ----- ----- -----
Total product sales...................... 51.4 46.1 45.2 45.3 54.7
Service and other................................ 48.6 53.9 54.8 54.7 45.3
----- ----- ----- ----- -----
Total net sales.......................... 100.0 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems............ 49.7 49.0 47.5 43.8 51.9
Service and other................................ 53.9 52.5 51.2 51.9 55.0
Transition....................................... 1.0 -- -- -- --
----- ----- ----- ----- -----
Total cost of sales...................... 52.7 50.9 49.5 48.2 53.3
----- ----- ----- ----- -----
Gross margin....................................... 47.3 49.1 50.5 51.8 46.7
Operating expenses:
Sales and marketing.............................. 20.4 22.5 27.5 25.8 30.2
Research and development......................... 12.5 13.3 14.4 14.2 14.7
General and administrative....................... 6.0 8.0 9.8 9.4 12.6
In-process computer software technology.......... -- -- -- -- 28.2
Restructuring and transition..................... 2.1 (0.7) -- -- 4.8
Curtailment gain on postretirement benefit
obligation.................................... (2.3) -- -- -- --
Non-cash development expenses.................... -- 2.0 -- -- --
Loss on facility held for sale................... -- -- .6 -- --
----- ----- ----- ----- -----
Total operating expenses................. 38.7 45.1 52.4 49.4 190.5
----- ----- ----- ----- -----
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, MARCH 31,
----------------------- --------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating income (loss)............................ 8.5 4.0 (1.8) 2.4 (43.7)
Interest expense................................... (1.9) (1.1) (0.4) (0.1) --
Interest income.................................... 0.2 0.2 0.4 -- 0.3
Other non-recurring items.......................... (1.5) 1.7 (0.1) (0.2) 1.5
Other income (expense) -- net...................... (0.3) 0.3 0.1 (0.4) (0.2)
----- ----- ----- ----- -----
Income (loss) before provision for income taxes.... 5.0 5.3 (1.9) 1.7 (42.2)
Provision for income taxes......................... 1.3 1.2 0.5 0.3 0.9
----- ----- ----- ----- -----
Net income (loss).................................. 3.7% 4.2% (2.4)% 1.5% (43.1)%
===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
THE NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 1999
Product Sales. Total product sales were $27.1 million for the nine months
ended March 31, 2000 as compared with $24.4 million for the nine months ended
March 31, 1999. Sales of VOD products increased to $6.9 million in the
nine-month period ended March 31, 2000 from $0.6 million in the nine months
ended March 31, 1999. The increase in VOD product sales, which is primarily due
to higher sales of video systems to domestic multiple system operators, was
partially offset by a decrease in sales of real-time products of $3.6 million
resulting from declining sales of proprietary systems and the lower selling
price of open systems as compared with proprietary products.
Service and Other Sales. Service revenues decreased to $22.5 million in
the nine months ended March 31, 2000 from $29.4 million in the nine months ended
March 31, 1999, continuing the decline experienced over the past years as our
real-time customers move from proprietary systems to open systems which require
less maintenance and the removal of certain larger proprietary systems from
service by certain customers.
Gross Margin. Gross margin decreased by $4.6 million to $23.2 million for
the nine months ended March 31, 2000 as compared to $27.8 million for the nine
months ended March 31, 1999. The gross margin as a percentage of sales decreased
to 46.7% in the nine-month period ended March 31, 2000 from 51.8% in the nine
months ended March 31, 1999 which is primarily due to the lower margin realized
in the early stages of the VOD business and a decrease in the gross margin on
real-time service revenue to 45.0% in the nine months ended March 31, 2000
compared to 48.1% in the nine months ended March 31, 1999. The decrease in the
gross margin on service revenue is the result of the cancellation by certain
customers of some of our larger and more profitable maintenance contracts as
they move from proprietary systems to less complicated open systems.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of total sales to 30.2% in the nine-month period ended March 31, 2000
from 25.8% in the nine-month period ended March 31, 1999. These expenses
increased 8.2% to $15.0 million in the nine months ended March 31, 2000 from
$13.8 million in the nine months ended March 31, 1999. The increase is
principally the result of an increase in the number of worldwide sales and
marketing personnel in our Xstreme division, increased participation in trade
show and other marketing activities, and a non-cash compensation expense of $0.4
million recorded in the second quarter of fiscal year 2000.
Research and Development. Research and development expenses increased as a
percentage of sales to 14.7% in the nine-month period ended March 31, 2000 from
14.2% in the nine-month month period ended March 31, 1999. These expenses
decreased 4.0% to $7.3 million in the nine months ended March 31, 2000 from $7.6
million in the nine months ended March 31, 1999 primarily due to deliberate cost
reduction efforts in our Real-Time division and a reduction in expenses relating
to Concurrent Vibrations, one of our French subsidiaries, which was sold in the
first quarter of fiscal year 2000. These decreases were partially offset by the
build-up in the research and development personnel in our Xstreme division
focusing on the video server
27
<PAGE> 29
hardware and software development and the additional development personnel as
part of the acquisition of Vivid Technology in October of 1999.
General and Administrative. General and administrative expenses increased
to 12.6% of sales in the nine-month period ended March 31, 2000 from 9.4% in the
nine-month period ended March 31, 1999. These expenses increased 23.1% to $6.2
million in the nine months ended March 31, 2000 from $5.1 million in the nine
months ended March 31, 1999 primarily due to a $0.7 million severance charge,
the increase in Xstreme division management and other corporate executive
administrative personnel, and the move of the corporate headquarters and Xstreme
division to Atlanta, Georgia.
Other. Included in operating expenses in the nine-month period ended March
31, 2000 is a $14.0 million non-cash charge for the write-off of in-process
computer software technology in connection with the acquisition of Vivid
Technology and a $2.4 million restructuring and relocation provision for
personnel reduction costs in the Real-Time division and the relocation of the
corporate headquarters and Xstreme division offices to Atlanta, Georgia.
Included in other non-recurring items in the nine-month period ended March
31, 2000 is a $0.8 million gain related to the sale of the stock of Concurrent
Vibrations, one of our French subsidiaries, to Data Physics, Inc.
Income Taxes. We recorded income tax expense of $0.5 million in the
nine-month period ended March 31, 2000 on a pre-tax loss of $20.9 million due to
the inability to recognize the tax benefit of the current period net operating
loss and the non-deductible write-off of acquired in-process research and
development and amortization of other assets acquired in the acquisition of
Vivid Technology.
Net Income (loss). We recorded a net loss of $21.4 million or $0.42 per
share for the nine months ended March 31, 2000 compared to net income of $0.8
million or $0.02 per share for the nine months ended March 31, 1999.
THE FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO THE FISCAL YEAR ENDED JUNE
30, 1998
Product Sales. Product sales for fiscal year 1999 were $31.6 million, a
decrease of $6.3 million or 16.6% from fiscal year 1998. The decline was a
result of continued decline in sales of proprietary systems and the transition
to a more software-oriented business for open systems. Partially offsetting the
decline was the sale of VOD systems. These sales were the result of increased
sales and marketing efforts and significant improvements in the VOD technology
during the year.
Service and Other Sales. Maintenance and service sales decreased to $38.4
million in fiscal year 1999 or 13.5% from $44.3 million in fiscal year 1998. The
decline resulted from customers switching from proprietary systems to our open
systems which are less expensive to maintain, and the cancellation of other
proprietary computer maintenance contracts as the machines are removed from
service.
Gross Margin. Overall gross margin percentage increased to 50.5% in fiscal
year 1999 from 49.1% in fiscal year 1998 due to the increase in the margin on
product sales to 52.5% from 51.0% resulting from sales of new real-time products
with higher margins. The overall margin in both years was affected slightly by
the lower margin on early sales of VOD systems. The gross margin on service and
other revenue as a percentage of revenue increased to 48.8% from 47.5% in the
prior year due to due to increased efficiency and cost management.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of total sales to 27.5% in fiscal year 1999 from 22.5% in fiscal year
1998. These expenses increased 4.1% to $19.3 million in fiscal year 1999 from
$18.5 million in fiscal year 1998. The increase was principally due to growth in
the number of worldwide sales and marketing personnel responsible for developing
business for our Xstreme division and increased participation in trade shows and
other marketing activities by our division personnel. This increase was
partially offset by a decrease in the number of worldwide sales personnel in our
Real-Time division in accordance with the decrease in real-time revenues.
28
<PAGE> 30
Research and Development. Research and development expenses increased as a
percentage of sales to 14.4% in fiscal year 1999 from 13.3% in fiscal year 1998.
These expenses decreased 8.2% to $10.0 million in fiscal year 1999 from $10.9
million in fiscal year 1998 primarily due to cost reduction efforts in the
Real-Time division. This decrease was partially offset by the increased hardware
and software development by the Xstreme division.
General and Administrative. General and administrative expenses increased
to 9.8% of sales in fiscal year 1999 from 8.0% in fiscal year 1998. These
expenses increased 4.1% to $6.9 million in fiscal year 1999 from $6.6 million in
fiscal year 1998. This increase is primarily attributable to increased legal
expenses relating to subsequently resolved lawsuits combined with the growth of
the Xstreme division management and administrative personnel. The increase was
partially offset by worldwide cost reduction efforts in the Real-Time division.
Interest. Interest expense decreased by $0.6 million in fiscal year 1999
as we paid off our debt during fiscal year 1999.
Other. Included in operating expenses in fiscal year 1999 is a $0.4
million write-down of our French facility to fair market value based upon a
valuation by us due to our decision to sell Concurrent Vibrations, a
wholly-owned subsidiary of one of our French subsidiaries.
Included in other non-recurring items in fiscal year 1999 is a $0.4 million
write-off of foreign currency translation due to the dissolution of one of our
French subsidiaries which was offset by $0.3 million of foreign currency
transaction gains.
Income Taxes. We recorded income tax expense of $0.4 million in fiscal
year 1999 on an operating loss of $1.3 million due to the inability to recognize
the tax benefit of the current year net operating loss or the prior year net
operating loss carryover and taxable profits in the current year in certain
foreign subsidiaries where tax net operating loss carryovers are not available.
Net Income (loss). We recorded a net loss of $1.7 million or $0.03 per
share in fiscal year 1999 compared to net income of $3.4 million or $0.07 per
share in fiscal year 1998.
THE FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO THE FISCAL YEAR ENDED JUNE
30, 1997
Product Sales. Product sales for fiscal year 1998 were $37.9 million, a
decrease of $17.8 million or 32.0% from $55.7 million in fiscal year 1997. The
decline in computer systems sales was a result of continued decline in
proprietary systems and the transition to a more software-oriented business for
open systems.
Service and Other Sales. Maintenance and service revenues decreased to
$44.3 million in fiscal year 1998 or 15.9% from $52.7 million in fiscal year
1997. The decline resulted from customers switching from proprietary systems to
our open systems which are less expensive to maintain, and the cancellation of
other proprietary computer maintenance contracts as the machines are removed
from service.
Gross Margin. Overall gross margin percentage increased to 49.1% in fiscal
year 1998 from 47.3% in fiscal year 1997 due to the increase in the margin on
product sales to 51.0% from 50.3% resulting from sales of new real-time products
with higher margins. The gross margin for fiscal year 1997 also included a $1.1
million charge for expenses resulting from the transition of our manufacturing
operations from Oceanport, New Jersey to Fort Lauderdale, Florida. The gross
margin on service and other revenue as a percentage of revenue increased to
47.5% in fiscal year 1998 from 46.1% in fiscal year 1997 due to increased
efficiency and cost management.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of total sales to 22.5% in fiscal year 1998 from 20.4% in fiscal year
1997. These expenses decreased 16.0% to $18.5 million in fiscal year 1998 from
$22.1 million in fiscal year 1997. The decrease is principally attributable to
Real-Time division personnel reductions and closing of field offices around the
world.
Research and Development. Research and development expenses increased as a
percentage of sales to 13.3% in fiscal year 1998 from 12.5% in fiscal year 1997.
These expenses decreased 19.4% to $10.9 million in
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fiscal year 1998 from $13.6 million in fiscal year 1997 primarily due to
deliberate cost reduction efforts in the Real-Time division and expenses
incurred in fiscal year 1997 that were required to align the product lines of
Harris and Concurrent following the merger that were not required in fiscal year
1998.
General and Administrative. General and administrative expenses increased
to 8.0% of sales in fiscal year 1998 from 6.0% in fiscal year 1997. These
expenses increased 1.0% to $6.6 million in fiscal year 1998 from $6.5 million in
fiscal year 1997. Although significant cost reduction efforts were made during
fiscal year 1998 in accordance with the anticipated decrease in real-time
revenues, these efforts were largely offset by an increase in legal expenses
incurred in connection with certain lawsuits we were party to that were
subsequently resolved.
Interest. Interest expense decreased by $1.2 million in fiscal year 1998
as we paid down our debt during fiscal year 1998 to $1.5 million at June 30,
1998 from $14.7 million at June 30, 1997.
Other. Included in operating expenses in fiscal year 1998 is a $1.6
million non-cash charge for the issuance to Scientific-Atlanta of warrants to
purchase up to 2,000,000 shares of our common stock at a price of $5.00 per
share. Included in other non-recurring items in fiscal year 1998 are two items:
(1) we sold the remaining shares of common stock received in our acquisition of
the real-time division of Harris Computer Systems Corporation resulting in a
gain of $0.4 million and (2) we received $1.2 million from Nippon Steel
Corporation in connection with the termination of the joint venture in
Concurrent Nippon Corporation, our Japanese subsidiary, to reimburse us for
losses realized by Concurrent Nippon Corporation which exceeded Nippon Steel
Corporation's minority investment.
Income Taxes. The effective income tax rate in fiscal year 1998 is less
than the statutory rate of 34% because of the utilization of previously
unrecognized net operating loss carryovers as an offset to the taxable income in
the United States.
Net Income. We recorded a net income of $3.4 million or $0.07 per share in
fiscal year 1998 compared to $3.8 million or $0.08 per share in fiscal year
1997.
ACQUISITION OF VIVID TECHNOLOGY, INC.
On October 28, 1999, we acquired Vivid Technology, a former competitor in
the VOD industry. Vivid Technology's interactive stand-alone VOD system was
specifically being designed to integrate with the most popular digital set-top
boxes manufactured by General Instrument. The Vivid Technology VOD system was
also expected to be compatible with the digital set-top boxes manufactured by
other leading cable operators such as Philips, Panasonic and Sony. The Vivid
Technology VOD system was based on a cluster of Microsoft Windows NT computers
with proprietary hardware and software added to provide high video streaming
capacity and fault tolerance. The Vivid Technology VOD system was also being
designed to eventually provide VOD service including pause, rewind, and fast
forward VCR-like functions. The Vivid Technology VOD system would also provide
necessary back office support software for video content management, video
selection graphical user interface, subscriber management, purchase management,
billing interfaces, content provider account settlement and consumer marketing
feedback. In addition, the Vivid Technology VOD system was being designed to
support other interactive applications such as on-line banking, home shopping,
merchandising and on-demand/addressable advertising.
The in-process computer software technology acquired was estimated to be
80% complete at the date of acquisition and was estimated to cost an additional
$650,000 to complete the VOD system technology project in December of 2000. A
variety of tasks were yet to be completed which would be required in order for
the Vivid Technology VOD system to be deployed on a commercial basis:
- The Content Manager, which is used to load movies from studios, does not
have the functionality necessary to create a royalty payment affidavit
which is required for the cable operators to pay the required royalties
to the movie studios. Also, the Content Manager, which has been
implemented using a SQL data base, will need to be ported to other
relational data bases such as Oracle to support high end data base
applications.
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- The Resource Manager has been alpha tested; however, an advanced beta
test has not been completed which would validate its ability to scale up
to the required number of subscribers or connections in an actual
commercial deployment.
- The Subscriber Manager, which has been implemented using a SQL data base,
will need to be ported to other relational data bases such as Oracle to
support high end data base applications.
- The Set Top VOD Application will need to be tested under advanced beta
test conditions to ensure that the back channel key stroke system
performance can fulfill operational requirements.
- The Hub Server, or video pump, will need to be tested under full load in
an operational environment to ensure stability over an extended period of
time. The random conditions resulting from the in home use of tens of
thousands of subscribers can only be simulated in an advanced beta test
which has yet to be performed.
The method used to allocate the purchase consideration to in-process
research and development ("IPR&D") was the modified income approach. Under the
income approach, fair value reflects the present value of the projected free
cash flows that will be generated by the IPR&D project and that is attributable
to the acquired technology, if successfully completed. The modified income
approach takes the income approach, modified to include the following factors:
- Analysis of the stage of completion of each project
- Exclusion of value related to research and development yet-to-be
completed as part of the on-going IPR&D projects; and
- The contribution of existing products/technologies.
The projected revenues used in the income approach were based upon the
incremental revenues likely to be generated upon completion of the project and
the beginning of commercial sales of the Vivid VOD system, as estimated by
management to begin in the quarter ending December 31, 2000. The projections
assumed that the Vivid VOD system would be successful and the products'
development and commercialization were as set forth by management. The discount
rate used in this analysis was an after-tax rate of 28%.
Subsequent to the acquisition date, we decided to merge the Vivid
Technology VOD system and our VOD system into one standard VOD platform. We
expect to begin shipping the new hardware platform during the quarter ending
September 30, 2000. Initially, the new hardware platform will have two software
alternatives, one which will be compatible with digital set-top boxes
manufactured by General Instrument, using core software technology developed by
and purchased from Vivid Technology, and the other will be compatible with
digital set-top boxes manufactured by Scientific-Atlanta. All of the above tasks
are still required to be completed prior to commercial sale of the new server.
At March 31, 2000, the Vivid Technology related technology was estimated to be
88% complete and estimated to cost an additional $355,000 to complete the
project in December of 2000. Beginning in the first half of calendar 2001, we
expect to also merge the software solutions into one standard solution which
will be compatible with either General Instrument or Scientific-Atlanta set-top
boxes.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity is dependent on many factors, including sales volume,
operating profit, debt service and the efficiency of asset use and turnover. Our
future liquidity depends on and will be affected by, among other things:
- the actual versus anticipated decline in sales of real-time proprietary
systems and service maintenance revenue;
- revenue growth from VOD systems;
- ongoing cost control actions and our expenses, including, for example,
research and development and capital expenditures;
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- the margins on our VOD and real time businesses;
- timing of product shipments which occur primarily during the last month
of the quarter;
- the percentage of sales derived from outside the United States where
there are generally longer accounts receivable collection cycles and
which receivables are not included in the borrowing base under our
revolving credit facility;
- the sales level in the United States where related accounts receivable
are included in the borrowing base of our revolving credit facility; and
- the number of countries in which we operate, which may require
maintenance of minimum cash levels in each country and, in certain cases,
may restrict the repatriation of cash, such as cash held on deposit to
secure office leases.
We used cash of $4.9 million in operating activities in the first nine
months of fiscal year 2000 compared to generating cash of $3.4 million in the
first nine months of fiscal year 1999 primarily due to the loss generated by our
VOD business. We have an agreement providing for an $8.0 million revolving
credit facility through August 1, 2000. We currently are evaluating our options
with regard to extending this credit facility. At March 31, 2000, no amounts
were outstanding under the revolving credit facility. Borrowings under the
revolving credit facility bear interest at the prime rate plus .75% and are
secured by substantially all of our domestic assets.
We invested $3.3 and $3.0 million in property, plant and equipment during
the nine-month periods ended March 31, 2000 and March 31, 1999, respectively.
Current year capital expenditures primarily relate to computer equipment,
development and loaner equipment for our VOD division and leasehold improvements
for our Duluth, Georgia facility and our Real-Time division's new administrative
offices.
We received $6.6 million in proceeds from the issuance of common stock to
employees and directors who exercised stock options during the nine-month period
ended March 31, 2000 compared to $1.0 million during the nine-month period ended
March 31, 1999.
At March 31, 2000, our working capital was $14.5 million, and we did not
have any material commitments for capital expenditures. We believe that our
existing cash balances, available credit facility and funds generated by
operations will be sufficient to meet our anticipated working capital and
capital expenditure requirements for the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
We are exposed to market risk from changes in interest rates and foreign
currency exchange rates. We are exposed to the impact of interest rate changes
on our short-term cash investments, 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. We believe that the
impact of a 10% increase or decline in interest rates would not be material to
our investment income. We conduct business in the United States and around the
world. Our 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. We currently do not hedge against fluctuations in
exchange rates. We believe that a hypothetical 10% upward or downward
fluctuation in foreign currency exchange rates relative to the United States
dollar would not have a material impact on our future earnings, fair values or
cash flows.
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BUSINESS
OVERVIEW
We are a leading provider of computer systems for both the emerging
video-on-demand, or VOD, market through our Xstreme division and real-time
applications through our Real-Time division. We provide VOD servers and related
software, our VOD systems, primarily to residential cable television operators
that have upgraded their networks to support interactive, digital services. We
provide high-performance, real-time computer systems used for simulations, data
acquisition and industrial process applications. We market our real-time
computer systems to government agencies, government suppliers and commercial
markets where the immediate capture and delivery of information is critical.
Although almost all of our historical revenues were derived from our Real-Time
division, we expect that substantially all of our future revenue growth will
come from our Xstreme division, which began commercial sales in 1999.
Our VOD systems consist of digital video servers and related software that
enable digitally-upgraded cable operators to deliver VOD to their subscribers
with digital set-top boxes. We have been selected to supply our VOD system for
five of the domestic commercial launches and trials of VOD systems publicly
announced by MSOs, including the largest and only system-wide commercial
deployment at Time Warner Cable's Oceanic regional division in Oahu, Hawaii. We
expect that all seven of the largest multiple system operators, or MSOs will
begin deploying VOD services in one or more residential markets by mid-2001. We
believe we are well-positioned to be a provider of choice to these MSOs.
Initially, we focused our VOD business on the development of VOD systems
designed to be compatible with Scientific-Atlanta digital cable equipment. In
October 1999, we acquired Vivid Technology, and obtained server technology which
we expect will ultimately be compatible with General Instrument digital cable
equipment. As a result, we believe we are the only VOD system provider who will
be able to offer technology compatible with both Scientific-Atlanta and General
Instrument digital cable equipment, the two largest providers of digital headend
equipment and digital set-top boxes used in the United States.
Our initial VOD focus is on digitally-equipped domestic cable system
operators. We also intend to focus on VOD opportunities in the international
cable and digital subscriber line, or DSL, markets and in both the domestic and
international educational markets. Although delivery of VOD over DSL currently
is not practical in the United States, we will look for opportunities in the
domestic DSL market.
THE VOD MARKET OPPORTUNITY
VOD technology addresses the home video entertainment market. We believe
that emerging VOD technology will enable cable providers to capture significant
sales from large and stable home entertainment markets, such as home video
rentals, and smaller and developing markets, such as pay-per-view, near VOD and
personal video recorders by combining many of their best features and addressing
their primary limitations.
- Home video rentals have the greatest number of title selections but are
the most inconvenient home video entertainment option. Limitations of
home video rental include frequently out-of-stock popular titles, lack of
convenience due to rental pickup and return requirements and substantial
late fee penalties.
- Pay-per-view and NVOD are more convenient options than store rentals but
have limited titles and viewing times and no interactive capabilities.
Pay-per-view, or PPV, allows the user to order specific programs at fixed
times. Near VOD, or NVOD, is basically PPV available at successive
shorter intervals. Limitations of PPV and NVOD include a limited
selection of titles available for viewing, restrictions on viewing times
and no VCR functionality, such as play, rewind, fast-forward and pause.
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- PPV/NVOD coupled with a personal video recorder has limited content and
requires a significant up-front investment by the user. A personal video
recorder is an additional set-top box computer that enables a user to
have simultaneous program recording, content searching, and VCR
functionality. Even when coupled with an NVOD or PPV service, a personal
video recorder does not overcome certain limitations of PPV or NVOD, such
as limited content availability. In addition, users are required to make
a significant up-front expenditure to purchase the personal video
recorder box.
Ongoing technological developments have laid the groundwork for
digitally-upgraded cable television operators to deliver VOD services to their
digitally-enabled subscribers.
- Cable system digital upgrades. MSOs are upgrading their networks to
enable the delivery of digital content on an interactive basis. MSOs are
upgrading traditional, one-way, low bandwidth, coaxial systems into
two-way, high bandwidth, hybrid-fiber coaxial transmission systems. These
new systems include additional fiber transmission lines and digital
equipment at the system's headend and other locations in the network.
These digitally-upgraded systems are capable of carrying a larger
quantity of signals at a faster rate. The two-way upgrade allows for the
introduction of new services, including VOD.
- Digital set-top boxes. A variety of companies, including General
Instrument (a division of Motorola), Scientific-Atlanta, Pioneer and
Sony, are introducing a new generation of digital television set-top
boxes with processing power similar to a personal computer. These digital
set-top boxes allow the cable provider to offer a greater selection of
digital services, such as VOD, advanced program guides, and interactive
electronic commerce to homes with access to two-way cable transmission
lines.
- Content digitization. Digitization is the process by which entertainment
content is converted from analog to digital format. Digital content is a
sequence of tiny digital pieces, or "bits," which can be stored on disks
and transmitted in the form of electronic signals. With the benefit of
the latest digital compression technologies, digital content now requires
even less storage space and more content can be simultaneously
transmitted over cable wires, thus reducing the storage and transmission
costs of delivering content to consumers. Many major movie studios, major
television networks, premium channel providers, and other program and
content creators are converting their most popular titles into a digital
format.
In the near term, we expect domestic MSOs will comprise the majority of our
VOD system customer base. We believe that VOD is one of the key initiatives for
MSOs as it provides an opportunity to leverage recent investments in their
digitally-upgraded infrastructure with minimal additional capital expense. We
believe the VOD product provides MSOs with the ability to differentiate their
service offering in an effort to reduce subscriber turnover and access to new
revenue generating opportunities from subscribers, advertisers and electronic
commerce initiatives.
BUSINESS STRATEGY
Our business objective is to become the leading provider of high quality
VOD systems to domestic cable and international cable and DSL providers.
Additionally, we intend to maintain our leadership position in the highest
margin markets for real-time systems and services. Our strategy is comprised of
the following primary initiatives:
Gain Valuable Supplier Positions to Top Domestic MSOs. The market for
providing VOD solutions to MSOs is rapidly evolving. By the end of calendar year
2001, we believe that each of the seven largest domestic MSOs will begin
commercial distribution of residential VOD services. We have been selected to
supply VOD systems for five of the publicly-announced commercial launches and
trials of VOD systems, including the industry's largest and only system-wide
commercial deployment located at Time Warner Cable's Oceanic regional division
in Oahu, Hawaii. Our VOD sales team will continue to directly target these large
MSOs. We believe that establishing strong relationships with these MSOs during
the early stages of VOD service deployment will be important in developing and
maintaining our share of the VOD market. Because of the rapid pace at which we
expect MSOs to deploy VOD services and the difficulty in switching providers
once a
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provider's offering has been integrated into an MSO's systems, we believe that
the initial selection by an MSO is critical to establishing market share.
Expand our Operations Internationally. The rollout of residential VOD
service internationally is expected to occur first over cable television systems
and then over DSL-based systems. We currently are focusing on building our
relationships with companies seeking to provide VOD services over cable or DSL
networks in Europe, Asia and Australia. Our international sales strategy is to
focus on three key customer segments: cable companies, telephone companies and
educational institutions, including K-12 schools, universities and corporate
training departments.
Maintain Technological Leadership Position in VOD Server Systems. We have
developed our VOD technology through internal research and development,
acquisitions and relationships with third-party technology providers. We intend
to continue to focus on the development of future VOD technologies in order to
maintain our leadership position by creating higher stream density, new
encryption techniques, personal video channel technologies and product
enhancements for international markets.
Identify and Pursue New Market Opportunities. We believe that our VOD
technology can provide benefits to industries other than cable system providers.
For instance, we believe the growth in intranet and distance learning provides a
significant opportunity for deployment of VOD systems. Generally, we foresee
addressing these additional markets through relationships with market-specific
value added resellers, or VARs.
Focus on the Highest Margin Real-Time Systems and Services Business. We
intend to remain a leading supplier of high-performance, real-time computer
systems, software and services. We have an established customer base, which we
intend to continue to service by focusing on high-margin, microprocessor-based
solutions.
COMMERCIAL LAUNCHES AND TRIALS
We have been selected by Time Warner Cable, Cox Communications and Comcast
Corporation, three of the seven largest MSOs, for VOD system deployments. Both
Time Warner Cable and Cox have deployed our VOD systems for use with digital
set-top boxes manufactured by Scientific-Atlanta. Comcast has selected our VOD
system compatible with General Instrument digital set-top boxes for one of its
trials and has selected a turnkey VOD solution offered by Intertainer, a
provider of digital content on-demand, that incorporates our Scientific-Atlanta
digital set-top box compatible VOD system for another trial.
TIME WARNER CABLE
Oahu, Hawaii. In June 1999, we began a trial of our VOD system for Oceanic
Cable, a unit of Time Warner Cable based in Hawaii. This trial led to a full
commercial launch of our VOD system in February 2000 over Oceanic's system in
Oahu. The VOD system purchased by Oceanic consists of 15 MediaHawk video
servers, which currently support approximately 3,500 independent video streams
reaching approximately 40,000 digital subscribers. We believe the Oceanic VOD
system represents the largest and only system-wide VOD commercial deployment in
the world.
Tampa Bay, Florida. In September 1999, Time Warner Cable selected our VOD
system for a commercial launch in its Hillsborough County system in Tampa Bay,
Florida, and subsequently in March 2000, they also selected our system for
commercial launch in the Pinellas County system in Tampa Bay, Florida. Together
the Hillsborough and Pinellas systems consist of approximately 800,000 cable
subscribers and approximately 110,000 digital subscribers. These digital
subscribers will be served initially with 10,000 independent video streams from
36 MediaHawk video servers.
These systems are being rolled out in four phases. The initial test phase
of the commercial deployment was completed in March 2000. The second phase was
the deployment of servers and launch of service to Time Warner Cable employees
on a system-wide basis in Hillsborough County which occurred in April 2000. We
expect that the formal system-wide commercial launch to the approximately 50,000
digital subscribers in Hillsborough County will occur in the near future. The
final phase will be the system-wide deployment and
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commercial launch to the approximately 60,000 digital subscribers in Pinellas
County, which is expected to occur by mid-2000.
COX COMMUNICATIONS
We recently were selected by Cox for a commercial launch of our VOD system
in Cox's San Diego, California market. This market consists of approximately
600,000 subscribers, with approximately 60,000 digital subscribers capable of
receiving VOD services. We expect Cox to order MediaHawk video servers
configured to support approximately 6,000 independent video streams. We expect
this initial commercial launch to begin by September 2000.
COMCAST CABLE CORPORATION
Comcast selected our VOD system for a technical trial beginning in April
2000. Comcast has selected our General Instrument digital set-top box compatible
VOD system for one of its trials and has selected a turnkey VOD solution offered
by Intertainer that incorporates our Scientific-Atlanta digital set-top box
compatible system for another trial.
OUR VOD SOLUTION
Our VOD system allows MSOs to deliver VOD services over their
digitally-upgraded cable infrastructure. Our VOD system is distributed over
certain portions of this infrastructure, including the headend, hub or hubs,
nodes and digital set-top boxes in subscribers' homes.
- Headend. The headend is a cable system's network operations center where
the cable company receives incoming programming for distribution over its
network. The components of our VOD system typically located at the
digitally-upgraded system operator's headend include a network manager,
one or more video servers, back office software suite and system
management and maintenance software.
- Hub. The hub typically is a small facility with no onsite personnel
containing the system operator's network equipment for video delivery and
control. The components of our VOD system typically located at the system
operator's hubs include one or more additional video servers.
- Nodes. A node is a much smaller hub and typically is the last point of
distribution before the digital set-top box in the user's home. Although
we typically do not deploy any portion of our VOD system in nodes, our
compact servers generally can fit in a node, if necessary or desirable.
- Digital set-top box. The digital set-top box is located in the
subscriber's home and is designed to receive transmissions from, and
transmit data to, the system operator's network. Our digital navigator is
run by the digital set-top box.
When a subscriber selects a movie, a video stream is established between
our video server and the digital set-top box in the subscriber's home via the
network manager. The selected movie is accessed from the video server where it
is stored at either a headend or a hub. The purchase is recorded by our back
office software creating a billing and royalty record for the cable provider.
The diagram below depicts a decentralized VOD delivery system.
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DIAGRAM
We believe the flexibility and scalability of our VOD systems are
attractive to MSOs. The scalability of our VOD systems allows them to be easily
integrated into MSOs' existing system architectures which limits MSOs'
implementation costs. In addition, because our servers are compact enough to fit
in the smallest of hubs or nodes, they can be flexibly deployed for optimum
performance.
PRODUCTS AND TECHNOLOGY
XSTREME DIVISION
Product. Our VOD systems integrate our core VOD technology, real-time and
back-office software and readily-available commercial hardware platforms to
provide interactive, time critical, VOD capabilities. We generally market our
VOD products to MSOs as an end-to-end VOD solution. We also market the
individual components of our VOD systems to VARs and systems integrators for
inclusion in their VOD solutions. Our VOD systems include the MediaHawk video
server, network manager, back office software, system management and maintenance
software and digital navigator. The components of our system are described
below:
- MediaHawk video server. Our MediaHawk video servers are highly scalable,
high-performance, open multiprocessor systems designed for the unique and
demanding requirements of interactive VOD applications. The MediaHawk
video server consists of a configuration of multiple content storage
disks, stream processors and input/output interfaces. We can package our
systems in customized configurations supporting various stream volumes,
content storage options and centralized or distributed network
configurations. Currently, each of our servers can support up to 384
video streams encoded at 3 Mbps, and the servers are deployed on
independent rack systems capable of holding three servers. Multiple
server racks can be located adjacent to each other.
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- Network manager. Our network manager or resource manager establishes the
network connection that allows the video to be streamed to the home. The
network manager is designed to route video streams in the most efficient
manner available at any given time.
- Residential back office software suite. Our back office software suite
is an industry standard rational database supporting subscriber and
provider data management. Our back office applications include customer
access management, content distribution management, order management,
royalty management, billing interfaces and marketing analysis.
- Digital navigator. Our digital navigator allows the subscriber to select
the movie on demand and maintain complete interactive control. Therefore,
the subscriber can pause, fast forward, rewind or stop the movie having
the same control as if they were using a VCR.
- System management and maintenance software. Our system management and
maintenance software is designed to detect failed components and reroute
video streams bypassing the failed component. The monitoring software is
also capable of providing system level status that notifies the cable
operator that a maintenance activity is required.
Product Discriminators. We believe our key VOD system discriminators
include:
- Multiple integration options. Our VOD systems have been designed to be
compatible with a wide range of equipment and software employed by cable
operators to deliver digital television service, including:
-- Various digital set-top boxes. Our VOD systems are compatible with
digital set-top boxes manufactured by each of the major domestic
digital set-top box producers, including Scientific-Atlanta, General
Instrument, Pioneer and Sony. This compatibility allows our customers
to purchase our systems without concern about their current or future
selection of set-top box producers. Furthermore, our system is capable
of accommodating multiple headends, source content, navigators and
workstation platforms;
-- Existing and next-generation equipment. While newer generations of
digital set-top boxes are capable of housing software used for
interacting with users accessing VOD services, older digital set-top
boxes may lack this capacity. Our VOD technology allows us to maintain
this software remotely rather than in the actual digital set-top box
which overcomes the major obstacle in transmitting VOD services through
older generation digital set-top boxes. Thus, deployment of our VOD
system is not necessarily contingent on the upgrading of currently
deployed digital set-top boxes;
-- Access devices. Our VOD systems are compatible with multiple access
devices based on numerous technologies supporting delivery of VOD
services, such as ethernet and ATM; and
-- Billing systems. Both the existing and the emerging billing systems
currently employed by MSOs can be used with our VOD systems.
- Support for both distributed and centralized architectures. Our systems
are designed to function equally well with distributed networks that
minimize fiber optic bandwidth usage or centralized networks that support
high-density populations that minimize facility requirements.
- Highly scalable systems. Our systems are modular and therefore easily
scalable. Utilizing our dual chassis, multiple cabinet designs, our
customers can scale both video storage and stream capacity in various
increments to allow for significant flexibility.
- Comprehensive back office software suite. In addition to content
management, order management, provider account management, customer
access management, marketing analysis and billing functions, our back
office software suite also supports e-commerce applications and
subscriber data collection which enhances the revenue-generation
capabilities of the VOD service provider.
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- Specialized video engine. Our video engine was designed specifically for
the requirements of providing VOD services. As such, our video engine is
capable of creating high stream density accommodating increasing levels
of demand, simultaneous usage and expanding library content.
- Fault tolerant system designs. Our VOD systems are designed with
multiple layers of redundancy including fully redundant storage, power
and cooling systems to provide seamless end-user viewing. Thus, system
repairs can be made concurrently with delivery without any interruption
to the end-user.
- Variable bit-rate technology. Our variable bit-rate technology minimizes
storage and bandwidth while maximizing video fidelity. This technology
will become a key technology discriminator as higher-fidelity
requirements such as high-definition television emerge.
Next-Generation Product. We expect to begin shipments of our next
generation MediaHawk video server by the end of calendar 2000. Through our
internal research and development efforts, our acquisition of Vivid Technology
and our technological strategic relationships, we have integrated new
technologies that we believe will further enhance the attractiveness of our VOD
solution into our new MediaHawk video server.
Our next-generation VOD servers and software are designed to allow a single
product to work in conjunction with cable equipment and digital set-top boxes
produced by both Scientific-Atlanta and General Instrument. We expect that this
dual-platform design will be attractive to MSOs as it will reduce the need for
MSOs to maintain multiple VOD systems for both Scientific-Atlanta and General
Instrument equipment.
In addition, our next-generation VOD system will incorporate
fiber-switching capability that will allow content to be shared over a network
of MediaHawk video servers operated by a VOD provider, allowing the VOD provider
to have extra content storage space by removing the need to duplicate the same
content on multiple servers.
Customer Service and Support. The basic customer service and support
options offered to our VOD customers include software patches to correct
problems in existing software, 24-hour parts replacement, product service
training classes, limited onsite services and preventative maintenance services.
In addition to these basic service and support options, we also offer, for
additional fees, software upgrades and onsite hardware maintenance services.
REAL-TIME DIVISION
Our real-time systems are applicable to a wide range of application
requirements, including high performance processing, high data throughput,
predictable and repeatable response times, reliably meeting required deadlines,
consistently handling peak loads, and better balancing of system resources. End
uses of our systems include product design and testing, simulation and training
systems, engine testing, range and telemetry systems, weather satellite data
acquisition and forecasting, and intelligence data acquisition and analysis.
Products. Our Real-Time division designs, develops and manufactures
real-time computer systems and services for mission-critical applications. The
real-time computer systems are specially designed to acquire, process, store,
and display large amounts of rapidly changing information in real time with
microsecond response. Our real-time products facilitate symmetric
multiprocessing for a wide range of real-time applications including data
acquisition, simulation and industrial systems. Each of our real-time products
described below utilizes our proprietary PowerWorks operating system which is
designed to run real-time applications over a full range of systems. The three
principal products sold by our Real-Time division are:
- Power Hawk. Power Hawk is our entry-level real-time computer system
capable of running data acquisition, simulation and industrial systems
applications;
- PowerMAXION. The PowerMAXION is our mid-level system specifically
targeted to the real-time data acquisition market; and
- TurboHawk. The TurboHawk is our highest performance system targeted to
the real-time simulation and data acquisition markets.
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Services. We provide real-time maintenance and customized services. Our
service and support programs include rentals and exchanges, diagnostic and
repair service, onsite services and preventive maintenance. We routinely offer
long-term service and support of our products for as long as fifteen to twenty
years. We also provide custom and integration engineering services in the design
of special hardware and software to help our customers with their specific
applications. We also offer classroom and on-site training, system and site
performance analysis, and multiple vendor support planning.
STRATEGIC RELATIONSHIPS
Scientific-Atlanta. In August 1998, we entered into an agreement with
Scientific-Atlanta to jointly develop and market a VOD system. Under this
agreement, we were enabled to receive early development releases from
Scientific-Atlanta. In addition, we have jointly developed a system architecture
that is compliant with the Time Warner Pegasus System. In exchange for
Scientific-Atlanta's technical and marketing contributions, we issued
Scientific-Atlanta warrants to purchase 2,000,000 shares of our common stock,
exercisable at $5 per share over a four-year term. In addition,
Scientific-Atlanta may in certain circumstances have the right to receive
additional warrants to purchase up to a maximum of 8,000,000 additional shares
of our common stock. The granting of these additional warrants will be based
upon performance goals measured by the revenue we receive from sales of
equipment to systems employing Scientific-Atlanta's equipment. The agreement
with Scientific-Atlanta provides that each party will own the intellectual
property that is created solely by its own employees as a part of the
development process. With respect to intellectual property that is developed by
employees of both Scientific-Atlanta and Concurrent, such intellectual property
will be owned by Concurrent if the intellectual property represents an
improvement upon Concurrent's products and will be owned by Scientific-Atlanta
if the intellectual property represents an improvement upon Scientific-Atlanta's
products.
General Instrument. We jointly developed a specific return path protocol
with General Instrument that allowed VOD services to be provided via General
Instrument older-generation digital set-top boxes currently deployed by several
MSOs. As a result of this relationship, we are one of only a few suppliers that
can offer a complete end-to-end VOD system compatible with the
currently-deployed General Instrument digital set-top boxes.
Prasara Technologies. Under a joint development agreement with Prasara
Technologies, a software company specializing in delivery of "on-demand"
information, we jointly developed interactive and back-office VOD software
specifically designed to meet the needs of MSOs. This software is currently
integrated with all of our MediaHawk video servers using cable equipment
provided by Scientific-Atlanta or equipment compatible with Scientific-Atlanta.
The joint development agreement with Prasara provides for Concurrent to have
exclusive ownership of most of the software modules that make up the back office
software suite that accompanies the MediaHawk VOD server. Prasara has joint
ownership with Concurrent of certain of the modules that make up the "back
office" software suite. Each of Concurrent and Prasara must pay royalties to the
other for their respective sales of products containing any of these
jointly-owned software modules.
Intertainer. We have worked with Intertainer, a VOD content provider
seeking to market an end-to-end VOD solution, in integrating our VOD server into
Intertainer's turnkey solution. Comcast selected Intertainer's VOD solution for
a technical trial of VOD services to customers equipped with Scientific-Atlanta
digital set-top boxes.
SALES
We sell our systems in key markets worldwide through our direct field sales
and support offices, as well as through VARs and systems integrators. As of
March 31, 2000, we had 105 employees in our sales and marketing force. Due to
the sales and marketing demands being generated by our emerging VOD business, we
expect to increase our sales force during the next year.
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VOD
Our VOD sales strategy primarily focuses on developing relationships with
domestic MSOs and international cable and DSL providers. Our domestic sales
force has significant experience as either employees of, or service providers
to, the largest domestic MSOs, and, to date, we have been successful in
leveraging the strength of that experience, as well as the strength of our
MediaHawk video server, into opportunities for initial commercial launches of
our VOD systems.
We have reorganized our international VOD sales force into separate cable
and telecommunications units and have hired an international business
development manager to work with our strategic overseas partners.
In our non-broadband markets on both the domestic and international fronts,
we also intend to continue working with VARs and systems integrators who are
seeking to integrate our VOD products into end-to-end or turnkey solutions sold
into their target markets.
REAL-TIME
We sell our real-time systems in key markets worldwide through direct field
sales and support offices, as well as through VARs and systems integrators. We
currently employ 58 people worldwide as part of our real-time sales and
marketing team.
CUSTOMERS
VOD
Currently, the largest purchasers of our VOD products are large, domestic
MSOs who are seeking to offer VOD products to their digital set-top box equipped
subscribers. As noted above, our VOD systems have been selected by Time Warner
Cable, Cox and Comcast. We expect to rely on a limited number of cable system
operators for a significant portion of our VOD revenue. If we are unsuccessful
in establishing relationships with these customers or lose any of these
customers, our business will be adversely affected.
In January, 2000 we made our first significant DSL-related sale when
Alcatel purchased one of our MediaHawk video servers in connection with its
marketing of digital television services delivered over an Asynchronous Digital
Subscriber Line (ADSL) network.
In addition, we have sold our MediaHawk video server for use in the
digital/interactive television, education and hospitality markets. Some of our
customers in these markets are:
<TABLE>
<CAPTION>
DIGITAL/INTERACTIVE TELEVISION EDUCATION HOSPITALITY
------------------------------ --------- -----------
<S> <C> <C>
Excite@home University of North Carolina -- Chapel Hill Domintel Concep, S.L.
Horizon.com Wake Forest University
Buddhist School -- Hong Kong
</TABLE>
We have also sold our MediaHawk video server to VAR's, including RPC Video,
Kansas City Audio-Visual and Principal Communication, which integrate our
product into the comprehensive VOD solutions offered to their customers.
For the nine months ended March 31, 2000, three customers accounted for
more than 46% of our total VOD revenue, including Time Warner Cable, which
accounted for 41% of the VOD revenue.
REAL-TIME
We focus our real-time business on the simulation, data acquisition and
industrial systems markets.
Simulation. We are a recognized leader in developing real-time systems for
simulation application. Primary applications include trainers/simulators for
operators in commercial and military aviation, vehicle operation and power
plants, mission planning and rehearsal and engineering design simulation for
avionics and automotive labs. A key segment of this market for us are
Hardware-In-The-Loop applications in which accurate simulations are constructed
to verify hardware designs, thereby minimizing or eliminating entirely
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the need for expensive prototypes. We offer software applications that provide a
real-time advantage to our customers and integrating these applications to
provide complete solutions.
Data Acquisition. We are a leading supplier of systems for radar control,
data fusion and weather analysis applications, all of which require the ability
to gather, analyze, and display continuous flows of information from
simultaneous sources. Primary applications include environmental analysis and
display, range and telemetry and command and control.
Industrial Systems. We manufacture systems to collect, control, analyze,
and distribute test data from multiple high-speed sources for industrial
automation systems, product test systems (particularly engine tests),
Supervisory Control and Data Acquisition systems and instrumentation systems.
Our strategy to serve this market involves the employment of third-party
software applications to provide a unique solution for our customers.
Some of our customers in each of these markets are:
<TABLE>
<CAPTION>
SIMULATION DATA ACQUISITION INDUSTRIAL SYSTEMS
---------- ---------------- ------------------
<S> <C> <C>
Boeing TRW, Inc United
Lockheed Martin Logicon, Inc Technologies
Flight Safety International Aerospatiale Aeronautique BFGoodrich
DaimlerChrysler Dassault Electronique Ford Motor Company
CAE Electronics Mitsubishi Precision General Motors
debis Systemhaus
Lucas Aerospace
</TABLE>
In the fiscal year ended June 30, 1999, six customers accounted for more
than 31% of our total real-time revenue and, in the nine months ended March 31,
2000, six customers accounted for approximately 32% of our total real-time
revenue.
NEW PRODUCT DEVELOPMENT
VOD
Our research and development strategies with respect to our VOD solutions
will focus on higher stream density, encryption techniques, personal video
channel technology and product enhancements for international markets.
Increased Stream Density. We believe we are the only provider of VOD
systems employing fiber channel technology. Fiber channel provides the highest
bandwidth/connectivity technology that is commercially available. We intend to
continue leveraging techniques that allow this technology to create higher
stream density and superior connectivity. We expect this will result in even
more efficient distributed and centralized VOD system architectures.
Encryption Techniques. Encryption techniques will need to become integral
to our VOD system to maintain a high level of security designed to discourage
content piracy and encourage content providers, such as movie studios, to
provide market windows that will be consistent with the movie rental
distribution channel. In addition, we plan to develop an open encryption system
to support various encryption methodologies.
Personal Video Channel. We plan to add personal video channel capability
to our current residential cable VOD system. The personal video channel will
allow the subscriber to record, pause and rewind live broadcasts effectively
providing "TV on demand." We expect this server capability will have advantages
over personal home video recorders by providing more storage capacity and the
ability to record multiple channels simultaneously.
International Markets. Our strategy is to leverage our domestic success
and add capability to the existing VOD system that will enable us to market our
VOD system to international cable and DSL providers. Enhancements will include
network equipment integration, legacy billing system integration and set-top box
integration. Specific integration tasks and partnerships will be opportunity
driven as the international market develops.
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REAL-TIME
Our real-time product development has emphasized high-performance and
cost-effective scalable architectures to allow a high degree of flexibility to
the end user. New product development in real-time included new hardware and
software to add symmetrical multiprocessing capabilities to the Power Hawk line
of computers.
COMPETITION
Both our Xstreme and Real-Time divisions operate in highly-competitive
environments, driven by rapid technological innovation. Due in part to the range
of performance and applications capabilities of our products, we compete in
various markets against a number of companies.
The market for VOD systems is relatively new, highly competitive and
rapidly evolving. Since there have been limited commercial deployments of VOD
systems to date, the respective market shares of companies competing in the VOD
market are uncertain. In the VOD market, our competitors currently include the
following:
- in the domestic cable and international cable and DSL
market -- principally, SeaChange International Inc., nCUBE and Diva
Communications; and
- in the education market -- principally, Silicon Graphics, Inc., Cisco
Systems, Inc. and International Business Machines Corp., as well as local
systems integrators.
We also compete with a number of companies in our real-time business. These
competitors can be categorized as follows:
- major computer companies that participate in the real-time business by
layering specialized hardware and software on top of, or as an extension
of, their general purpose product platforms, including principally Compaq
Computer Corporation and Hewlett-Packard Corporation;
- other computer companies that provide solutions for applications that
address specific characteristics of real-time, such as fault tolerance or
high performance graphics, including Silicon Graphics, Inc. and Compaq
Computer Corporation;
- general purpose computing companies that provide a platform on which
third-party vendors add real-time capabilities, including International
Business Machines Corp. and Sun Microsystems, Inc.; and
- single board computer companies that provide board-level processors that
are typically integrated into a customer's computer system, including
Force Computers, Inc. and Motorola, Inc.
Due to the rapidly evolving markets in which we compete, additional
competitors with significant market presence and financial resources, including
computer hardware and software companies, content providers and television
equipment manufacturers, including digital set-top box manufacturers, may enter
those markets, thereby further intensifying competition. Our future competitors
also may include one or more of the parties with which we currently have a
strategic relationship. Although we have proprietary rights with respect to much
of the technology incorporated in our VOD and real time systems, our strategic
partners have not agreed to refrain from competing against us. Many of our
current and potential future competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources than
us, and greater brand name recognition. In addition, many of our competitors
have well-established relationships with our current and potential customers and
have extensive knowledge of our industries.
INTELLECTUAL PROPERTY
We rely on a combination of contracts and copyright, trademark and trade
secret laws to establish and protect our proprietary rights in our technology.
We distribute our products under software license agreements which grant
customers perpetual licenses to our products and which contain various
provisions protecting our ownership and confidentiality of the licensed
technology. Our source code of our products is protected as a trade secret and
as an unpublished copyright work. In addition, in limited instances, we license
our products
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under licenses that give licensees limited access to the source code of certain
of our products, particularly in connection with our strategic alliances.
Despite precautions taken by us, however, there can be no assurance that
our products or technology will not be copied or otherwise obtained and used
without authorization. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. We
believe that, due to the rapid pace of innovation within its industry, factors
such as the technological and creative skills of our personnel are more
important to establishing and maintaining a technology leadership position
within the industry than are the various legal protections of our technology.
We have entered into licensing agreements with several third-party software
developers and suppliers. Generally, such agreements grant us non-exclusive,
worldwide licenses with respect to certain software provided as part of
computers and systems marketed by us and terminate on varying dates.
GOVERNMENTAL REGULATION
We are subject to various international, U.S. federal, state and local laws
affecting our business. Any finding that we have been or are in noncompliance
with such laws could result in, among other things, governmental penalties.
Further, changes in existing laws or new laws may adversely affect our business.
The television industry is subject to extensive regulation in the United
States and other countries. Our VOD business is dependent upon the continued
growth of the digital television industry in the United States and
internationally. Television operators are subject to extensive government
regulation by the FCC and other federal and state regulatory agencies. These
regulations could have the effect of limiting capital expenditures by television
operators and thus could have a material adverse effect on our business,
financial condition and results of operations. The enactment by federal, state
or international governments of new laws or regulations could adversely affect
our cable operator customers, and thereby materially adversely affect our
business, financial condition and results of operations.
ENVIRONMENTAL MATTERS
We purchase, use, and arrange for certified disposal of chemicals used in
the manufacturing process at our Pompano Beach facility. As a result, we are
subject to federal and state environmental protection and community
right-to-know laws. Violations of such laws, in certain circumstances, can
result in the imposition of substantial remediation costs and penalties. We
believe we are in compliance with all material environmental laws and
regulations.
PROPERTIES
Our headquarters as well as our principal sales, marketing, research,
development and administrative offices for our Xstreme division occupy
approximately 25,000 square feet of office space in Duluth, Georgia, a suburb of
Atlanta, under a lease expiring in 2006. Our principal real-time offices and
manufacturing facilities are located in approximately 70,000 square feet of
space in Pompano Beach, Florida. We also lease sales, research and development
and service facilities in Ocean Port, New Jersey and Chalfont, Pennsylvania.
In addition to our domestic facilities, we also lease space in various
international locations for use as sales and service offices, research centers
and warehousing.
EMPLOYEES
As of March 31, 2000, we employed 430 employees worldwide. Approximately
304 of these employees were employed in the United States. We employed 78
employees in our Xstreme Division and 301 employees in our Real-Time division.
Our employees are not unionized.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not presently involved in
any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth specific information regarding our
directors, executive officers and other key employees as of May 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Morton E. Handel................................ 65 Chairman of the Board and Director
Steve G. Nussrallah............................. 49 President and Chief Executive Officer, Acting
President, Xstreme Division and Director
Daniel S. Dunleavy.............................. 46 President, Real-Time Division
Steven R. Norton................................ 38 Executive Vice President, Chief Financial Officer and
Secretary
Robert E. Chism................................. 46 Vice President, Development, Xstreme Division
Robert T. Menzel................................ 46 Vice President, Sales, Real-Time Division
David S. Morales................................ 38 Vice President, International Sales and Marketing,
Xstreme Division
David Nicholas.................................. 45 Vice President, North America Cable Sales, Xstreme
Division
Michael A. Brunner.............................. 66 Director
Bruce N. Hawthorne.............................. 50 Director
C. Shelton James................................ 60 Director
Richard P. Rifenburgh........................... 68 Director
E. Courtney Siegel.............................. 49 Director
</TABLE>
Morton E. Handel has served as Chairman of the Board since April 2000. Mr.
Handel has been a director since June 1991 and from November 1996 to October
1997 served as our Chairman of the Board. He is President of S&H Consulting,
Ltd., a privately held investment and consulting company. He also is President
and Chief Executive Officer of Ranger Industries, Inc., formerly Coleco
Industries, Inc., a publicly held company and formerly a manufacturer of toys
and games. From 1988 to 1990, he served as Chairman of the Board and Chief
Executive Officer of Coleco Industries. He currently is Chairman of the Board of
Marvel Enterprises, a New York Stock Exchange-listed toy and entertainment
company, a director of Linens 'n Things, Inc., a retailer of household products
since May 1999, and a former director of CompUSA Inc., a New York Stock
Exchange-listed technology products retailer. He is also a former Vice Chairman
of the Board of Regents of the University of Hartford, and serves on the boards
of several not-for-profit entities.
Steve G. Nussrallah has served as our President and Chief Executive Officer
since January 2000. From January 1999 to December 1999, Mr. Nussrallah was the
President of our Xstreme division and continues to serve as Acting President of
our Xstreme division. From March 1996 to March 1998, he served as President and
Chief Operating Officer of Syntellect Inc., a publicly-held supplier of call
center solutions to the cable television industry. From January 1990 to March
1996, Mr. Nussrallah served as President and Chief Operating Officer of Telecorp
Systems Inc., a privately held supplier of call center solutions, which was
acquired by Syntellect Inc. in March 1996. From 1984 to 1990, Mr. Nussrallah was
employed by Scientific-Atlanta, a publicly held provider of digital
communications equipment. He initially served as vice president of engineering
for Scientific-Atlanta's cable television operation and later served in
positions of increasing responsibility, including Vice President and General
Manager of its Subscriber Business Unit.
Daniel S. Dunleavy has served as President of our Real-Time division since
April 1999. From October 1997 to April 1999, Mr. Dunleavy was our Chief
Operating Officer and from June 1997 to April 1999, he served as our Executive
Vice President. From June 1996 to June 1997, he was our Executive Vice
President, Chief Financial Officer and Chief Administrative Officer. From
October 1994 to June 1996, Mr. Dunleavy
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served as our Vice President, Chief Financial Officer and Chief Administrative
Officer. From February 1991 to October 1994, he was Vice President, Strategic
Alliances and International Operations of the Harris Computer Systems Division
of Harris Corporation, a computer systems provider specializing in real-time
applications. After joining Harris Corporation in 1978, Mr. Dunleavy served in
various positions of increasing responsibility, including Controller of the
Harris Computer Systems Division from 1988 until 1991.
Steven R. Norton has served as our Executive Vice President and Chief
Financial Officer since October 1999. From March 1996 to April 1999, Mr. Norton
was Vice President of Finance and Administration for LHS Group, Inc., a publicly
held provider of services to communications services providers and Chief
Financial Officer for one of its subsidiaries, LHS Communications Systems, Inc.
Prior to his employment with LHS, he was an Audit Senior Manager for Ernst
&Young and KPMG LLP.
Robert E. Chism has served as Vice President, Development, of our Xstreme
division since April 1999. From June 1996 to April 1999, he served as our Vice
President, Development. From October 1994 through June 1996, he served as Vice
President, Technical and Production Operations of Harris Computer Systems
Corporation. In June 1993, he joined the Harris Computer Systems Division of
Harris Corporation as Director, Simulation Business Area. Before joining the
Harris Computer Systems Division, he held diverse engineering, program
management and marketing assignments in computer and related industries with
General Electric Company, a diversified industrial corporation, and from May
1978 to June 1993 he was Subsection Manager of Satellite Command and Data
Handling.
Robert T. Menzel has served as Vice President, Worldwide Sales and
Marketing, of our Real-Time division since April 1999. He served as our Vice
President, real-time systems from June 1997 to March 1999, and our Vice
President, North American Sales, from June 1996 to February 1997. From June 1996
to June 1997 he was our Vice President, Interactive Video-on-Demand. Mr. Menzel
was Vice President, General Manager of the Trusted Systems Division of Harris
Computer Systems Corporation from April 1995 to June 1996, and he served as Vice
President, National Sales of Harris Computer Systems Corporation from October
1994 to April 1995.
David S. Morales has served as Vice President, International Sales and
Marketing, of our Xstreme division since August 1999. From April 1996 to May
1999, he was Corporate Vice President, International of Syntellect. From June
1989 to April 1996 he was employed at Scientific-Atlanta, serving in positions
of increasing responsibility, including President, Latin America and CEO of one
of Scientific-Atlanta's joint venture companies.
David M. Nicholas has served as Vice President, North America Cable Sales,
of our Xstreme Division since March 1999. From September 1995 to February 1999,
he served as Executive Vice President of Pioneer New Media Technologies, Inc. a
provider of audio video products. From August 1993 to August 1995, he served as
Vice President and General Manager of Texscan Network Systems, a privately held
provider of advertising insertion solutions. Prior to that time, he served in
various positions at Pioneer Communications of America, Panasonic Industrial,
and Magnavox.
Michael A. Brunner has served as a director since November 1994. From 1986
to 1992, Mr. Brunner was President, AT&T Federal Systems, a division of AT&T
focused on federal communications and computer systems programs. During a career
that spanned over 37 years, he also served in additional management, operating,
sales, accounting and personnel positions with AT&T.
Bruce N. Hawthorne has served as a director since February 2000. Mr.
Hawthorne has been a partner in the law firm of King & Spalding since 1982. He
chairs King & Spalding's telecommunications industry practice and has broad
experience in mergers and acquisitions, strategic joint ventures and corporate
finance.
C. Shelton James has served as a director since July 1996. From May 1991 to
October, 1999, Mr. James served as Chief Executive Officer of Elcotel, Inc., a
public company that manufactures telecommunications equipment. From May 1994
until June 1999, Mr. James was also President of Fundamental Management
Corporation, an investment management firm specializing in active investment in
small capitalization companies, where he also was Executive Vice President from
1990 to April 1993. In addition, Mr. James was a director of Fundamental
Management Corporation from May 1994 to February 2000. Prior to 1990,
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Mr. James was Executive Vice President of Gould, Inc., a diversified electronics
company, and President of Gould's Computer Systems Division. Mr. James is a
director of CSPI, DRS Technologies, SK Technologies, Inc. and Technisource, Inc.
Richard P. Rifenburgh has served as a director since June 1991. Mr.
Rifenburgh is Chairman of the Board of Moval Management Corporation, a privately
held company specializing in restoring companies in financial distress. He is,
or in the past five years has been, a director of the following public
companies: Tristar Corporation since June 1992 and Chairman since August 1992;
Aris Technologies Inc., an industry leader in proprietary digital audio
watermarking systems and solutions; and CyberGuard Corporation since June 1996.
His experience also includes three years as a general partner of Hambrecht &
Quist Venture Partners; one year as Chairman of the Board and CEO of GCA
Corporation, a publicly held manufacturer of semiconductor manufacturing
equipment; founder of Mohawk Data Sciences Corporation, a publicly held
manufacturer of computer equipment in 1964 and later serving as Chairman of the
Board through 1974; and two years (1975 and 1976) as Chairman of the Board of
the Communications and Computer Industry Association.
E. Courtney Siegel has served as a director since July 1996. From October
1997 to March 2000, he was Chairman of the Board and from June 1996 to December
1999, was President and Chief Executive Officer. From October 1994 to June 1996,
Mr. Siegel served as Chairman, President and Chief Executive Officer of Harris
Computer Systems Corporation, and from 1990 to June 1996, Mr. Siegel served as
Vice President, General Manager of the Harris Computer Systems Division of
Harris Corporation. Mr. Siegel's twenty-year career in the computer technology
field includes serving as Vice President of standoff weapons at Rockwell
International Corporation, a producer of electronics, aerospace, automotive and
graphics equipment, and as Vice President of Harris Government Support Systems
Division's Orlando Operation.
Our executive officers serve at the discretion of the board of directors.
There are no family relationships among any of our directors or executive
employees.
BOARD COMPOSITION
Our board of directors currently consists of seven members. Our directors
are nominated by the board of directors or our stockholders and are elected by
our stockholders. From time to time as required, the directors then in office
may by majority vote of the directors fill vacancies on the board, newly created
directorships and expired terms of directors. A director appointed by the board
of directors serves until a successor has been chosen by the stockholders.
BOARD COMMITTEES
The board of directors has established an Executive Committee, an Audit
Committee and a Compensation Committee. Mr. Nussrallah is a non-voting ex
officio member of all committees of which he is not otherwise a member.
The Executive Committee of our board of directors consists of Messrs.
Siegel (Chairman), Handel and Rifenburgh. The Committee has, to the extent
legally permitted, the power and authority of the board of directors during
interim periods between meetings of the full board.
The Audit Committee of our board of directors consists of Messrs. James
(Chairman), Rifenburgh and Handel. The Audit Committee reviews our financial
statements and accounting practices and makes recommendations to our board of
directors regarding the selection of independent auditors.
The Compensation Committee of our board of directors consists of Messrs.
Brunner (Chairman) and Handel. The Compensation Committee makes recommendations
to the board of directors concerning salaries and incentive compensation for our
officers and employees and, subject to limitations, administers our benefits
plans.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Compensation Committee are currently Messrs. Brunner and
Handel, neither of whom have ever been an officer or employee of our company.
Before establishing the Compensation Committee, the board of directors as a
whole performed the functions now delegated to the Compensation Committee. None
of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers who
serve on our board of directors or Compensation Committee.
DIRECTOR COMPENSATION
Our non-employee directors receive a $15,000 annual retainer payable upon
election as a director at the annual meeting of stockholders and $2,000 per
meeting, including supplemental meetings in person with management where the
business to be conducted cannot reasonably be accomplished during any scheduled
meeting times and is necessary in furtherance of the required duties of a
director. In any event, meeting fees do not exceed $2,000 per day for attendance
at board, committee and supplemental meetings regardless of the number of
meetings attended on a given day. A pro rata amount is paid to any non-employee
who becomes a director thereafter, payable at the time of becoming a
non-employee director. Non-employee directors who serve as a chairman of a
committee of the board of directors receive $4,000 per annum, payable quarterly
at the end of a quarter.
Our 1991 Restated Stock Option Plan currently provides that options may not
be granted to non-employee directors. However, upon the initial election of a
non-employee director, the non-employee director will automatically receive an
option to purchase 20,000 shares of our common stock, and on the date of each
successive annual meeting of our stockholders, each non-employee director will
automatically receive an option to purchase 10,000 shares of our common stock.
The options are fully vested non-statutory options and are priced at 100% of the
fair market value of our common stock on the date of grant. Any unexercised
options terminate upon the earlier to occur of (1) the tenth anniversary of the
date of grant or (2) three years following retirement from the board of
directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation earned
in the fiscal years ended June 30, 1999, 1998 and 1997, for (1) our former and
current Chief Executive Officers and (2) our four other most highly compensated
executive officers who earned more than $100,000 in salary and bonus during the
fiscal year ended June 30, 1999. These people are referred to as the named
executive officers.
48
<PAGE> 50
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2) COMPENSATION(3)
--------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
E. Courtney Siegel(4).................... 1999 $300,000 $ 97,500 75,000 $ 9,600
Former Chairman, President 1998 300,000 185,250 60,000 9,600
and Chief Executive Officer 1997 300,000 200,000 250,000 17,898
Steve G. Nussrallah(5)................... 1999 122,000 46,875 1,250,000 6,347
President and Chief 1998 -- -- -- --
Executive Officer 1997 -- -- -- --
Daniel S. Dunleavy....................... 1999 200,000 40,000 40,000 9,241
President, Real-Time 1998 186,000 76,000 130,000 11,159
Division 1997 160,000 64,000 80,000 9,561
Michael N. Smith(6)...................... 1999 145,600 33,000 25,000 9,600
Former Vice President, 1998 145,600 62,700 20,000 9,600
Marketing, Xstreme Division 1997 145,600 65,520 80,000 8,701
Robert T. Menzel......................... 1999 140,000 34,000 25,000 9,600
Vice President, Sales, 1998 139,200 64,600 20,000 9,740
Real-Time Division 1997 134,600 61,000 80,000 8,077
Karen G. Fink(7)......................... 1999 125,000 20,000 25,000 9,600
Former Vice President, General 1998 125,000 38,000 20,000 9,478
Counsel and Secretary 1997 125,000 35,000 400,000 16,350
</TABLE>
------------
(1) None of the executive officers named in the Summary Compensation Table
received personal benefits in excess of the lesser of $50,000 or 10% of
total compensation during fiscal 1999, 1998 or 1997.
(2) For fiscal 1998, includes a special grant of stock options for 100,000
shares awarded to Mr. Dunleavy in consideration of his assumption of the
additional position of Chief Operating Officer in October 1997. For fiscal
1997, consists of options issued to Messrs. Siegel, Dunleavy, Menzel and
Smith to replace a corresponding number of performance-based options granted
in fiscal 1996, which were cancelled in fiscal 1997.
(3) Represents our matching contribution during the year to the person under our
Retirement Savings Plan, a defined contribution plan. For fiscal 1997, also
includes $9,583 paid to Ms. Fink in connection with her relocation.
(4) Effective January 1, 2000, Mr. Siegel ceased to be our President and Chief
Executive Officer. Effective April 1, 2000, Mr. Siegel ceased to be our
Chairman of the Board.
(5) Effective January 1, 1999, Mr. Nussrallah became our President, Xstreme
Division. The compensation reported is for six months of the fiscal year.
Effective January 1, 2000, Mr. Nussrallah became our President and Chief
Executive Officer.
(6) Effective November 12, 1999, Mr. Smith ceased to be our Vice President,
Marketing, Xstreme Division.
(7) Effective September 2, 1999, Ms. Fink ceased to be our Vice President,
General Counsel and Secretary.
49
<PAGE> 51
STOCK OPTIONS
The following table shows all grants of stock options to the executive
officers named in the Summary Compensation Table during fiscal 1999. No stock
appreciation rights were granted during fiscal 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION TERM ($)
UNDERLYING GRANTED TO ---------------------------
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED (#) FISCAL 1999 (%) PER SHARE ($) DATE 5% 10%
---- ----------- --------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
E. Courtney Siegel... 75,000 4.7% $2.91 8/14/08 $ 137,256 $ 347,834
Steve G.
Nussrallah......... 1,000,000(1) 62.2 2.75 11/17/08 1,729,460 4,382,791
250,000(2) 15.5 2.75 11/17/08 432,365 1,095,698
Daniel S. Dunleavy... 40,000(1) 2.5 2.91 8/14/08 73,203 185,511
Michael N. Smith..... 25,000(1) 1.6 2.91 8/14/08 45,752 115,944
Robert T. Menzel..... 25,000(1) 1.6 2.91 8/14/08 45,752 115,944
Karen G. Fink........ 25,000(1) 1.6 2.91 8/14/08 45,752 115,945
</TABLE>
------------
(1) The term of the stock option is 10 years and each option is exercisable in
installments of one-third over three years. The exercise price is the fair
market value of a share of common stock on the date of grant.
(2) The term of the stock option is 10 years and it is exercisable in full on
the third anniversary of the date of grant. The exercise price is the fair
market value of a share of common stock on the date of grant.
YEAR-END OPTION VALUES
The following table provides information with respect to the number and
value of unexercised options to purchase our common stock held by the executive
officers named in the Summary Compensation Table at June 30, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
NUMBER OF YEAR-END YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
E. Courtney Siegel....... -- -- 1,020,000 365,000 $4,309,000 $1,420,500
Steve G. Nussrallah...... -- -- -- 1,250,000 -- 4,450,000
Daniel S. Dunleavy....... 147,857 $622,478 215,477 206,666 913,559 823,263
Michael N. Smith......... -- -- 326,667 118,333 1,380,202 460,598
Robert T. Menzel......... -- -- 326,667 118,333 1,380,202 460,598
Karen G. Fink............ 171,905 728,654 48,096 224,999 202,464 909,662
</TABLE>
------------
(1) Based on the closing price of our common stock on June 30, 1999 ($6.31) less
the aggregate exercise price.
50
<PAGE> 52
BENEFITS PLANS
1991 RESTATED STOCK OPTION PLAN
Our 1991 Restated Stock Option Plan became effective on January 31, 1992,
the date the plan was approved by our stockholders. The 1991 Restated Stock
Option Plan provides for the grant of stock options intended to qualify as
incentive stock options under Section 422 of the Code of the Internal Revenue
Code of 1986, as amended, and stock options not intended to qualify under
Section 422. Incentive stock options under the plan may only be granted to our
employees and to employees of our subsidiaries. Non-qualified stock options may
be granted to our employees and consultants and employees and consultants of
designated affiliated companies. The plan also provides for automatic grants of
non-qualified stock options to directors who are not our employees or employees
of a designated affiliated company, in accordance with a formula set forth in
the plan. In addition, the plan allows for the grant of stock appreciation
rights (in connection with stock options), restricted common stock awards and
cash out of options granted under the plan.
As of March 31, 2000, we had reserved an aggregate of 6,352,033 shares of
our common stock under the plan, of which options to purchase 5,762,288 shares
were outstanding and 589,745 shares were available for future grants. No shares
of restricted common stock or stock appreciation rights have been granted under
the plan.
The plan is administered by a Stock Award Committee comprised of members of
the Compensation Committee of the board of directors. The Stock Award Committee
has the power to construe and interpret the plan and determine the terms of the
stock options and other awards granted under the plan, including who may receive
option grants, the time or times when the grants are to be made, the number of
shares subject to an option, the exercise price for the option, the status of an
option as either an incentive stock option or a non-qualified stock option, the
vesting schedule of each option and the maximum term for each option. In
addition, the Stock Award Committee may substitute new stock options for
previously granted stock options, including options previously granted with
higher exercise prices.
Although the Stock Award Committee determines the exercise price of options
granted under the plan, in the case of incentive stock options, the exercise
price must at least equal the fair market value of our common stock on the date
of grant, and in the case of non-qualified stock options, the exercise price
must be no less than 50% of fair market value. Additionally, the term of an
incentive stock option may not exceed ten years, and the term of a non-qualified
stock option may not exceed ten years and one day.
The exercise price for any options granted under the plan may be paid in
cash, by check or, upon approval of the Stock Award Committee, in shares of our
common stock valued at fair market value on the exercise date. The Stock Award
Committee also may provide for an option to be exercised through a
broker-facilitated cashless exercise procedure.
After termination of one of our employees or consultants due to death or
disability, the option generally will remain exercisable, to the extent
previously vested, for the lesser of one year and one day after termination or
the balance of the option's term. In all other cases, the option generally will
expire immediately, unless termination is involuntary and without cause, in
which case, the option will remain exercisable, to the extent previously vested,
for the lesser of three months and one day after termination or the balance of
the option's term.
Upon the initial election of a non-employee director to the board of
directors, the non-employee director automatically will receive an option under
the plan to purchase 20,000 shares of our common stock. On the date of each
successive annual meeting of stockholders, the director under the plan
automatically will receive an additional option to purchase 10,000 shares of our
common stock. The options are fully vested non-qualified stock options, priced
at 100% of the fair market value of our common stock on the date of grant, and
each option terminates upon the earlier to occur of the tenth anniversary of the
date of grant or three years following retirement from the board of directors.
No option granted under the plan is transferable by an optionee other than
by will or the laws of descent and distribution, and an option may be exercised
during the lifetime of an optionee only by the optionee or the
51
<PAGE> 53
optionee's guardian or legal representative. With limited restrictions, shares
of our common stock subject to options or other awards that are not exercised
during their term, or that are otherwise forfeited, will again become available
for the grant of new awards under the plan.
Unless otherwise stipulated in the employment contract of the executive
officers of the Company, the officer shall continue to vest in the options
granted through the severance period and the options shall remain exercisable
until their expiration ten years from the date of grant in the event of
involuntary termination of employment.
Subject to any additional conditions and restrictions that the Stock Award
Committee may determine at the time of granting an award, the plan provides that
in the event we have a change of control, all outstanding options will become
exercisable immediately and all restrictions affecting outstanding restricted
common stock awards under the plan will lapse. Under the plan, a change of
control in general will occur upon (1) the acquisition, directly or indirectly,
of 20% or more of our voting securities by a specified person or group, (2) a
change in the majority membership of the board of directors in which the
majority members have not been approved by continuing directors of the board of
directors or (3) the approval by our stockholders of our merger or consolidation
with or into another corporation, our liquidation or the sale or disposition of
substantially all of our assets.
In some of the individual option grants under the plan, the Stock Award
Committee has placed additional conditions on the acceleration of the exercise
right of stock options after a change of control, imposing in effect a two
trigger requirement to fully exercise an option upon a change of control: first,
there must be a change of control; and second, the optionee must be
involuntarily terminated. Furthermore, if the involuntary termination occurs (1)
after we or a successor company cease to be a public company or (2) following a
change of control in which we are not the surviving company, optionees will be
cashed out of their options to the extent not previously exercised.
The plan automatically will terminate on January 31, 2002, unless we
terminate it sooner. The board of directors has the authority to amend or
terminate the plan, subject to any shareholder approval required by applicable
law, provided such amendment or termination does not adversely affect any award
previously granted under the plan without the award holder's consent.
RETIREMENT SAVINGS PLAN
Our Retirement Savings Plan is a defined contribution plan that is a
Section 401(k) profit-sharing plan qualified under Section 401 of the Code.
Eligible employees may elect to reduce their current compensation by 1% to 19%
of pay and have the amount of such reduction contributed to the Retirement
Savings Plan on a pre-tax basis, subject to statutorily prescribed limits. We
may make matching or profit-sharing contributions to the Retirement Savings Plan
in amounts to be determined annually by the board of directors. For the years
ended June 30, 1997, 1998 and 1999, we have matched 100% of employees'
Retirement Savings Plan contributions up to 6%. Any matching or profit-sharing
contributions are subject to a vesting schedule set forth in the plan.
VIVID TECHNOLOGY, INC. 1998 EQUITY COMPENSATION PLAN
We assumed the Vivid Technology, Inc. 1998 Equity Compensation Plan in
connection with our acquisition of Vivid Technology in October 1999. As a result
of the acquisition, each outstanding stock option under the 1998 Equity
Compensation Plan to purchase shares of common stock of Vivid Technology was
converted into an option to purchase 2.67831 shares of our common stock. As of
the date of the acquisition, there were stock options outstanding under the 1998
Equity Compensation Plan to purchase an aggregate of 378,983 shares of our
common stock, and there were no restricted common stock awards outstanding under
the plan. Pursuant to a resolution of the board of directors, we will no longer
grant options or restricted common stock under the 1998 Equity Compensation
Plan, and therefore, there are no shares of our common stock available for
future grants under the plan. The board of directors may, in its discretion,
terminate the 1998 Equity Compensation Plan at any time; however, outstanding
awards will not be affected by the termination.
52
<PAGE> 54
The Compensation Committee administers the 1998 Equity Compensation Plan.
Because no further awards may be made under the 1998 Equity Compensation Plan,
the Compensation Committee's authority with respect to the plan generally is
limited to administering and interpreting the plan with respect to each
currently outstanding stock option, subject to the terms, conditions and
limitations set forth in the plan.
An optionee may exercise an option granted under the 1998 Equity
Compensation Plan while he or she is in our employ or service and within 90 days
after termination of employment or service, but no later than 10 years after the
date of grant, unless termination is for cause or due to death or disability. If
termination is for cause, the option will terminate immediately, and if
termination is a result of disability or death, the option may be exercised no
later than one year following the termination.
EMPLOYMENT AGREEMENTS
Steve G. Nussrallah. In January 2000, we entered into an amended and
restated employment agreement with Steve G. Nussrallah, our President and Chief
Executive Officer.
- Mr. Nussrallah is paid an annual salary of $318,000 and an annual target
bonus for the achievement of performance objectives established by our
board of directors, or a committee thereof, equal to 65% of his annual
base salary. For superior performance, the bonus opportunity may be
increased up to two times his annual target bonus.
- The term of his employment will continue until terminated by us or Mr.
Nussrallah.
- The agreement provides for the payment of two times his annual salary and
target bonus to be paid in accordance with our normal salary payment
procedures and immediate vesting of one-third of his 1,250,000 options if
the termination was other than:
(1) for cause, such as the commission of a felony, embezzlement, material
dishonesty against us, or gross negligence in the performance of
duties;
(2) due to Mr. Nussrallah's disability or death; or
(3) within three years after a change of control.
- If Mr. Nussrallah resigns subsequent to June 15, 2000, he will be
entitled to the same benefits as if he was terminated without cause.
- If Mr. Nussrallah's employment is terminated for cause or disability, or
if he resigns, he is prohibited from competing with us or trying to hire
our employees, for the lesser period of 2 years or until we have failed
to pay his severance in accordance with his employment agreement.
- If Mr. Nussrallah's employment is terminated within three years after a
change of control for any reason other than for cause, disability or
death, the agreement provides for the payment of three times his annual
salary and target bonus in a single lump sum on the date of termination
and immediate vesting of all of his unvested options.
Daniel S. Dunleavy. In December 1999, we entered into an amended and
restated employment agreement with Daniel S. Dunleavy, the President of our Real
Time division.
- Mr. Dunleavy is paid an annual salary of $220,000 and an annual target
bonus of $100,000. The objectives for each year and other terms and
conditions of the bonus opportunity are established by the board of
directors or a committee thereof. For superior performance, the bonus
opportunity may be increased up to two times his annual target bonus.
- The term of his employment will continue until terminated by us or Mr.
Dunleavy.
53
<PAGE> 55
- The agreement provides for the payment of two times his annual salary and
target bonus to be paid in accordance with our normal salary payment
procedures and immediate vesting of at least one-third of his unvested
options if the termination was other than:
(1) for cause, such as the commission of a felony, embezzlement, material
dishonesty against us, or gross negligence in the performance of
duties;
(2) due to Mr. Dunleavy's disability or death; or
(3) within three years after a change of control.
- If Mr. Dunleavy's employment is terminated for cause or disability, or if
he resigns, he is prohibited from competing with us or trying to hire our
employees, for the lesser period of 2 years or until we have failed to
pay his severance in accordance with his employment agreement.
- If Mr. Dunleavy's employment is terminated within three years after a
change of control for any reason other than for cause, disability or
death, the agreement provides for the payment of two times his annual
salary and target bonus in a single lump sum on the date of termination
and immediate vesting of all of his unvested options.
Steven R. Norton. In October 1999, we entered into an employment agreement
with Steven R. Norton, our Executive Vice President and Chief Financial Officer.
- Mr. Norton is paid an annual salary of $175,000 and an annual target
bonus of $70,000 per year. The objectives for each year and other terms
and conditions of the bonus opportunity are established by the board of
directors or a committee thereof. For superior performance, the bonus
opportunity may be increased up to two times his annual target bonus.
- The term of his employment will continue until terminated by us or Mr.
Norton.
- The agreement provides for the payment of salary for twelve months after
the date of termination payable in equal biweekly installments or in
accordance with our normal salary payment procedures if the termination
was other than:
(1) for cause, such as the commission of a felony, embezzlement, material
dishonesty against us, or gross negligence in the performance of
duties; or
(2) due to Mr. Norton's disability or death.
- If Mr. Norton's employment is terminated for cause or disability, or if
he resigns, he is prohibited from competing with us or trying to hire our
employees for a period of one year.
E. Courtney Siegel. Mr. Siegel, our former Chairman, President and Chief
Executive Officer is entitled to certain benefits under his employment agreement
with us.
- Mr. Siegel will receive severance compensation of $660,000, equaling two
times the aggregate amount of his annual base salary and annual target
bonus in effect on March 31, 2000, to be paid in periodic installments in
accordance with our normal salary payment procedures and continued
coverage under the group life, hospitalization, medical and dental plans
for two years from March 31, 2000.
- One-third of Mr. Siegel's unvested options vested immediately on March
31, 2000. Mr. Siegel may exercise his options prior to March 31, 2003 or
with respect to each option, the remainder of the period of
exercisability under the terms of the original grant.
- Mr. Siegel's noncompetition and nonsolicitation period is equal to the
shorter of 2 years (March 31, 2002) or when we have failed to pay
severance for an uninterrupted 10-day period and we have not cured within
15 days of notice.
54
<PAGE> 56
CERTAIN TRANSACTIONS
There are no reportable transactions.
55
<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of May 31, 2000, and as adjusted to reflect the
sale of common stock offered by us in this prospectus, for each person who is
known to us to own beneficially more than 5% of the outstanding shares of our
common stock, each of our directors and executive officers and all of our
directors and executive officers as a group.
Except as otherwise noted in the footnotes below, we believe that each
person or entity named in the table has sole voting and investment power with
respect to all shares of our common stock shown as beneficially owned by them.
In computing the number of shares beneficially owned by a person named in the
following table and the percentage ownership of that person, shares of our
common stock that are subject to options held by that person that are currently
exercisable or exercisable within 60 days of May 31, 2000 are deemed
outstanding. These shares are not, however, deemed outstanding for the purpose
of computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO
OFFERING(1)
------------------- PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER BENEFICIALLY OWNED(2)
------------------------------------ ------------------- ---------------------
<S> <C> <C>
White Rock Capital(3)
3131 Turtle Creek Blvd Suite 800
Dallas, Texas 75219...................................... 3,095,600 5.7%
PRIMECAP Management Company(4)
225 South Lake Ave. #400
Pasadena, California 91101............................... 4,465,000 8.3
Vanguard Horizon Funds -- Vanguard(5)
Capital Opportunity Fund
Post Office Box 2600
Valley Forge, Pennsylvania 19482......................... 4,465,000 8.3
Wellington Management Company, LLP(6)
75 State Street
Boston, Massachusetts 02109.............................. 3,655,900 6.8
Michael A. Brunner(7)...................................... 56,000 *
Morton E. Handel(8)........................................ 81,000 *
Bruce N. Hawthorne(7)...................................... 21,250 *
C. Shelton James(8)........................................ 17,000 *
Steve G. Nussrallah(9)..................................... 37,840 *
Richard P. Rifenburgh(8)................................... 10,000 *
E. Courtney Siegel(10)..................................... 948,903 1.7
Daniel S. Dunleavy(11)..................................... 151,032 *
Steven R. Norton(12)....................................... 221 *
Robert E. Chism(13)........................................ 427,885 *
Robert T. Menzel(8)........................................ 48,000 *
David S. Morales(14)....................................... 397 *
David Nicholas(15)......................................... 107,993 *
Directors and executive officers as a group (13 persons)... 1,898,521 3.4
</TABLE>
------------
* Less than 1%.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of common stock as beneficially owned by them,
subject to community property laws where applicable and the information
contained in this table and these notes. Unless otherwise indicated, the
address of each of the above persons is 4735 River Green Parkway, Duluth,
Georgia 30096.
(2) Based on 53,862,722 shares outstanding as of May 31, 2000.
(3) Each of White Rock Capital, Inc., White Rock Capital Management L.P.,
Thomas U. Barton and Joseph U. Barton may be deemed to be the beneficial
owner of 3,095,600 shares. This number consists of (1) 2,477,600 shares
held for the accounts of clients by White Rock Capital Management, L.P. and
56
<PAGE> 58
(2) 648,000 shares held for the account of White Rock Capital Partners L.P.
White Rock Partners may be deemed to be the beneficial owner of the 648,000
shares held for its account. Based on a Schedule 13G/A filed with the Commission
on February 7, 2000.
(4) Based on a Schedule 13G filed with the Commission on November 29, 1999.
(5) Based on a Schedule 13G filed with the Commission on February 8, 2000.
(6) Based on a Schedule 13G filed with the Commission on February 11, 2000.
(7) Includes 20,000 shares issuable upon the exercise of stock options.
(8) Represents shares issuable upon the exercise of stock options.
(9) Includes 36,363 shares issuable upon the exercise of stock options and
1,477 shares held for the benefit of Mr. Nussrallah in our Retirement
Savings Plan.
(10) Includes 762,143 shares issuable upon the exercise of stock options and
8,203 shares held for the benefit of Mr. Siegel in our Retirement Savings
Plan.
(11) Includes 8,175 shares held for the benefit of Mr. Dunleavy in our
Retirement Savings Plan.
(12) Includes shares held for the benefit of Mr. Norton in our Retirement
Savings Plan.
(13) Includes 421,668 shares issuable upon exercise of stock options and 6,217
shares held for the benefit of Mr. Chism in our Retirement Savings Plan.
(14) Represents shares held for the benefit of Mr. Morales in our Retirement
Savings Plan.
(15) Represents 107,000 shares issuable upon the exercise of stock options and
993 shares held for the benefit of Mr. Nicholas in our Retirement Savings
Plan.
SELLING STOCKHOLDERS
The selling stockholders are Fred Allegrezza, Gary Lauder and Robert
Clasen. On October 28, 1999, we entered into a definitive agreement and plan of
merger with Concurrent Acquisition Company, Vivid Technology, Fred Allegrezza
and Gary Lauder for the merger of Vivid into Concurrent Acquisition Company. In
exchange for all of the outstanding shares of common stock of Vivid, Concurrent
issued 2,233,699 shares of its common stock. The shares of common stock of
Concurrent are subject to registration pursuant to a registration rights
agreement dated October 28, 1999 among Concurrent and the selling stockholders
(the "Registration Rights Agreement"). This prospectus is being filed pursuant
to the terms of the Registration Rights Agreement. Following the acquisition of
Vivid Technology. We employed Fred Allegrezza as our Vice President of Business
Development.
The table below sets forth the number of shares of common stock
beneficially owned by the selling stockholders prior to and after the offering
conducted pursuant to this prospectus as well as the percentage of outstanding
common stock to be owned by the selling stockholders after completion of the
offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
OWNED PRIOR TO SHARES OFFERED OWNED AFTER THE COMMON STOCK
SELLING STOCKHOLDER THE OFFERING HEREBY OFFERING(A) OWNED AFTER THE OFFERING
------------------- ---------------- -------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Fred Allegrezza............. 1,606,986 401,747 1,205,238 2.2%
Robert Clasen............... 26,783 26,783 0 0
Gary Lauder................. 599,930 599,930 0 0
</TABLE>
------------
(a) Registration of the shares offered by the selling stockholders does not
necessarily mean that the selling stockholders will offer for resale any or all
of the shares registered hereby; however, this column assumes the sale of all
shares of common stock offered hereby.
57
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.01 par value, 25,000,000 shares of Series Preferred Stock, $0.01 par
value, and 20,000 shares of Class A Preferred Stock, $100 par value. As of May
31, 2000, there were 53,862,722 shares of common stock outstanding and no shares
of preferred stock outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
common stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up,
holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding preferred stock. Holders of common stock have no preemptive
rights and no right to convert their common stock into any other securities.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and all shares of common
stock to be outstanding upon completion of the offering will be, fully paid and
non-assessable.
SERIES PREFERRED STOCK
Under the terms of our restated certificate of incorporation, the board of
directors is authorized to issue shares of preferred stock in one or more series
without stockholder approval. The board has discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences of
each series of preferred stock.
The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
CLASS A PREFERRED STOCK
Under the terms of our restated certificate of incorporation, 20,000 shares
of Class A Preferred Stock, $100 par value, are authorized, and no shares of
Class A Preferred Stock are outstanding. The holders of Class A Preferred Stock
have no voting rights. The holders of the Class A Preferred Stock are entitled
to receive a cash dividend, if, as and when declared by the board of directors
out of funds legally available therefor, at the rate of $6.00 per share per
annum from the date of issue on a cumulative basis. In the event of a
liquidation, dissolution or winding up, the holders of Class A Preferred Stock
shall be entitled to receive from our assets $100 per share in cash or other
property plus, in the case of each share, an amount equal to any dividends
declared but unpaid thereon to the date of the liquidation, dissolution or
winding up. The holders of Class A Preferred Stock have the right to require us
to repurchase with funds legally available therefor up to 20% each year of the
number of Class A Preferred Stock outstanding at a repurchase price of $100 per
share plus any dividends declared but unpaid thereon to the date of repurchase.
We have the right to redeem all or any of the shares of Class A Preferred Stock
upon 30 days written notice at the redemption price of $100 per share plus any
dividends declared but unpaid thereon to the date fixed for redemption.
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SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
Under the terms of our Rights Plan, dated July 31, 1992, our board of
directors declared a dividend distribution of one Series A Participating
Cumulative Preferred Right for each share of our common stock. See
"Anti-Takeover Provisions." There are no outstanding shares of Series A
Participating Cumulative Preferred Stock.
WARRANTS
Scientific-Atlanta holds outstanding warrants to purchase 2,000,000 shares
of our common stock at a price of $5.00 per share. In addition,
Scientific-Atlanta may be granted warrants to purchase up to a maximum of
8,000,000 additional shares of our common stock. The granting of these
additional shares will be based upon performance goals measured by the revenue
we receive from sales of equipment to systems employing Scientific-Atlanta's
equipment. For each $30.0 million increment of video stream revenue from systems
employing Scientific-Atlanta's equipment, we will issue warrants to
Scientific-Atlanta for that number of shares determined by dividing $1.5 million
by the per share cost impact to us of the warrants, using the Black-Scholes
valuation method, up to a maximum of 888,888 shares per warrant. If, based on
the Black-Scholes calculation, a warrant to purchase in excess of 888,888 shares
should be granted as of any date, the excess shares will be included in any
future grant in which the calculation would otherwise result in the grant of a
warrant for a number of shares less than the maximum. The price per share of
these additional shares will equal 85% of the current market price per share of
our common stock on the date the warrant is issued.
REGISTRATION RIGHTS
On October 28, 1999, we entered into a definitive agreement and plan of
merger with Concurrent Acquisition Company, Vivid Technology, Fred Allegrezza
and Gary Lauder for the merger of Vivid Technology into Concurrent Acquisition
Company. In connection with the merger, we issued 2,233,699 shares of our common
stock. Of the 2,233,699 shares of our common stock we issued, 1,028,460 shares
are subject to registration pursuant to a registration rights agreement dated
October 28, 1999 that we entered into with Fred Allegrezza, Gary Lauder, and
Robert Clasen. The shares being offered by the selling stockholders herein are
being registered pursuant to this registration rights agreement.
On August 17, 1998, we entered into a definitive agreement with
Scientific-Atlanta providing for the joint development and marketing of a VOD
system to cable network operators. In exchange for Scientific-Atlanta's
technical and marketing contributions, we issued warrants to purchase 2,000,000
shares of our common stock, exercisable at $5.00 per share over a four-year
term. The shares of our common stock issuable upon exercise of the warrants are
subject to registration rights pursuant to the warrants. Pursuant to the
warrant, Scientific-Atlanta was granted a demand registration right and
piggyback registration rights. Scientific-Atlanta has waived its piggyback
registration rights with respect to this registration statement.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. Section 203 prevents Delaware
corporations, including those that are listed on The Nasdaq National Market,
from engaging in a business combination involving a merger or sale of more than
10% of the corporation's assets, with any interested stockholder, that is, a
stockholder who owns 15% or more of the corporation's outstanding voting stock,
as well as affiliates and associates of any such person, for three years
following the date that the stockholder became an interested stockholder unless:
- the transaction that resulted in the stockholder becoming an interested
stockholder was approved by the board of directors prior to the date the
interested stockholder attained such status;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by (1) persons
who
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are directors as well as officers and (2) employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
A Delaware corporation may opt out of Section 203 with an express provision
in its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders' amendment
approved by at least a majority of the outstanding voting shares. We have not
opted out of the provisions of Section 203. This statute could prohibit or delay
mergers or other takeover or change of control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAW
PROVISIONS
There are provisions in our restated certificate of incorporation and our
amended and restated bylaws that may make it more difficult to acquire control
of us by various means. These provisions could deprive the stockholders of
opportunities to realize a premium on the shares of common stock owned by them.
In addition, these provisions may adversely affect the prevailing market price
of the stock. These provisions are intended to:
- enhance the likelihood of continuity and stability in the composition of
the board and in the policies formulated by the board;
- discourage the types of transactions which may involve an actual or
threatened change in control of us;
- discourage tactics that may be used in proxy fights;
- encourage persons seeking to acquire control of us to consult first with
the board of directors to negotiate the terms of any proposed business
combination or offer; and
- reduce our vulnerability to an unsolicited proposal for a takeover that
does not contemplate the acquisition of all outstanding shares of us or
that is otherwise unfair to our stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our amended and restated bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders or seeking to
nominate candidates for election as directors at an annual meeting of
stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to, or mailed and received at, our
principal executive offices not less than 60 days nor more than 90 days prior to
the date of our annual meeting. Our amended and restated bylaws also specify
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
Stockholder Action by Written Consent. The Delaware General Corporation
Law provides generally that any action required or permitted to be taken at any
annual or special meeting of our stockholders may be taken without a meeting
upon the written consent of a majority of the shares entitled to vote on the
matter. Our restated certificate of incorporation provides that no action
required or permitted to be taken at any annual or special meeting of our
stockholders may be taken without a meeting except upon the written consent of
the holders of 100% of the shares of stock entitled to vote upon the action.
This limitation on the right of stockholders to take action by written consent
could make it more difficult for stockholders to initiate actions.
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Supermajority Vote to Amend Stockholder Action by Written Consent
Provision. The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our restated certificate of incorporation imposes
a 66 2/3% vote requirement in connection with the amendment of the provisions
relating to the ability of stockholders to take action by written consent.
Rights Agreement. We have a stockholder rights agreement. Under our
stockholder rights agreement, each stockholder has one right for each share of
our common stock it holds. Each right entitles its holder to purchase one
one-hundredth of a share of Series A Participating Cumulative Preferred Stock,
par value $.01 per share, at a cash purchase price of $30.00. We have the
authority, subject to limitations, to supplement or amend the rights agreement
without the approval of the holders of certificates representing shares of our
common stock. The rights agreement, dated as of July 31, 1992, between us and
The First National Bank of Boston, as rights agent, describes the terms of the
rights.
The rights are attached to all outstanding shares of our common stock and
trade with our common stock until they become exercisable. We will not
distribute separate rights certificates. The rights will separate from our
common stock and a distribution date will occur upon the earlier of:
(1) ten business days following the date of any public announcement that a
person or group of affiliated or associated persons has acquired:
(a) beneficial ownership of 30% or more of our outstanding shares of
voting capital stock; or
(b) beneficial ownership of 20% or more of our outstanding shares of
voting capital stock and any 20% holder:
- merges into us under specified circumstances;
- merges into one of our subsidiaries; or
- participates in a transaction with us on other then an arm's length
basis; or
(2) ten business days following the commencement of a tender offer or
exchange offer that would result in a person or group owning 30% or
more of the outstanding shares of our common stock.
Any person or group that inadvertently causes the rights to separate by
virtue of its beneficial ownership may avoid, under certain conditions, a
distribution of the rights by providing notice to us of its inadvertent
acquisition and reducing its beneficial ownership below 20% prior to
distribution of the rights.
Until the distribution date or earlier redemption or expiration of the
rights:
(1) the rights will be evidenced by the common stock certificates and will
be transferred with and only with those common stock certificates; and
(2) the surrender for transfer of any certificates for common stock will
also constitute the transfer of the rights associated with the common
stock represented by those certificates.
The rights are not exercisable until the distribution date and will expire
at the close of business on August 14, 2002, unless we redeem them first as
described below.
As soon as practicable after the distribution date, we will mail right
certificates to holders of record of common stock as of the close of business on
the distribution date. Thereafter, the separate right certificates alone will
represent the rights. Except as otherwise determined by our board of directors,
we will issue rights only with shares of our common stock issued before the
distribution date.
If any person becomes the beneficial owner of 30% or more of the
outstanding shares of our common stock we will provide each right holder, other
than the beneficial owner of 30% or more of the outstanding shares of our common
stock, with the right to receive upon exercise of the right that number of
shares of common stock having a market value of two times the exercise price of
the right. Each holder of a right shall
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have the right to receive, upon exercise, common stock of an acquiring company
having a value equal to two times the exercise price of the right, in the event
that, at any time following the stock acquisition date:
(1) we are acquired in a merger or other business combination transaction;
(2) we are the surviving company in a merger but our stock is converted
into other property; or
(3) 50% or more of our assets or earning power is sold.
We may adjust the purchase price payable, and the number of one
one-hundredths of a share of Series A Participating Cumulative Preferred Stock
or other securities or property issuable, upon exercise of the rights from time
to time to prevent dilution:
(1) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Participating Cumulative Preferred
Stock;
(2) if holders of the Series A Participating Cumulative Preferred Stock are
granted certain rights or warrants to subscribe for Series A
Participating Cumulative Preferred Stock or convertible securities at
less than the current market price of the Series A Participating
Cumulative Preferred Stock; or
(3) upon the distribution to holders of the Series A Participating
Cumulative Preferred Stock of evidences of indebtedness or assets,
excluding regular quarterly cash dividends, or of subscription rights
or warrants, other than those referred to above.
With certain exceptions, we will not adjust the purchase price until
cumulative adjustments amount to at least 1% of the purchase price. We will not
issue fractional rights or fractional shares and, instead, appropriate
adjustments will be made.
The rights are redeemable in whole, but not in part, at a price of $.0025
per right by our board of directors at any time until the tenth day after the
stock acquisition date or a later date as a majority of the continuing directors
then in office may determine. Under the terms of our rights agreement, the
decision to redeem requires the agreement of a majority of the continuing
directors.
Immediately upon the action of the board of directors ordering redemption
of the rights, with the agreement or a majority of the continuing directors, the
rights will terminate and thereafter the holders of rights will be entitled only
to receive the redemption price.
Until a right is exercised, the holder will have no rights as a stockholder
beyond those as an existing stockholder. As long as the rights are attached to
our common stock, we will issue one right with each new share of our common
stock issued.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is The First National
Bank of Boston, Boston, Massachusetts.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 53,862,722 shares of common
stock outstanding, assuming no exercise of outstanding options after the date
hereof. Of these shares, 52,657,484 outstanding shares will be freely tradable
without restriction or further registration under the Securities Act; provided,
however, that shares purchased by affiliates as that term is defined in Rule
144, would be subject to limitations and restrictions that are described below.
Generally, the balance of our outstanding shares of common stock are restricted
securities under the Securities Act, subject to the limitations and restrictions
that are described below.
As of March 31, 2000, options to purchase a total of 5,762,288 shares of common
stock were outstanding, of which options to purchase 2,558,304 shares were
vested and not subject to a repurchase right in our favor. Shares issuable
pursuant to our option plans previously have been registered under the
Securities Act. As a result, when the options are exercised and the shares
received on such exercise are vested, such shares will be freely tradable under
the Securities Act; provided, however, that shares purchased by affiliates, as
that term is defined in Rule 144, would be subject to limitations and
restrictions that are described below.
RULE 144
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (1) one percent of the then
outstanding shares of common stock (approximately 538,627 shares immediately
after this offering) or (2) the average weekly trading volume in the common
stock on The Nasdaq National Market during the four calendar weeks preceding the
date on which notice of such sale is filed, provided certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. In addition, our affiliates must comply with the other
restrictions and requirements of Rule 144 in order to sell shares of common
stock which are not restricted securities.
Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may resell such
shares without compliance with the foregoing requirements. In meeting the one-
and two-year holding periods described above, a holder of shares can include the
holding periods of a prior owner of the shares who was not an affiliate. The
one- and two-year holding periods described above do not begin to run until the
full purchase price or other consideration is paid by the person acquiring the
shares from the issuer or an affiliate.
REGISTRATION RIGHTS
In addition to the shares of common stock registered for resale pursuant to
this prospectus, holder of warrants to purchase 2,000,000 shares of common stock
will be entitled to certain rights with respect to the registration of these
shares for sale in the public market. See "Description of Capital
Stock -- Registration Rights." Registration of these shares under the Securities
Act would result in these shares becoming freely tradable in the public market
without restriction.
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time by the
selling stockholders of up to (i) 1,011,654 shares of common stock issued to the
selling stockholders in connection with our acquisition in October 1999 of Vivid
Technology. Following the acquisition, one of the selling stockholders, Fred
Allegrezza became employed by us as Vice President of Business Development. We
have registered such shares of common stock for sale to provide the holders
thereof with freely tradeable securities, but registration of such shares does
not necessarily mean we will issue any of such shares or that the selling
stockholders will offer or sell such shares.
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OFFER AND SALE OF SHARES
The selling stockholders may from time to time, in one or more
transactions, sell all or a portion of the common stock in such transactions at
prices then prevailing or related to the then current market price or at
negotiated prices. The offering price of the shares from time to time will be
determined by the selling stockholders and, at the time of such determination,
may be higher or lower than the market price of the shares on the Nasdaq Stock
Market. In connection with an underwritten offering, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders or from purchasers of shares for whom they may act as
agents, and underwriters may sell shares to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Under agreements that may be entered into by us, underwriters,
dealers and agents who participate in the distribution of shares may be entitled
to indemnification by us against certain liabilities, including liabilities
under the Securities Act, or to contribution with respect to payments which such
underwriters, dealers or agents may be required to make in respect thereof. The
shares may be sold directly or through broker-dealers acting as principal or
agent, or pursuant to a distribution by one of more underwriters on a firm
commitment or best-efforts basis.
The selling stockholders, or its pledgees, donees, transferees or other
successors in interest, may offer and sell their shares of common stock in the
following manner:
- on the Nasdaq Stock Market or other exchanges on which the common stock
is listed at the time of sale;
- in the over-the-counter market or otherwise at prices and at terms then
prevailing or at prices related to the then current market price;
- in underwritten offerings;
- in privately negotiated transactions;
- in a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
- a broker or dealer may purchase as principal and resell such shares for
its own account pursuant to this prospectus;
- an exchange distribution in accordance with the rules of the exchange; or
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
- The selling stockholders may accept or reject in whole or in part any
proposed purchase of the shares of common stock offered by this
prospectus. We will not receive any proceeds from the offering by the
selling stockholder.
SUPPLEMENTAL PROSPECTUS REGARDING SALES
To the extent required, we will set forth in a prospectus supplement
accompanying this prospectus, or, if appropriate, in a post-effective amendment,
the following information: (i) the amount of the shares of common stock to be
sold; (ii) purchase prices; (iii) public offering prices; (iv) the names of any
agents, dealers or underwriters; and (v) any applicable commissions or discounts
with respect to a particular offer.
COMPLIANCE WITH STATE SECURITIES LAWS
We have not registered or qualified the shares of common stock offered by
this prospectus under the laws of any country, other than the United States. In
certain states, the selling stockholders may not offer or sell their shares of
common stock unless (i) we have registered or qualified such shares for sale in
such states or (ii) we have complied with an available exemption from
registration or qualification. Also, in certain states, to
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comply with such state securities laws, the selling stockholders can offer and
sell their shares of common stock only through registered or licensed brokers or
dealers.
PAYMENT OF EXPENSES
We will pay substantially all of the expenses related to the registration
of the shares of common stock offered by this prospectus. The selling
stockholders will pay any sales commissions or other seller's compensation
applicable to such transactions.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of common
stock offered by this prospectus will be passed upon for us by King & Spalding,
Atlanta, Georgia. Bruce N. Hawthorne, a partner of King & Spalding, is a
director of the Company.
EXPERTS
The consolidated financial statements and financial statement schedule of
Concurrent Computer Corporation and subsidiaries as of June 30, 1998 and 1999
and for each of the years in the three-year period ended June 30, 1999 have been
included herein in reliance upon the report of KPMG LLP, independent certified
public accountants, and upon the authority of said firm as experts in auditing
and accounting.
The financial statements of Vivid Technology, Inc. as of and for the years
ended December 31, 1997 and 1998 have been included herein in reliance upon the
reports of Bergey Yoder Sweeney Witter & Roland PC, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
Commission's public reference room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may call the Commission at
1-800-732-0330 for further information on the operation of such public reference
rooms. You also can request copies of such documents, upon payment of a
duplicating fee, by writing to the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or obtain copies of such documents from the Commission's
web site at http://www.sec.gov.
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CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of June 30, 1998 and
1999................................................... F-3
Consolidated Statements of Operations for the Years ended
June 30, 1997, 1998, and 1999.......................... F-4
Consolidated Statements of Redeemable Preferred Stock,
Stockholders' Equity and Comprehensive Income for the
Years Ended June 30, 1997, 1998 and 1999............... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1998, and 1999.......................... F-6
Notes to Consolidated Financial Statements................ F-7
Schedule of Valuation and Qualifying Accounts for the
Years Ended June 30, 1997, 1998, and 1999.............. F-25
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and March
31, 2000............................................... F-26
Consolidated Statements of Operations for the Nine Months
Ended March 31, 1999 and 2000.......................... F-27
Consolidated Statement of Stockholders' Equity and
Comprehensive Income for the Nine Months Ended March
31, 2000............................................... F-28
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1999 and 2000.......................... F-29
Notes to Unaudited Consolidated Financial Statements...... F-30
VIVID TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
AUDITED AND UNAUDITED FINANCIAL STATEMENTS
Independent Auditor's Report.............................. F-35
Balance Sheets as of December 31, 1997 and 1998 and
October 28, 1999 (Unaudited)........................... F-36
Statements of Operations for the Years Ended December 31,
1997 and 1998 and the Ten-Month Periods Ended October
31, 1998 (Unaudited) and October 28, 1999
(Unaudited)............................................ F-37
Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1997 and 1998 and the
Ten-Month Period Ended October 28, 1999 (Unaudited).... F-38
Statements of Cash Flows for the Years Ended December 31,
1997 and 1998 and the Ten-Month Periods ended October
31, 1998 (Unaudited) and October 28, 1999
(Unaudited)............................................ F-39
Notes to Financial Statements............................. F-40
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Concurrent Computer Corporation:
We have audited the accompanying consolidated balance sheets of Concurrent
Computer Corporation and subsidiaries as of June 30, 1998 and 1999, and the
related consolidated statements of operations, redeemable preferred stock,
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended June 30, 1999. In connection with our
audits of the consolidated financial statements, we also audited the financial
statement schedule for each of the years in the three-year period ended June 30,
1999, included on Page F-25 of this Prospectus. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Concurrent
Computer Corporation and subsidiaries as of June 30, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1999 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule for each of the years in the three-year period ended June 30, 1999,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Atlanta, Georgia
July 31, 1999
F-2
<PAGE> 69
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,733 $ 6,872
Accounts receivable, less allowance for doubtful accounts
of $503 at June 30, 1998 and $418 at June 30, 1999..... 18,996 14,879
Inventories............................................... 6,263 4,641
Prepaid expenses and other current assets................. 1,487 1,053
-------- --------
Total current assets.............................. 32,479 27,445
Property, plant and equipment -- net........................ 12,419 10,936
Facilities held for sale.................................... -- 1,223
Other long-term assets...................................... 1,337 965
-------- --------
Total assets...................................... $ 46,235 $ 40,569
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 365 $ --
Revolving credit facility................................. 1,123 --
Accounts payable and accrued expenses..................... 13,321 8,973
Deferred revenue.......................................... 4,018 3,778
-------- --------
Total current liabilities......................... 18,827 12,751
Long-term liabilities....................................... 1,898 1,807
-------- --------
Total liabilities................................. 20,725 14,558
-------- --------
Stockholders' equity:
Shares of preferred stock, par value $.01; 25,000,000
authorized; none issued................................ -- --
Shares of common stock, par value $.01; 100,000,000
authorized; 47,632,309 and 48,516,527 issued at June
30, 1998 and 1999, respectively........................ 476 485
Capital in excess of par value............................ 97,136 98,916
Accumulated deficit after eliminating accumulated deficit
of $81,826 at December 31, 1991, date of
quasi-reorganization................................... (71,191) (72,856)
Treasury stock, at cost; 840 shares....................... (58) (58)
Accumulated other comprehensive loss...................... (853) (476)
-------- --------
Total stockholders' equity........................ 25,510 26,011
-------- --------
Total liabilities and stockholders' equity........ $ 46,235 $ 40,569
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 70
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
Product sales
Real-time systems...................................... $55,664 $37,868 $30,389
Video-on-demand systems................................ -- -- 1,208
------- ------- -------
Total product sales............................... 55,664 37,868 31,597
Service and other......................................... 52,703 44,347 38,366
------- ------- -------
Total............................................. 108,367 82,215 69,963
Cost of sales:
Real-time and video-on-demand systems..................... 27,662 18,556 15,001
Service and other......................................... 28,426 23,269 19,625
Transition................................................ 1,068 -- --
------- ------- -------
Total............................................. 57,156 41,825 34,626
------- ------- -------
Gross margin................................................ 51,211 40,390 35,337
Operating expenses:
Sales and marketing....................................... 22,061 18,523 19,274
Research and development.................................. 13,577 10,947 10,046
General and administrative................................ 6,543 6,611 6,883
Restructuring and transition.............................. 2,292 (607) --
Curtailment gain on postretirement benefit obligation..... (2,501) -- --
Non-cash development expenses............................. -- 1,605 --
Loss on facility held for sale............................ -- -- 423
------- ------- -------
Total operating expenses.......................... 41,972 37,079 36,626
------- ------- -------
Operating (loss) income..................................... 9,239 3,311 (1,289)
Interest expense............................................ (2,034) (833) (261)
Interest income............................................. 164 185 295
Other non-recurring items................................... (1,577) 1,434 (88)
Other income (expense) -- net............................... (350) 277 41
------- ------- -------
Income (loss) before provision for income taxes............. 5,442 4,374 (1,302)
Provision for income taxes.................................. 1,381 960 363
------- ------- -------
Net income (loss)........................................... 4,061 3,414 (1,665)
Preferred stock dividends and accretion of mandatory
redeemable preferred shares............................... (311) (18) --
------- ------- -------
Net income (loss) available to common shareholders.......... $ 3,750 $ 3,396 $(1,665)
======= ======= =======
Basic and diluted net income (loss) per share............... $ 0.08 $ 0.07 $ (0.03)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 71
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 1997, 1998, AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ CAPITAL IN ACCUMULATED TREASURY
REDEEMABLE EXCESS OF OTHER STOCK
PREFERRED PAR PAR ACCUMULATED COMPREHENSIVE -------------
STOCK SHARES VALUE VALUE DEFICIT INCOME (LOSS) SHARES COST TOTAL
---------- ---------- ----- ---------- ----------- ------------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996... $ 5,610 41,223,610 $412 $84,252 $(78,337) $ 658 (840) $(58) $ 6,927
Sale of common stock under
stock plans.............. -- 1,064,981 11 1,252 -- -- -- -- 1,263
Issuance of common stock
under retirement savings
plan..................... -- 629,847 6 1,271 -- -- -- -- 1,277
Issuance of common stock
for severance............ -- 1,234,434 12 1,508 -- -- -- -- 1,520
Conversion of cumulative,
convertible redeemable
exchangeable preferred
stock.................... (4,387) 1,950,000 20 4,367 -- -- -- -- 4,387
Dividends on and accretion
of preferred stock....... 20 -- -- -- (311) -- -- -- (311)
Comprehensive income:
Net income............... -- -- -- -- 4,061 -- -- -- 4,061
Foreign currency
translation
adjustment............. -- -- -- -- -- (1,004) -- -- (1,004)
------- ---------- ---- ------- -------- ------- ---- ---- -------
Total comprehensive
income........... -- -- -- -- 4,061 (1,004) -- -- 3,057
------- ---------- ---- ------- -------- ------- ---- ---- -------
Balance at June 30, 1997... 1,243 46,102,872 461 92,650 (74,587) (346) (840) (58) 18,120
Sale of common stock under
stock plans.............. -- 678,213 6 961 -- -- -- -- 967
Issuance of common stock
under retirement savings
plan..................... -- 296,224 3 581 -- -- -- -- 584
Conversion of cumulative,
convertible redeemable
exchangeable preferred
stock.................... (1,245) 555,000 6 1,239 -- -- -- -- 1,245
Issuance of warrants....... -- -- -- 1,605 -- -- -- -- 1,605
Dividends on and accretion
of preferred stock....... 2 -- -- -- (18) -- -- -- (18)
Quasi-reorganization
related adjustment....... -- -- -- 100 -- -- -- -- 100
Comprehensive income:
Net income............... -- -- -- -- 3,414 -- -- -- 3,414
Foreign currency
translation
adjustment............. -- -- -- -- -- (507) -- -- (507)
------- ---------- ---- ------- -------- ------- ---- ---- -------
Total comprehensive
income........... -- -- -- -- 3,414 (507) -- -- 2,907
------- ---------- ---- ------- -------- ------- ---- ---- -------
Balance at June 30, 1998... -- 47,632,309 476 97,136 (71,191) (853) (840) (58) 25,510
Sale of common stock under
stock plans.............. -- 884,218 9 1,780 -- -- -- -- 1,789
Comprehensive income
(loss):
Net loss................. -- -- -- -- (1,665) -- -- -- (1,665)
Foreign currency
translation
adjustment............. -- -- -- -- -- 377 -- -- 377
------- ---------- ---- ------- -------- ------- ---- ---- -------
Total comprehensive
income (loss).... -- -- -- -- (1,665) 377 -- -- (1,288)
------- ---------- ---- ------- -------- ------- ---- ---- -------
Balance at June 30, 1999... $ -- 48,516,527 $485 $98,916 $(72,856) $ (476) (840) $(58) $26,011
======= ========== ==== ======= ======== ======= ==== ==== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 72
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss)......................................... $ 4,061 $ 3,414 $(1,665)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Unrealized loss on trading securities................ 2,334 -- --
Realized gain on trading securities.................. (757) (420) --
Gain on sale of facility............................. -- (706) --
Issuance of non-cash warrants........................ -- 1,605 --
Loss on impairment of facility held for sale......... -- -- 423
Loss on dissolution of subsidiary.................... -- -- 429
Depreciation and amortization........................ 5,177 5,656 4,959
Provision for inventory reserves..................... -- -- 1,087
Stock compensation................................... 1,277 1,054 --
Other non-cash expenses.............................. 127 (40) 19
Decrease (increase) in assets:
Accounts receivable.................................. 2,087 6,864 4,098
Inventories.......................................... 3,917 1,915 535
Prepaid expenses and other current assets............ (29) (309) (384)
Other long-term assets............................... 1,879 83 318
Increase (decrease) in liabilities:
Accounts payable and accrued expenses................ (16,714) (10,945) (4,588)
Other long-term liabilities.......................... (3,235) 679 (91)
-------- -------- -------
Net cash provided by operating activities............ 124 8,850 5,140
-------- -------- -------
Cash flows (used in) provided by investing activities:
Net additions to property, plant and equipment............ (2,510) (2,949) (4,194)
Proceeds from sale of facility............................ -- 5,406 --
Proceeds from sale of trading securities.................. 5,782 2,668 --
-------- -------- -------
Net cash (used in) provided by investing
activities...................................... 3,272 5,125 (4,194)
-------- -------- -------
Cash flows provided by (used in) financing activities:
Net (payments) proceeds of notes payable.................. 386 (4,173) (425)
Net repayment of debt..................................... (3,579) (8,156) (1,123)
Proceeds from sale and issuance of common stock........... 1,263 967 1,789
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... (1,930) (11,362) 241
-------- -------- -------
Effect of exchange rates on cash and cash equivalents....... (1,004) (904) (48)
-------- -------- -------
Increase in cash and cash equivalents....................... 462 1,709 1,139
Cash and cash equivalents -- beginning of year.............. 3,562 4,024 5,733
-------- -------- -------
Cash and cash equivalents -- end of year.................... $ 4,024 $ 5,733 $ 6,872
======== ======== =======
Cash paid during the period for:
Interest.................................................. $ 2,255 $ 568 $ 258
======== ======== =======
Income taxes (net of refunds)............................. $ 1,685 $ 1,434 $ 1,041
======== ======== =======
Non-cash investing/financing activities:
Conversion of preferred stock............................. $ 4,387 $ 1,245 $ --
======== ======== =======
Dividends on preferred stock.............................. $ 311 $ 18 $ --
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 73
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW OF THE BUSINESS
Concurrent Computer Corporation ("Concurrent" or the "Company") is a
leading supplier of high-performance computer systems, software, and services.
In August 1999, the Company's emerging Video-On-Demand ("VOD") Division opened
its own facilities separate from its Real-Time Division in order to maximize the
focus in each of these businesses. The VOD Division will target the markets
utilizing the Company's interactive video-on-demand technology. To date the
Company has only $1.2 million in revenues from the VOD Division.
Concurrent, is a leading supplier of digital video server systems to a wide
range of industries and its VOD Division serves a variety of markets including
the broadband/cable, hospitality, intranet/distance learning, and other related
markets. Based on a scalable, real-time software architecture, Concurrent's VOD
hardware and software are integrated to deliver fault-tolerant, deterministic
streaming video to a broad spectrum of VOD applications.
Concurrent is also a leading provider of high-performance, real-time
computer systems, solutions, and software for commercial and government markets.
The Company's Real-Time Division focuses 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.
A "real-time" system or software is one specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real time -- that is, with microsecond response as changes occur. Concurrent has
nearly thirty years of experience in real-time systems, including specific
expertise in systems, applications software, productivity tools, and networking.
Its systems provide real-time applications for gaming, simulation, engine test,
air traffic control, weather analysis, and mission critical data services such
as financial market information.
In August, 1999, the Company's Corporate Headquarters and VOD Division's
offices were relocated to Duluth, Georgia from Fort Lauderdale, Florida. Its
Real-Time Division's offices and manufacturing facility remain in Fort
Lauderdale and Pompano Beach, Florida.
The Company operates in 28 countries worldwide. It provides sales and
support from offices and subsidiaries throughout North America, South America,
Europe, Asia, and Australia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
wholly-owned domestic and foreign subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
FOREIGN CURRENCY
The functional currency of substantially all of the Company's foreign
subsidiaries is the applicable local currency. The translation of the applicable
foreign currencies into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using average rates of exchange prevailing during the
fiscal year. Adjustments resulting from the translation of foreign currency
financial statements are accumulated in a separate component of stockholders'
equity until the entity is sold or substantially liquidated. Gains or losses
resulting from foreign currency transactions are included in the results of
operations, except for those relating to intercompany transactions of a
long-term investment nature which are accumulated in a separate component of
stockholders' equity.
F-7
<PAGE> 74
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Gains on foreign currency transactions of $138,000, $82,000, and $132,000
for the years ended June 30, 1997, 1998, and 1999, respectively, are included in
other income (expense) -- net.
CASH EQUIVALENTS
Short-term investments with original maturities of 90 days or less at the
date of purchase are considered cash equivalents. Cash equivalents are stated at
cost plus accrued interest, which approximates market, and represents cash
invested in U.S. Government securities, bank certificates of deposit, or
commercial paper.
TRADING SECURITIES
At June 30, 1997, the Company held investments considered to be trading
securities in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Pursuant to the provisions of SFAS No. 115, all
realized gains and losses and unrealized holding gains and losses were included
as a component of other non-recurring charges in the consolidated statements of
operations for the years ended June 30, 1997 and 1998. Market values of the
securities were determined by the most recently traded price of the security at
the balance sheet date.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out basis. The Company establishes excess and obsolete
inventory reserves based upon historical and anticipated usage.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at acquired cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the
estimated useful lives of assets ranging from three to forty years. Leasehold
improvements are amortized over the shorter of the useful lives of the
improvements or the terms of the related lease. Gains and losses resulting from
the disposition of property, plant and equipment are included in other income
(expense) -- net. Expenditures for repairs and maintenance are charged to
operations as incurred and expenditures for major renewals and betterments are
capitalized.
REVENUE RECOGNITION AND RELATED MATTERS
Computer systems sales are recorded when the earnings process is complete,
typically upon shipment to customers. Service contract revenue is recognized
separately and as earned, on a straight-line basis, over the respective
maintenance period in accordance with the terms of the applicable contract.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. The fair value of an element must
be based on vendor specific objective evidence ("VSOE") of the relative fair
values of the elements. VSOE is determined by the price charged when the element
is sold separately. The revenue allocated to hardware and software products is
generally recognized upon installation and substantial fulfillment of all
obligations under the sales contract.
CAPITALIZED SOFTWARE
The Company accounts for software development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" ("SFAS No. 86"). Under SFAS No. 86, the costs associated
with software development are required to be capitalized after technological
feasibility has been established and ceases capitalization upon the achievement
of customer availability.
F-8
<PAGE> 75
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs incurred by the Company between technological feasibility and the point at
which the products are ready for market are insignificant and as a result the
Company has no capitalized software at June 30, 1998 and 1999.
The Company does not incur costs related to the development or purchase of
internal use software.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed as incurred.
BASIC AND DILUTED (LOSS) INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies new
standards designed to improve the earnings per share ("EPS") information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements and increasing the
comparability of EPS data on an international basis. Some of the changes made to
simplify EPS computations included (i) eliminating the presentation of primary
EPS and replacing it with basic EPS, (ii) eliminating the modified treasury
stock method and the three percent materiality provision and (iii) revising the
contingent share provisions and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for period ending after
December 15, 1997. The adoption of this statement during fiscal year 1998 did
not have a significant impact on the Company's previously reported EPS.
Basic (loss) income per share is computed by dividing (loss) income after
deduction of preferred stock dividends by the weighted average number of common
shares outstanding during each year. In fiscal years 1997 and 1998, diluted
income per share is computed using the treasury stock method by dividing income
after deduction of preferred stock dividends by the weighted average number of
shares including common share equivalents and incremental shares representing
the number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. In fiscal year 1999, diluted
loss per share has not been adjusted due to the effect of the incremental shares
being antidilutive.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of."
This statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Facilities held for sale at
June 30, 1999 are reported at the lower of the carrying amount or fair value on
the consolidated balance sheet.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
inventories, prepaid expenses, accounts payable and short-term debt approximate
fair value because of the short maturity of these instruments.
Fair value estimates are made at a specific point in time, based on the
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision.
Changes in assumption could significantly affect the estimates.
F-9
<PAGE> 76
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company and its domestic subsidiaries file a consolidated Federal
income tax return. All foreign subsidiaries file individual tax returns pursuant
to local tax laws. The Company follows the asset and liability method of
accounting for income taxes. Under the asset and liability method, a deferred
tax asset or liability is recognized for temporary differences between financial
reporting and income tax bases of assets and liabilities, tax credit
carryforwards and operating loss carryforwards. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not that
such deferred tax assets will not be realized. Utilization of net operating loss
carryforwards and tax credits, which originated prior to the Company's
quasi-reorganization effected on December 31, 1991, are recorded as adjustments
to capital in excess of par value.
PENSIONS AND POSTRETIREMENT BENEFITS
In February 1998, SFAS No. 132, "Employer's Disclosures About Pensions and
Other Postretirement Benefits," ("SFAS 132") was issued. SFAS 132 requires
additional disclosures concerning changes in the Company's pension and other
postretirement benefit obligations and assets and eliminates certain disclosures
no longer considered useful. The Company has adopted the provisions of this
standard for 1999 annual reporting purposes. Adoption of these statements did
not impact the Corporation's consolidated financial position, results of
operations, or cash flows, and any effects are limited to the form and content
of its disclosures.
STOCK-BASED COMPENSATION
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25"), and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net (loss) income and pro forma (loss) income per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises to report selected information about
operating segments in interim financial reports issued to shareholders. The
Company operates in one segment for management reporting purposes at June 30,
1999. However, the Company is establishing facilities, personnel and reporting
to separate its VOD and Real-Time Divisions for fiscal 2000.
COMPREHENSIVE INCOME (LOSS)
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net
F-10
<PAGE> 77
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income. Comprehensive income is defined as a change in equity during the
financial reporting period of a business enterprise resulting from non-owner
sources.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet dates and the reporting
of revenues and expenses during the reporting periods, to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 consolidated financial statements have
been reclassified to conform with the 1999 presentation.
3. ACQUISITION
On June 27, 1996 Concurrent acquired the assets of the Real-Time Division
of Harris Computer Systems Corporation ("HCSC") and 683,178 newly-issued shares
of HCSC, in exchange for 10,000,000 shares of common stock of Concurrent (with a
fair value of $9.7 million); 1,000,000 shares of convertible exchangeable
preferred stock of Concurrent with a 9% cumulative annual dividend payable
quarterly in arrears, mandatorily redeemable at $6,263,000 (with an estimated
fair value of $5.6 million) (see Note 4); and the assumption of certain
liabilities relating to the HCSC Real-Time Division (the "Acquisition"). The
aggregate purchase price of the Acquisition was approximately $18.7 million,
including $3.4 million in transaction expenses (principally financial advisor,
legal and other professional fees). The Acquisition was accounted for as a
purchase effective June 30, 1996. The Acquisition resulted in excess of acquired
net assets over cost (negative goodwill) amounting to approximately $8.7
million, which has been allocated to reduce proportionately the values assigned
to non-current assets.
The 683,173 shares of HCSC common stock acquired by the Company in
connection with the Acquisition were classified as trading securities in the
consolidated balance sheet and valued at their market price of $14.75 per share
or $10.1 million. During fiscal year 1997, the Company sold 377,995 shares
resulting in a realized gain of $757,000. At June 30, 1997, the value of the
remaining shares was $8.91 per share, resulting in an unrealized loss of $2.3
million for the year then ended. During the year ended June 30, 1998, 259,352
shares of stock were sold, resulting in a realized gain for the period of
$358,000, and 45,826 shares valued at $10.25 per share were issued as bonuses to
Company employees resulting in a realized gain of $62,000 and non-cash
compensation expense of $470,000. The gains and losses are included as other
non-recurring charges in the consolidated statements of operations and as
non-cash items in the consolidated statements of cash flows.
Transition expenses for the year ended June 30, 1997 include charges for
costs associated with the combination of Concurrent and the HCSC Real-Time
Division.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the Acquisition, Concurrent issued 1,000,000 shares of
newly issued Class B 9% Cumulative Convertible Redeemable Exchangeable Preferred
Stock ("Preferred Stock"). Each share of Preferred Stock was convertible into
one or more shares of fully paid non-assessable shares of common stock of the
Company at a conversion price of $2.50. The Preferred Stock was recorded at fair
value when issued. During fiscal years 1997 and 1998 respectively, 780,000 and
220,000 shares of Concurrent Preferred Stock were converted into outstanding
common stock. As of June 30, 1998 and 1999, there was no outstanding Preferred
Stock.
F-11
<PAGE> 78
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROVISION FOR RESTRUCTURING
In connection with the Acquisition, the Company recorded a $23.2 million
restructuring provision as of June 30, 1996. Such charge, based on formal
approved plans, included the estimated costs related to the rationalization of
facilities, workforce reductions, asset writedowns and other costs which
represented approximately 44%, 28%, 26%, and 2%, respectively. The
rationalization of facilities included the planned disposition of the Company's
Oceanport, New Jersey facility, as well as the closing or downsizing of certain
offices located throughout the world. The workforce reductions included the
termination of approximately 200 employees worldwide, encompassing substantially
all of the Company's employee groups. The asset writedowns were primarily
related to the disposition of duplicative machinery and equipment. Cash
expenditures related to this reserve were $9.6 million, $2.2 million, and
$600,000 for the years ended June 30, 1997, 1998, and 1999, respectively.
As of June 30, 1999, the restructuring reserve was $90,000, which
represents payments owed to the Industrial Development Authority (the "IDA"). On
May 5, 1992 the Company had entered into an agreement with the IDA to maintain a
presence in Ireland through April 30, 1998. In connection with the Acquisition,
the Company closed its Ireland operations in December 1996 and was required to
repay grants to the IDA of approximately $484,000 (360,000 Irish pounds).
During fiscal year 1999, $394,000 was paid to the IDA and the remainder
will be paid in the first quarter of fiscal year 2000.
6. DISSOLUTION OF JOINT VENTURE
In June 1998, the Company entered into a Share Transfer and Termination of
Shareholders Agreement (the "Termination Agreement") whereby it acquired the 40
percent interest held by the minority shareholders in the Company's Japanese
subsidiary, Concurrent Nippon Corporation ("CNC"). Pursuant to the provisions of
the Termination Agreement, the minority shareholders relinquished their interest
in CNC by transferring 1,200 shares of CNC to the Company and paying $1.2
million to the Company.
Per the original joint venture agreement, Concurrent and the minority
shareholders shared the income of CNC on a 60-40 basis, respectively. However,
for losses, minority shareholders only assumed its share of the losses until it
reached the 40 percent investment. Subsequent to that point Concurrent had
assumed 100 percent of the losses. The minority shareholders stopped assuming
its share of CNC's losses at the end of fiscal year 1996.
As part of the Termination Agreement, the minority shareholders agreed to
assume its share of CNC losses subsequent to fiscal year 1996 amounting to $1.2
million. The Company accounted for this payment from the minority shareholders
in the consolidated statement of operations as other non-recurring items in
1998.
7. DISSOLUTION OF SUBSIDIARY
During the year ended June 30, 1999, the Company dissolved its subsidiary
Concurrent Computer Corporation France (the "French Branch"). However, the
French Branch should not be confused with Concurrent Computer Corporation S.A.,
the Company's continuing French subsidiary. In connection with the dissolution,
all assets and liabilities of the French Branch were assumed by the Company. As
a result, a loss of $429,000, representing the write off of the French Branch's
cumulative translation adjustment, was recorded in other non-recurring charges
in the consolidated statement of operations for the year ended June 30, 1999.
F-12
<PAGE> 79
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $4,780 $3,103
Work-in-process............................................. 959 1,175
Finished goods.............................................. 524 363
------ ------
$6,263 $4,641
====== ======
</TABLE>
At June 30, 1998 and 1999, some portion of the Company's inventory was in excess
of the current requirements based upon the planned level of sales for future
years. Accordingly, the Company has an accrual for inventory reserves of $4.6
million to reduce the value of the inventory to its estimated net realizable
value at June 30, 1998 and 1999.
9. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-TERM ASSETS
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 513 $ --
Buildings and leasehold improvements........................ 1,409 1,302
Machinery, equipment and customer support spares............ 28,343 34,647
-------- --------
30,265 35,949
Less: Accumulated depreciation.............................. (17,846) (25,013)
-------- --------
$ 12,419 $ 10,936
======== ========
</TABLE>
For the years ended June 30, 1997, 1998, and 1999, depreciation and
amortization expense for property plant and equipment amounted to $5,123,000,
$4,494,000, and $4,087,000, respectively.
In fiscal year 1999, the Company entered into an agreement to sell its
France facility. In connection with this transaction, which will be finalized in
the first quarter of fiscal year 2000, the facility was written down by $0.4
million to its estimated fair market value of $1.2 million, based upon a
valuation by the acquiring company, and classified as a facility held for sale
in the consolidated balance sheet at June 30, 1999. The loss on facility held
for sale is reflected as an operating expense in the consolidated statement of
operations for the year ended June 30, 1999.
During fiscal year 1996, in connection with the Acquisition and the
resulting planned disposition of the Company's Oceanport, New Jersey facility,
the book value of land and building related to this facility was written down by
$6.8 million to its estimated fair value of $4.7 million, based upon a valuation
by independent appraisers, and classified as a facility held for sale. The sale
was finalized during the first quarter of fiscal year 1998 and resulted in net
proceeds of approximately $5.4 million, which was used to pay the Company's long
term debt. The Company realized a gain of $0.7 million in the consolidated
statement of operations for the year ended June 30, 1998.
F-13
<PAGE> 80
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1999
------- ------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable, trade..................................... $ 4,946 $2,941
Accrued payroll, vacation and other employee expenses....... 4,695 4,314
Restructuring reserve....................................... 661 90
Other accrued expenses...................................... 3,019 1,628
------- ------
$13,321 $8,973
======= ======
</TABLE>
11. DEBT AND LINES OF CREDIT
On March 1, 1998, the Company entered into a new credit agreement providing
for an $8 million revolving credit facility maturing on August 1, 2000 (the
"Revolver"). During fiscal year 1998, the Company repaid the outstanding term
loan and revolver from its prior credit agreement, and the Company's Japanese
subsidiary repaid its bank loans for which the Company was a guarantor.
At June 30, 1999, the outstanding balance of the Revolver was $0. The
Company may reborrow and repay the Revolver, subject to certain collateral
requirements, at any time prior to the maturity date. The interest rate of the
Revolver is prime plus 0.75% (8.5% at June 30, 1999). The Company has pledged
substantially all of its domestic assets as collateral for the Revolver. During
1999, the outstanding balance on the June 1998 revolver was paid in full in the
amount of $1.1 million.
The Revolver contains various covenants and restrictions, which among other
things, (1) place certain limits on corporate acts of the Company such as
fundamental changes in the corporate structure of the Company, investments in
other entities, incurrence of additional indebtedness, creation of liens or
certain distributions or dispositions of assets, including cash dividends, and
(2) require the Company to meet financial tests of a period basis, the most
restrictive of which relate to the maintenance of collateral coverage and debt
coverage all as defined in the agreement. At June 30, 1999, the Company was in
compliance with such covenants and restrictions or obtained waiver for
noncompliance.
12. INCOME TAXES
The domestic and foreign components of (loss) income before provision for
income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1998 1999
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States............................................... $ (489) $2,143 $(1,420)
Foreign..................................................... 5,931 2,231 118
------ ------ -------
$5,442 $4,374 $(1,302)
====== ====== =======
</TABLE>
F-14
<PAGE> 81
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------
1997 1998 1999
------ ---- ------
<S> <C> <C> <C>
Current:
Federal................................................... $ -- $ -- $ --
Foreign................................................... 1,347 496 1,056
------ ---- ------
Total............................................. $1,347 $496 $1,056
------ ---- ------
Deferred:
Federal................................................... $ -- $ 98 $ --
Foreign................................................... 34 366 (693)
------ ---- ------
Total............................................. $ 34 $464 $ (693)
------ ---- ------
Total............................................. $1,381 $960 $ 363
====== ==== ======
</TABLE>
A reconciliation of the income tax (benefit) expense computed using the
Federal statutory income tax rate to the Company's provision for income taxes is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1998 1999
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before provision for income taxes............. $5,442 $4,374 $(1,302)
====== ====== =======
Tax (benefit) statutory rate................................ 1,850 1,487 (443)
Other, net.................................................. (469) (527) 806
------ ------ -------
Provision for income taxes.................................. $1,381 $ 960 $ 363
====== ====== =======
</TABLE>
As of June 30, 1998 and 1999, the Company's deferred tax assets and
liabilities were comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets related to:
U.S. and foreign net operating loss carryforwards......... $ 46,891 $ 46,809
Book and tax basis differences for reporting purposes..... 10,956 10,530
Other reserves............................................ 569 607
Accrued compensation...................................... 1,156 883
Other..................................................... 1,042 785
-------- --------
Total gross deferred tax assets................... 60,614 59,614
Valuation allowance......................................... (58,814) (57,372)
-------- --------
Total deferred tax asset.......................... 1,800 2,242
Gross deferred tax liabilities primarily related to property
and equipment............................................. 1,800 1,549
-------- --------
Total gross deferred tax liability................ 1,800 1,549
-------- --------
Deferred income tax assets........................ $ -- $ 693
======== ========
</TABLE>
Any future benefits attributable to the U.S. Federal net operating loss
carryforwards that originated prior to the Company's quasi-reorganization are
accounted for through adjustments to capital in excess of par value. Under
Section 382 of the Internal Revenue Code, future benefits attributable to the
net operating loss carryforwards and tax credits that originated prior to the
Company's quasi-reorganization and those that originated subsequent to the
Company's quasi-reorganization through the date of the Company's 1993
F-15
<PAGE> 82
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive refinancing ("1993 Refinancing") are limited to approximately
$300,000 per year. The Company's U.S. Federal net operating loss carryforwards
begin to expire in 2004. As of June 30, 1999, the Company has remaining
utilizable U.S. Federal tax net operating loss carryforwards of approximately
$103 million for income tax purposes. Approximately $55 million of these net
operating loss carryforwards originated prior to the Company's 1993 Refinancing
and are limited to $300,000 per year. The remaining $48 million of net operating
loss carryforwards may be limited in accordance with IRC Section 382.
Deferred income taxes have not been provided for undistributed earnings of
foreign subsidiaries, which originated subsequent to the Company's
quasi-reorganization, primarily due to the Company's required investment in
certain subsidiaries.
Additionally, deferred income taxes have not been provided on undistributed
earnings of foreign subsidiaries that originated prior to the Company's
quasi-reorganization. The impact of both the subsequent repatriation of such
earnings and the resulting offset, in full, from the utilization of net
operating loss carryforwards will be accounted for through adjustments to
capital in excess of par value.
The valuation allowance for deferred tax assets as of June 30, 1998 and
1999 was approximately $59 million and $57 million, respectively. The net change
in the total valuation allowance for the year ended June 30, 1999 was a decrease
of approximately $1.4 million. 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 not 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. As such, the deferred tax assets have been reduced by the valuation
allowance since management considers more likely than not that these deferred
tax assets will not be realized.
13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company maintains a retirement savings plan (the "Plan") available to
U.S. employees, which qualifies as a defined contribution plan under Section
401(k) of the Internal Revenue Code. The Company may make a discretionary
matching contribution equal to 100% of the first 6% of employees' contributions.
For the years ended June 30, 1997, 1998 and 1999, the Company matched 100% of
the employees' Plan contributions up to 6%.
The Company's matching contributions under the Plan are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Matching contribution....................................... $1,439 $1,140 $1,040
</TABLE>
F-16
<PAGE> 83
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain foreign subsidiaries of the Company maintain pension plans for
their employees that conform to the common practice in their respective
countries. The related changes in benefit obligation and plan assets and the
amounts recognized in the consolidated balance sheets are presented in the
following tables:
Reconciliation of Funded Status
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 9,304 $10,777
Service cost.............................................. 360 336
Interest cost............................................. 858 886
Plan participants' contributions.......................... 100 71
Actuarial loss............................................ (27) 2,803
Foreign currency exchange rate change..................... 249 (586)
Benefits paid............................................. (67) (57)
------- -------
Benefit obligation at end of year................. $10,777 $14,230
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year............ $11,606 $13,603
Actual return on plan assets.............................. 1,539 957
Employer contributions.................................... 205 170
Plan participants' contributions.......................... 100 71
Benefits paid............................................. (28) (20)
Foreign currency exchange rate change..................... 181 (700)
------- -------
Fair value of plan assets at end of year.......... $13,603 $14,081
======= =======
Funded status............................................... $ 2,826 $ (149)
Unrecognized actuarial loss................................. (3,243) (3)
Unrecognized prior service benefit.......................... 317 277
Unrecognized net transition obligation...................... (298) (211)
------- -------
Net amount recognized............................. $ (398) $ (86)
======= =======
</TABLE>
Amounts Recognized in the Consolidated Balance Sheet
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid benefit cost........................................ $ 1,071 $ 1,255
Accrued benefit liability................................... (1,469) (1,341)
------- -------
Net amount recognized....................................... $ (398) $ (86)
======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $2.3 million, $2.2 million and $1.4 million,
respectively, as of June 30, 1998, and $2.4 million, $2.4 million and $1.5
million, respectively, as of June 30, 1999.
Plan assets are comprised primarily of investments in managed funds
consisting of common stock, money market and real estate investments.
F-17
<PAGE> 84
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assumptions used to measure the present value of benefit obligations
and net periodic benefit cost are shown in the following table:
Significant Assumptions
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Discount rate............................ 6.5% to 9.0% 6.5% to 8.5% 6.0% to 6.25%
Expected return on plan assets........... 7.0% to 9.0% 7.0% to 8.5% 6.0%
Compensation increase rate............... 3.5% to 7.0% 3.5% to 7.0% 3.5% to 4.5%
</TABLE>
Components of Net Periodic Benefit Cost
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1997 1998 1999
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 286 $ 360 $ 336
Interest cost............................................... 782 858 886
Expected return on plan assets.............................. (1,024) (1,130) (873)
Amortization of unrecognized net transition obligation...... (70) (71) (69)
Amortization of unrecognized prior service benefit.......... -- 25 25
Recognized actuarial loss................................... (77) (125) (51)
------- ------- -----
Net periodic benefit cost................................... $ (103) $ (83) $ 254
======= ======= =====
</TABLE>
On July 1, 1993, the Company adopted the provisions of SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions". In
connection with the adoption of this standard, the Company recorded a non-cash
charge of $3.0 million in fiscal year 1994, which represented the immediate
recognition of the accumulated postretirement benefit obligation at the date of
adoption.
The plan was subject to amendment at the Company's discretion, and as a
result of the Acquisition, a decision was made to terminate the plan. The
Company recognized a $2.5 million gain from curtailment of the plan during the
year ended June 30, 1997.
14. EMPLOYEE STOCK PLANS
The Company has a Stock Option Plan providing for the grant of incentive
stock options to employees and non-qualified stock options (NSO's) to employees,
non-employee directors and consultants. The Stock Option Plan is administered by
the Stock Award Committee comprised of members of the Compensation Committee of
the Board of Directors or the Board of Directors, as the case may be. Under the
plan, the Stock Award Committee may award, in addition to stock options, shares
of Common Stock on a restricted basis. The plan also specifically provides for
stock appreciation rights and authorizes the Stock Award Committee to provide,
either at the time of the grant of an option or otherwise, that the option may
be cashed out upon terms and conditions to be determined by the Committee or the
Board. No stock appreciation rights have been granted during the years ended
June 30, 1997, 1998, and 1999. The plan terminates on January 31, 2002.
Stockholders have approved the purchase of up to 9,000,000 shares under the
plan.
F-18
<PAGE> 85
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in options outstanding under the plan during the years ended June
30, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year.......................... 5,483,527 $1.91 6,016,229 $2.15 5,852,794 $2.13
Granted......................... 1,711,000 2.26 630,800 1.86 1,648,500 2.77
Exercised....................... (1,066,362) 1.12 (666,443) 1.45 (884,283) 2.02
Forfeited....................... (111,936) 1.92 (127,792) 5.06 (231,042) 2.17
----------- ---------- ----------
Outstanding at year-end......... 6,016,229 2.15 5,852,794 2.13 6,385,969 2.31
=========== ========== ==========
Options exercisable at year
end........................... 2,493,536 3,076,730 3,498,533
=========== ========== ==========
Weighted average fair value of
options granted during the
year.......................... $ 0.66 $ 0.42 $ 1.56
=========== ========== ==========
</TABLE>
Options with respect to 3,498,533 shares of common stock, with an average
exercise price of $2.31, were exercisable at June 30, 1999. The weighted-average
fair value of the stock options granted during 1997, 1998 and 1999 was
$1,130,324, $263,415, and $2,571,431, respectively, on the date of grant using
the Black Scholes option-pricing model. The weighted-average assumptions used
were: expected dividend yield 0%, risk-free interest rate 5.0%, expected life of
4.01 years and an expected volatility of 35%, 35%, and 70% respectively.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL AT JUNE 30, EXERCISE AT JUNE 30, EXERCISE
PRICES LIFE 1999 PRICE 1999 PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.88 -- $ 0.99 5.84 52,901 $ 0.88 52,901 $ 0.88
$ 1.00 -- $ 1.99 7.01 554,246 1.50 318,604 1.49
$ 2.00 -- $ 2.99 7.71 5,578,337 2.34 2,943,209 2.11
$ 3.00 -- $ 3.99 9.11 59,166 3.15 45,834 3.19
$ 4.00 -- $ 4.99 2.22 139,452 4.39 136,118 4.39
$ 5.00 -- $ 5.99 1.98 1,500 5.08 1,500 5.08
$ 6.00 -- $ 6.99 2.06 100 6.88 100 6.88
$ 7.00 -- $ 7.99 2.04 200 7.19 200 7.19
$25.63 -- $47.50 0.14 67 41.30 67 41.30
---- --------- ------ --------- ------
7.47 6,385,969 $ 2.31 3,498,533 $ 2.13
==== ========= ====== ========= ======
</TABLE>
F-19
<PAGE> 86
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income (loss) applicable to common shareholders and net income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1998 1999
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss) applicable to common shareholders:
As reported............................................... $3,750 $3,396 $(1,665)
Pro forma................................................. $2,620 $3,133 $(2,147)
Net income (loss) per share (basic and diluted):
As reported............................................... $ 0.08 $ 0.07 $ (0.03)
Pro forma................................................. $ 0.06 $ 0.07 $ (0.04)
</TABLE>
15. ISSUANCE OF NON-CASH WARRANTS
On May 20, 1998, the Company entered into a Letter of Intent ("LOI") with
Scientific-Atlanta, Inc. ("SAI") providing for the joint development and
marketing of a video-on-demand system to cable network operators. A definitive
agreement was signed on August 17, 1998. In exchange for SAI's technical and
marketing contributions, the Company issued warrants for 2 million shares of its
common stock, exercisable at $5 per share over a four-year term.
The LOI between Concurrent and SAI is broken into three phases:
<TABLE>
<S> <C>
Phase I Technical/Commercial Evaluation and Definitive Agreement
Phase II Initial Development and Video-on-Demand Field Demonstration
System
Phase III Commercial Deployment
</TABLE>
During Phase I, either party could terminate the negotiations at any time.
In June 1998, the parties moved to Phase II and pursuant to the provisions of
SFAS No. 123, Concurrent recorded a charge of $1.6 million representing the fair
value of the underlying stock using the Black-Scholes option-pricing model for
the warrants to purchase 2 million shares of the Company's stock.
The LOI further stipulates that Concurrent is required to issue additional
warrants to SAI upon achievement of pre-determined revenue targets. These
warrants are to be issued with a strike price of a 15% discount to the then
current market price. To date no such targets have been met.
16. RIGHTS PLAN
On July 31, 1992, the Board of Directors of the Company declared a dividend
distribution of one Series A Participating Cumulative Preferred Right for each
share of the Company's Common Stock and Convertible Preferred Stock. The
dividend was made to stockholders of record on August 14, 1992. Under the rights
plan, each Right becomes exercisable unless redeemed (1) after a third party
owns 20% or more of the outstanding shares of the Company's voting stock and
engages in one or more specified self-dealing transactions, (2) after a third
party owns 30% or more of the outstanding voting stock or (3) following the
announcement of a tender or exchange offer that would result in a third party
owning 30% or more of the Company's voting stock. Any of these events would
trigger the rights plan and entitle each right holder to purchase from the
Company one one-hundredth of a share of Series A Participating Cumulative
Preferred Stock at a cash price of $30 per right.
F-20
<PAGE> 87
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under certain circumstances following satisfaction of third party ownership
tests of the Company's voting stock, upon exercise each holder of a right would
be able to receive common stock of the Company or its equivalent, or common
stock of the acquiring entity, in each case having a value of two times the
exercise price of the right. The rights will expire on August 14, 2002 unless
earlier exercised or redeemed, or earlier termination of the plan.
17. BASIC AND DILUTED INCOME (LOSS) PER SHARE COMPUTATION
The following table presents a reconciliation of the numerators and
denominators of basic and diluted income (loss) per share for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic EPS calculation:
Net income (loss)......................................... $ 4,061 $ 3,414 $(1,665)
Less: Preferred stock dividends and accretion............. 311 18 --
------- ------- -------
Net income (loss) available to common shareholders........ $ 3,750 $ 3,396 $(1,665)
Weighted average number of shares outstanding............. 44,603 47,002 47,967
------- ------- -------
Basic EPS......................................... $ 0.08 $ 0.07 $ (0.03)
======= ======= =======
Diluted EPS calculation:
Net income (loss)......................................... $ 4,061 $ 3,414 $(1,665)
Less: Preferred stock dividends and accretion............. 311 18 --
------- ------- -------
Net income (loss) available to common shareholders........ $ 3,750 $ 3,396 $(1,665)
Weighted average number of shares outstanding............... 44,603 47,002 47,967
Incremental shares from assumed conversion of stock
options................................................... 509 625 --
------- ------- -------
45,112 47,627 47,967
------- ------- -------
Diluted EPS....................................... $ 0.08 $ 0.07 $ (0.03)
======= ======= =======
</TABLE>
18. CONCENTRATION OF RISK
A summary of the Company's financial data by geographic area follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1998 1999
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
United States.......................................... $ 60,039 $49,708 $41,726
Intercompany........................................... 11,031 6,164 5,843
-------- ------- -------
71,070 55,872 47,569
-------- ------- -------
Europe................................................. 28,119 18,383 17,453
Intercompany........................................... 1,759 1,161 344
-------- ------- -------
29,878 19,544 17,797
-------- ------- -------
Asia/Pacific........................................... 17,077 12,341 9,519
Intercompany........................................... 50 26 53
-------- ------- -------
17,127 12,367 9,572
-------- ------- -------
Other.................................................. 3,132 1,783 1,265
-------- ------- -------
121,207 89,566 76,203
Eliminations........................................... (12,840) (7,351) (6,240)
-------- ------- -------
Total.......................................... $108,367 $82,215 $69,963
======== ======= =======
</TABLE>
F-21
<PAGE> 88
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1998 1999
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income (loss):
United States.......................................... $ 4,881 $ 394 $(2,146)
Europe................................................. 985 1,163 72
Asia/Pacific........................................... 1,802 1,349 560
Other.................................................. 565 390 149
Eliminations........................................... 1,006 15 76
-------- ------- -------
Total.......................................... $ 9,239 $ 3,311 $(1,289)
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Identifiable assets:
United States............................................. $ 55,778 $ 54,794
Europe.................................................... 18,048 14,601
Asia/Pacific.............................................. 14,820 13,551
Other..................................................... 1,394 543
Eliminations.............................................. (43,805) (42,920)
-------- --------
Total............................................. $ 46,235 $ 40,569
======== ========
</TABLE>
Intercompany transfers between geographic areas are accounted for at prices
similar to those available to comparable unaffiliated customers. Sales to
unaffiliated customers outside the U.S., including U.S. export sales, were
$49,534,000, $34,877,000, and $29,058,000 for the years ended June 30, 1997,
1998 and 1999, respectively, which amounts represented 46%, 42%, and 42% of
total sales for the respective fiscal years.
Sales to the U.S. Government and its agencies amounted to approximately
$27,737,000, $22,203,000 and $23,053,000 for the years ended June 30, 1997, 1998
and 1999, respectively, which amounts represented 26%, 27% and 33% of total
sales for the respective fiscal years. Sales to the Company's largest commercial
customer amounted to approximately $8,228,000 or 12% of total sales for the year
ended June 30, 1999. In the three-year period ended June 30, 1999, there were no
other customers representing more than 10% of total revenues in any year.
Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers comprising the Company's customer base.
Ongoing credit evaluations of customers' financial condition are performed and
collateral is generally not required.
F-22
<PAGE> 89
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results for the years
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1999 1999
------------- ------------ --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1999
Net sales.................................. $16,874 $19,181 $17,676 $16,232
Gross margin............................... 8,749 9,834 9,257 7,497
Operating income (loss) (a)................ 212 539 562 (2,602)
Net income (loss) (a)...................... (426) 915 294 (2,448)
Net income (loss) per share................ (0.01) 0.02 0.01 (0.05)
</TABLE>
------------
(a) Net loss for the quarter ended September 30, 1998 reflects a loss of $0.4
million resulting from the Company's dissolution of its subsidiary
Concurrent Computer Corporation France (see Note 7). Net income for the
quarter ended December 31, 1998 reflects an $0.3 million exchange gain
resulting from the settlement of a subsidiary's short-term loan to the
Company. Operating loss and net loss for the three months ended June 30,
1999 reflect a $0.4 million loss on impairment of the Company's France
facility (see Note 9).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1998 1998
------------- ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
Net sales.................................. $20,605 $21,016 $20,394 $20,200
Gross margin............................... 9,883 10,763 9,601 10,143
Operating income (loss) (b)................ 1,646 2,199 1,017 (1,551)
Net income (loss) (b)...................... 1,300 1,423 1,005 (314)
Net income (loss) per share................ 0.03 0.03 0.02 (0.01)
</TABLE>
------------
(b) Operating loss and net loss for the three months ended June 30, 1998 reflect
a $1.6 million non-cash charge relating to the issuance of warrants for the
purchase of 2,000,000 shares of the Company's common stock to
Scientific-Atlanta, Inc. (see Note 15).
20. COMMITMENTS AND CONTINGENCIES
The Company leases certain sales and service offices, warehousing, and
equipment. The leases expire at various dates through 2005 and generally provide
for the payment of taxes, insurance and maintenance costs. Additionally, certain
leases contain escalation clauses that provide for increased rents resulting
from the pass through of increases in operating costs, property taxes and
consumer price indexes.
At June 30, 1999, future minimum payments under non-cancelable operating
leases for the years ending June 30 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000........................................................ $ 2,760
2001........................................................ 1,624
2002........................................................ 836
2003........................................................ 491
2004 and thereafter......................................... 274
--------
$ 5,985
========
</TABLE>
F-23
<PAGE> 90
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense amounted to $3,776,000, $4,761,000, and $3,937,000, for the
years ended June 30, 1997, 1998 and 1999, respectively.
In August 1999, the Company entered into a five-year lease commencing on
January 1, 2000 for a 30,000 square foot facility in Pompano Beach, Florida,
directly across the street from its manufacturing facility. The new facility
will house the Real-Time Division's offices. Costs incurred to move from the
Fort Lauderdale facility to the new facility are not expected to be material.
The Company, from time to time, is involved in litigation incidental to the
conduct of its business. The Company and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations or financial condition.
The Company has entered into employment agreements with its executive
officers. In the event an executive officer is terminated directly by the
Company without cause or in certain circumstances constructively by the Company,
the terminated officer will be paid severance compensation for a one or two-year
period (depending on the executive) in an annualized amount equal to the
respective officer's annual salary then in effect plus an amount equal to the
then most recent annual bonus or target bonus paid or, if determined, payable,
to such officer. At June 30, 1999, the maximum contingent liability under these
agreements is approximately $2.7 million. The Company's employment agreements
with certain of its officers contain certain offset provisions, as defined in
their respective agreements.
21. NEW ACCOUNTING PRONOUNCEMENTS
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
SOP 98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires
that costs incurred during start-up activities, including organization costs, be
expensed as incurred. Companies that previously capitalized such costs are
required to write-off the unamortized portion of such costs as the cumulative
effect of a change of accounting principle. The Company does not incur any start
up costs, therefore adoption of this SOP will not have a significant impact on
the Company's financial reporting.
On March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the costs of software developed or obtained for internal use" ("SOP 98-1"). This
standard requires companies to capitalize qualifying computer software costs,
which are incurred during the application development stage, and amortize them
over the software's estimated useful life. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. The Company expects no impact on its
financial statements related to SOP 98-1.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and the measurement of those instruments at
fair value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 137 amended the effective
date for implementation of SFAS No. 133 until fiscal years beginning after June
15, 2000. The Company does not engage in hedging activities, therefore this SFAS
will not have a significant impact on the Company's financial statements.
F-24
<PAGE> 91
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING CHARGED TO COSTS DEDUCTIONS AT END
DESCRIPTION OF YEAR AND EXPENSES (A) OTHER OF YEAR
----------- ---------- ---------------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted
from asset accounts:
1997
Reserve for inventory
obsolescence and shrinkage..... $10,677 -- $(1,641) $ (4,243)(d) $4,793
Allowance for doubtful
accounts....................... 1,143 320 (550) -- 913
1998
Reserve for inventory
obsolescence and shrinkage..... $ 4,793 -- $ (193) -- $4,600
Allowance for doubtful
accounts....................... 913 (140)(c) (258) (12)(b) 503
1999
Reserve for inventory
obsolescence and shrinkage..... $ 4,600 $ 1,087 $(1,119) -- $4,568
Allowance for doubtful
accounts....................... 503 19 (104) -- 418
</TABLE>
------------
(a) Charges and adjustments to the reserve accounts for write-offs and credits
issued during the year.
(b) Includes adjustments to the reserve account and allowance for doubtful
accounts for foreign currency translation.
(c) Includes reversal of excess reserve due to improved collections.
(d) Decrease in the reserve due to transfer of spares and goods-on-loan
inventory and the related reserves to property, plant and equipment and
accumulated depreciation, respectively, due to a change in accounting
policy.
F-25
<PAGE> 92
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 2000
-------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,872 $ 6,093
Accounts receivable -- net................................ 14,879 17,240
Inventories............................................... 4,641 4,764
Prepaid expenses and other current assets................. 1,053 871
------- -------
Total current assets.............................. 27,445 28,968
Property, plant and equipment -- net........................ 10,936 11,533
Facilities held for sale.................................... 1,223 --
Purchased developed computer software....................... -- 1,821
Goodwill.................................................... -- 3,022
Other long-term assets...................................... 965 1,764
------- -------
Total assets...................................... $40,569 $47,108
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 8,973 $11,298
Deferred revenue.......................................... 3,778 3,213
------- -------
Total current liabilities......................... 12,751 14,511
Other long-term liabilities................................. 1,807 1,674
------- -------
Total liabilities................................. 14,558 16,185
------- -------
Stockholders' equity:
Common stock.............................................. 485 537
Capital in excess of par value............................ 98,916 125,492
Accumulated deficit after eliminating accumulated deficit
of $81,826 at December 31, 1991, date of
quasi-reorganization................................... (72,856) (94,243)
Treasury stock............................................ (58) (58)
Accumulated other comprehensive loss...................... (476) (805)
------- -------
Total stockholders' equity........................ 26,011 30,923
------- -------
Total liabilities and stockholders' equity.................. $40,569 $47,108
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-26
<PAGE> 93
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------
1999 2000
------- --------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues:
Product sales
Real-time systems...................................... $23,779 $ 20,220
Video-on-demand systems................................ 583 6,912
------- --------
Total product sales............................... 24,362 27,132
Service and other......................................... 29,369 22,494
------- --------
Total............................................. 53,731 49,626
------- --------
Cost of sales:
Real-time and video-on-demand............................. 10,661 14,068
Service and other......................................... 15,230 12,375
------- --------
Total............................................. 25,891 26,443
------- --------
Gross margin................................................ 27,840 23,183
Operating expenses:
Sales and marketing....................................... 13,846 14,978
Research and development.................................. 7,620 7,316
General and administrative................................ 5,061 6,232
In-process computer software technology................... -- 14,000
Relocation and restructuring.............................. -- 2,367
------- --------
Total operating expenses.......................... 26,527 44,893
------- --------
Operating income (loss)..................................... 1,313 (21,710)
Interest income (expense) -- net............................ (67) 136
Other non-recurring income (expense)........................ (88) 761
Other income (expense) -- net............................... (237) (124)
------- --------
Income (loss) before provision for income taxes............. 921 (20,937)
Provision for income taxes.................................. 138 450
------- --------
Net income (loss)........................................... $ 783 $(21,387)
======= ========
Basic and diluted net income (loss) per share............... $ 0.02 $ (0.42)
======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-27
<PAGE> 94
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED TREASURY
CAPITAL IN OTHER STOCK
PAR EXCESS OF ACCUMULATED COMPREHENSIVE -------------
SHARES VALUE PAR VALUE DEFICIT INCOME SHARES COST TOTAL
---------- ----- ---------- ----------- ------------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999............... 48,516,527 $485 $ 98,916 $(72,856) $(476) (840) $(58) $ 26,011
Sale of common stock under stock....... 3,004,951 30 6,522 6,552
plans -- unaudited
Issuance of shares for
acquisition -- unaudited............. 2,233,699 22 19,523 19,545
Comprehensive income:
Net loss -- unaudited................ (21,387) (21,387)
Foreign currency translation
adjustment -- unaudited............ (329) (329)
--------
Total comprehensive loss --
unaudited.................... (21,716)
Other -- unaudited..................... 531 531
---------- ---- -------- -------- ----- ---- ---- --------
Balance at March 31,
2000 -- unaudited.................... 53,755,177 $537 $125,492 $(94,243) $(805) (840) $(58) $ 30,923
========== ==== ======== ======== ===== ==== ==== ========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-28
<PAGE> 95
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 783 $(21,387)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Write-off of in-process software technology............ -- 14,000
Loss on dissolution of subsidiary...................... 429 --
Depreciation, amortization and other................... 3,701 4,143
Other non-cash expenses................................ 19 1,001
Changes in operating assets and liabilities:
Accounts receivable.................................. 2,782 (2,326)
Inventories.......................................... 423 (523)
Prepaid expenses and other current assets............ (753) (558)
Other long-term assets............................... 192 (483)
Accounts payable and accrued expenses................ (3,809) 1,941
Deferred revenue..................................... (420) (565)
Other long-term liabilities.......................... 70 (133)
-------- --------
Total adjustments to net income (loss)............ 2,364 16,497
-------- --------
Net cash provided by (used in) operating activities......... 3,417 (4,890)
-------- --------
INVESTING ACTIVITIES:
Net additions to property, plant and equipment............ (2,957) (3,297)
Proceeds from sale of facility............................ -- 1,223
Other..................................................... -- 76
-------- --------
Net cash used in investing activities....................... (2,957) (1,998)
-------- --------
FINANCING ACTIVITIES:
Payments of notes payable................................. (425) --
Proceeds from borrowings under revolving credit
facility............................................... 39,995 --
Repayments of borrowings under revolving credit
facility............................................... (41,118) --
Proceeds from sale and issuance of common stock........... 969 6,552
-------- --------
Net cash provided by (used in) financing activities......... (579) 6,552
-------- --------
Effect of exchange rates on cash and cash equivalents....... (7) (443)
-------- --------
Decrease in cash and cash equivalents....................... (126) (779)
Cash and cash equivalents at beginning of period............ 5,733 6,872
-------- --------
Cash and cash equivalents at end of period.................. $ 5,607 $ 6,093
======== ========
Cash paid during the period for:
Interest.................................................. $ 190 $ 163
======== ========
Income taxes (net of refunds)............................. $ 875 $ 230
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-29
<PAGE> 96
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Concurrent
Computer Corporation ("Concurrent" or the "Company") have been prepared in
accordance with the instructions to Form 10-Q and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The foregoing financial information reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented. All such adjustments are
of a normal recurring nature.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and the notes included in the Annual Report on
Form 10-K as filed with the Securities and Exchange Commission.
The results of interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each year.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares including 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.
The number of shares used in computing basic and diluted net loss per share
for the nine months ended March 31, 2000 was 51,335,000. Because of the loss for
this period, the common share equivalents are anti-dilutive and are not
considered in the diluted EPS calculation. The number of shares used in
computing basic and diluted EPS for the nine months ended March 31, 1999 was
47,855,000 and 49,186,000, respectively.
3. 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:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 2000
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $3,103 $3,403
Work-in-process............................................. 1,175 1,022
Finished goods.............................................. 363 339
------ ------
$4,641 $4,764
====== ======
</TABLE>
F-30
<PAGE> 97
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 2000
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accounts payable, trade..................................... $2,941 $ 3,383
Accrued payroll, vacation and other employee expenses....... 4,314 5,103
Restructuring reserve....................................... 90 321
Other accrued expenses...................................... 1,628 2,491
------ -------
$8,973 $11,298
====== =======
</TABLE>
5. COMPREHENSIVE INCOME (LOSS)
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS No. 130").
FAS No. 130 requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income. The
Company's total comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------
1999 2000
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income (loss)........................................... $ 783 $(21,387)
Other comprehensive income (loss):
Foreign currency translation gains (losses)............... 508 (329)
------ --------
Total comprehensive income (loss)................. $1,291 $(21,716)
====== ========
</TABLE>
6. SEGMENT INFORMATION
The Company operates its business in two divisions: real-time and
video-on-demand ("VOD"). 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. Its VOD division is
a leading supplier of digital video server systems to a wide range of industries
serving a variety of markets, including the broadband/cable, hospitality,
intranet/distance learning, and other related markets.
F-31
<PAGE> 98
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accounting policies of the divisions are the same as those described in
the summary of significant accounting policies in the consolidated financial
statements and related footnotes for the fiscal year ended June 30, 1999
included in the Company's Annual Report on Form 10-K. Shared expenses are
primarily allocated based 50 percent on revenues and 50 percent on headcount.
There were no material intersegment sales or transfers. The following summarizes
the operating income (loss) by segment for the nine-month period ended March 31,
2000 (unaudited):
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 2000
----------------------------------
REAL-TIME VOD TOTAL
---------- --------- ---------
<S> <C> <C> <C>
Net sales:
Product sales............................................. $20,220 $ 6,912 $ 27,132
Service and other......................................... 22,494 -- 22,494
------- -------- --------
Total............................................. 42,714 6,912 49,626
Cost of sales:
Systems................................................... 9,316 4,752 14,068
Service and other......................................... 12,375 -- 12,375
------- -------- --------
Total............................................. 21,691 4,752 26,443
------- -------- --------
Gross margin................................................ 21,023 2,160 23,183
Operating expenses:
Sales and marketing....................................... 9,163 5,815 14,978
Research and development.................................. 3,269 4,047 7,316
General and administrative................................ 3,642 2,590 6,232
Purchased in process computer software technology......... -- 14,000 14,000
Relocation and restructuring.............................. 1,208 1,159 2,367
------- -------- --------
Total operating expenses.......................... 17,282 27,611 44,893
------- -------- --------
Operating income (loss)..................................... $ 3,741 $(25,451) $(21,710)
======= ======== ========
</TABLE>
It is impracticable to attain comparable information for the nine-month period
ended March 31, 1999.
7. RESTRUCTURING AND RELOCATION
In August 1999, the Company relocated its Corporate Headquarters and its
VOD Division to Duluth, Georgia. In connection with this move, the Company
incurred employee relocation costs of $769,000, which is recorded as an
operating expense in the condensed consolidated statement of operations for the
quarter ended September 30, 1999.
In addition to the relocation discussed above, management decided in the
first quarter to "right-size" the Real-Time division to bring its expenses in
line with its anticipated revenues. In connection with these events, the Company
recorded a $1.6 million restructuring provision as an operating expense in the
quarter ended September 30, 1999. This expense represents workforce reductions
of approximately 38 employees in all areas of the Company. Cash expenditures of
$1.3 million were made against this provision during the nine months ended March
31, 2000 leaving a $0.3 million restructuring accrual at March 31, 2000.
8. DISSOLUTION OF SUBSIDIARY
During the quarter ended September 30, 1998, the Company dissolved its
subsidiary Concurrent Computer Corporation France (the "French Branch"). In
connection with the dissolution, all assets and liabilities of the French Branch
were assumed by the Company. A loss of $429,000, representing the write off of
the French Branch's cumulative translation adjustment, was recorded as other
non-recurring charges in the
F-32
<PAGE> 99
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
condensed consolidated statement of operations. The Company continues to operate
a French Subsidiary, Concurrent Computer Corporation S.A.
9. SALE OF SUBSIDIARY
On September 8, 1999, the Company entered into an agreement to sell the
stock of Concurrent Vibrations, a wholly owned subsidiary of Concurrent Computer
Corporation S.A., to Data Physics, Inc. The transaction, which had an effective
date of August 31, 1999, resulted in a gain of $761,000. This gain is recorded
in other non-recurring items in the condensed consolidated statement of
operations in the quarter ended September 30, 1999.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which will
require that all derivative financial instruments be recognized as either assets
or liabilities in the balance sheet. SFAS 133 will be effective for the
Company's first quarter of fiscal 2001. The company's current investment policy
does not allow for the use of hedging instruments. In anticipation of the
adoption of SFAS 133, the Company is currently reviewing all outstanding
contracts for evidence of embedded derivatives. Based on the procedures
undertaken through this point, management does not believe that adoption of SFAS
133 will have a material impact on its results of operations.
11. ACQUISITION OF VIVID TECHNOLOGY
On October 28, 1999, the Company acquired Vivid Technology ("Vivid") for
total consideration of $19.8 million, consisting of 2,233,689 shares of common
stock valued at $16.8 million, $0.2 million of acquisition costs, and 378,983
shares reserved for future issuance upon exercise of stock options with a value
of $2.8 million. The acquisition was treated as a purchase for accounting
purposes, and, accordingly, the assets and liabilities were recorded based on
their fair values at the date of the acquisition. The purchase price allocation
and the respective useful lives of the intangible assets are as follows:
<TABLE>
<CAPTION>
ALLOCATION LIFE
---------- ------
<S> <C> <C>
Working capital............................................. $ 72
Fixed assets................................................ 257
Other long-term assets...................................... 13
Developed completed computer software technology............ 1,900 10 yrs
Employee workforce.......................................... 400 3 yrs
Goodwill.................................................... 3,153 10 yrs
In-process computer software technology..................... 14,000
</TABLE>
Amortization of intangible assets is on a straight line basis over the assets'
estimated useful life. Vivid's operations are included in the condensed
consolidated statements of operations from the date of acquisition.
At the acquisition date, Vivid had one product under development that had
not demonstrated technological or commercial feasibility. This product was the
Vivid interactive video-on-demand integrated system. The in-process technology
has no alternative use in the event that the proposed product does not prove to
be feasible. This development effort falls within the definition of In-Process
Research and Development ("IPR&D") contained in Statement of Financial
Accounting Standards ("SFAS") No. 2 and was expensed in the quarter ended
December 31, 1999 as a one-time charge.
Consistent with the Company's policy for internally developed software, the
Company determined the amounts to be allocated to IPR&D based on whether
technological feasibility had been achieved and whether there was any
alternative future use for the technology. As of the date of the acquisition,
the Company
F-33
<PAGE> 100
CONCURRENT COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
concluded that the IPR&D had no alternative future use after taking into
consideration the potential for usage of the software in different products,
resale of the software and internal usage.
The following unaudited proforma information presents the results of
operations of the Company as if the acquisition had taken place on July 1, 1998
and includes the one-time charge related to the write-off of the purchased IPR&D
of $14 million in both periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 2000
----------------- -----------------
<S> <C> <C>
Revenues............................................ $ 54,232 $ 49,980
======== ========
Net income (loss)................................... $(14,374) $(22,083)
======== ========
Basic and diluted net income (loss) per share....... $ (0.29) $ (0.42)
======== ========
</TABLE>
F-34
<PAGE> 101
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Vivid Technology, Inc.
We have audited the accompanying balance sheets of Vivid Technology, Inc.
(a Delaware corporation) as of December 31, 1997 and 1998, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years then ended. These financial statements are the representation of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Vivid
Technology, Inc. as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
------------------------------------------------------------------
BERGEY YODER SWEENEY WITTER & ROLAND PC
Certified Public Accountants
November 26, 1999
F-35
<PAGE> 102
VIVID TECHNOLOGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------- OCTOBER 28,
1997 1998 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................ $ 34,285 $1,002,043 $ 76,090
Accounts Receivable...................................... 166,232 85,804 104,500
Prepaid Expenses and Other Assets........................ -- 27,515 24,834
-------- ---------- -----------
Total Current Assets............................. 200,517 1,115,362 205,424
Property and Equipment, Net................................ 52,385 149,931 257,495
Deposits................................................... -- 12,500 12,500
-------- ---------- -----------
Total Assets..................................... $252,902 $1,277,793 $ 475,419
======== ========== ===========
LIABILITIES
Current Liabilities:
Convertible Debt......................................... $ -- $ -- $ 500,000
Amount Due to Stockholder................................ -- 71,564 26,490
Accounts Payable and Accrued Expenses.................... 22,459 96,209 115,417
-------- ---------- -----------
Total Current Liabilities........................ 22,459 167,773 641,907
-------- ---------- -----------
Stockholders' Equity:
Convertible Preferred Stock, Par Value $.001; 199,387
Shares Authorized and Outstanding at December 31,
1998 and October 28, 1999........................ -- 199 199
Common Stock, Par Value $.001; 5,000,000 Shares
Authorized; 600,000 Issued and Outstanding............ 600 600 600
Additional Paid in Capital............................... 1,400 1,301,204 1,301,204
Retained Earnings (Deficit).............................. 228,443 (191,983) (1,468,491)
-------- ---------- -----------
Total Stockholders' Equity (Deficit)............. 230,443 1,110,020 (166,488)
-------- ---------- -----------
Total Liabilities and Stockholders' Equity....... $252,902 $1,277,793 $ 475,419
======== ========== ===========
</TABLE>
See accountant's report and the accompanying notes.
F-36
<PAGE> 103
VIVID TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN-MONTH TEN-MONTH
YEAR ENDED DECEMBER 31, PERIOD ENDED PERIOD ENDED
----------------------- OCTOBER 31, OCTOBER 28,
1997 1998 1998 1999
--------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales........................................... $659,915 $ 812,461 $ 729,143 $ 642,499
Cost of Sales................................... 127,851 347,579 212,810 418,138
-------- ---------- --------- -----------
Gross Profit.................................... 532,064 464,882 516,333 224,361
Operating Expenses:
Selling, General, and Administrative.......... 24,518 179,452 139,364 705,195
Research and Development...................... 265,362 619,603 461,573 818,276
-------- ---------- --------- -----------
Total Operating Expenses.............. 289,880 799,055 600,937 1,523,471
-------- ---------- --------- -----------
Operating Income (Loss)......................... 242,184 (334,173) (84,604) (1,299,110)
Other Income and (Expenses)..................... (1,468) 20,816 16,765 22,602
-------- ---------- --------- -----------
Net Income (Loss)............................... $240,716 $( 313,357) $ (67,839) $(1,276,508)
======== ========== ========= ===========
</TABLE>
See accountant's report and the accompanying notes.
F-37
<PAGE> 104
VIVID TECHNOLOGY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCK STOCK ADDITIONAL RETAINED
PREFERRED PAR COMMON PAR PAID IN EARNINGS
SHARES VALUE SHARES VALUE CAPITAL DEFICIT TOTAL
--------- --------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996
(unaudited)................... -- $ -- 300,000 $300 $ 700 $ (5,766) $ (4,766)
Issuance of Common Stock........ -- -- 300,000 300 700 -- 1,000
Dividends Paid.................. -- -- -- -- -- (6,507) (6,507)
Net Income...................... -- -- -- -- -- 240,716 240,716
------- ---- ------- ---- ---------- ----------- -----------
Balance at December 31, 1997.... -- -- 600,000 600 1,400 228,443 230,443
Sale of Preferred Stock......... 199,387 199 -- -- 1,299,804 -- 1,300,003
Dividends Paid.................. -- -- -- -- -- (107,069) (107,069)
Net (loss)...................... -- -- -- -- -- (313,357) (313,357)
------- ---- ------- ---- ---------- ----------- -----------
Balance at December 31, 1998.... 199,387 199 600,000 600 1,301,204 (191,983) 1,110,020
Net (loss) -- unaudited......... -- -- -- -- -- (1,276,508) (1,276,508)
------- ---- ------- ---- ---------- ----------- -----------
Balance at October 28, 1999 --
(unaudited)................... 199,387 $199 600,000 $600 $1,301,204 $(1,468,491) $ (166,488)
======= ==== ======= ==== ========== =========== ===========
</TABLE>
See accountant's report and the accompanying notes.
F-38
<PAGE> 105
VIVID TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN-MONTH TEN-MONTH
PERIOD PERIOD
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------ OCTOBER 31, OCTOBER 28,
1997 1998 1998 1999
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)............................ $ 240,716 $ (313,357) $ (67,839) $(1,276,508)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used in) Operating
Activities:
Depreciation............................ 6,096 23,065 19,960 41,085
Decrease (Increase) in Assets:
Accounts Receivable................ (156,135) 80,428 (60,681) (18,696)
Inventory.......................... -- (2,695) -- --
Accrued Interest................... -- (16,437) -- --
Prepaid Expenses and Other
Assets.......................... -- (8,383) (18,300) 2,681
Deposits........................... -- (12,500) (12,500) --
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued
Expenses........................ 11,626 69,743 63,362 19,207
Other Current Liabilities.......... -- 4,007 -- --
--------- ---------- ---------- -----------
Net Cash Provided by (Used in)
Operating Activities............ 102,303 (176,129) (75,998) (1,232,231)
Cash Flows from Investing Activities:
Purchases of Property and Equipment.......... (54,754) (120,611) (104,445) (148,649)
--------- ---------- ---------- -----------
Cash Flows from Financing Activities:
Net Proceeds (Payments) on Stockholder
Loan...................................... (7,941) 71,564 72,561 (45,073)
Proceeds from Issuance of Common Stock....... 1,000 -- -- --
Proceeds from Issuance of Preferred Stock.... -- 1,300,003 1,300,003 --
Proceeds from Issuance of Convertible Debt... -- -- -- 500,000
Cash Dividends Paid.......................... (6,507) (107,069) (107,069) --
--------- ---------- ---------- -----------
Net Cash Provided by (Used in) Financing
Activities................................ (13,448) 1,264,498 1,265,495 454,927
--------- ---------- ---------- -----------
Net Increase (Decrease) in Cash................ 34,101 967,758 1,085,052 (925,953)
Cash and Cash Equivalents, Beginning........... 184 34,285 34,285 1,002,043
--------- ---------- ---------- -----------
Cash and Cash Equivalents, Ending.............. $ 34,285 $1,002,043 $1,119,337 $ 76,090
========= ========== ========== ===========
Supplemental Disclosure of Cash Flow
Information:
Cash Payments for Interest................... $ 1,468 $ 20 $ 20 $ --
========= ========== ========== ===========
</TABLE>
See accountant's report and the accompanying notes.
F-39
<PAGE> 106
VIVID TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. OVERVIEW OF THE BUSINESS
The company, which is located in Southeastern Pennsylvania, provides Video
on Demand and interactive television solutions. Video on Demand is a complete
system of hardware and software elements that enables cable operators to offer
subscribers an information and entertainment medium including movies, on-line
shopping, news, sports and classifieds through the use of a television set. The
system can also provide for the management of subscriber accounts, billing
systems and library content.
Sales of the video on demand solution to date have been solely for the
customers to evaluate the viability of the video on demand market and the
proposed architecture prior to making a long-term investment in the unproven
technology.
Revenue has also resulted from sales of the completed interactive
televisions solution and customer consultations.
The Company contracts with customers located throughout North America,
performs ongoing credit evaluations of its customers' financial condition and
generally requires no collateral from its customers.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of Vivid Technology, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
who is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities at the balance sheet dates
and the reporting of revenues and expenses during the reporting periods, to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
REVENUE AND COST RECOGNITION
Computer systems sales are recorded when the earnings process is complete,
typically upon shipment to customers.
CASH AND CASH EQUIVALENTS
Short-term investments with original maturities of 90 days or less at the
date of purchase are considered cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined on
the first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Significant additions and
betterments are capitalized while maintenance and repairs are expensed as
incurred. The cost of property and equipment is depreciated over the estimated
useful lives of the related assets using the straight-line method.
Gains and losses resulting from the disposition of property and equipment
are included in other income and (expenses).
F-40
<PAGE> 107
VIVID TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed as incurred.
INCOME TAX STATUS
The Company elected to be an S corporation for both federal and state
corporate tax purposes effective September 26, 1996, its date of incorporation.
In lieu of corporation income taxes, the Company's income flowed directly to its
then sole stockholder and was taxed at the individual level. Accordingly, no
provision or liability for corporate income taxes was included in the financial
statements during the time of its S corporation status. The Company revoked its
S elections effective July 31, 1998, thereby becoming subject to federal and
state income taxes at the corporate level. Temporary differences between
financial and income tax reporting are minor; accordingly, no deferred tax
accounts have been recorded.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
prepaid expenses, and other assets, accounts payable, accrued expenses and
short-term debt approximate fair value because of the short maturity of these
instruments.
NOTE 3. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ OCTOBER 28,
1997 1998 1999
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Lab Equipment........................................... $47,682 $140,678 $270,237
Office Equipment........................................ 5,609 24,855 32,435
Office Furniture........................................ 5,604 13,973 25,483
------- -------- --------
58,895 179,506 328,155
Less Accumulated Depreciation........................... (6,510) (29,575) (70,660)
------- -------- --------
$52,385 $149,931 $257,495
======= ======== ========
</TABLE>
Total depreciation expense was $6,096 in 1997 and $23,065 in 1998 and
$41,085 for the ten-month period ended October 28, 1999 (unaudited).
NOTE 4. AMOUNTS DUE TO STOCKHOLDER
At December 31, 1998 and October 28, 1999, the Company owed its sole common
stockholder $71,564 and $26,490 (unaudited), respectively, which was due on
demand, non-interest-bearing, and unsecured. At the time of the merger described
in Note 12, the remaining balance was forgiven.
NOTE 5. STOCKHOLDERS' EQUITY
The Company was originally capitalized during 1996 with authorized common
stock of 1,000,000 shares at a par value of $.01 per share. As of December 31,
1996, the sole stockholder held 100,000 shares, acquired at par value. During
1997, an additional 100,000 shares were issued at par value.
During 1998 the Company effected a three-for-one stock dividend and amended
its original capitalization to enable the issuance of two classes of stock,
common and convertible preferred. The amount of authorized shares of common
stock was increased from 1,000,000 to 5,000,000, while the par value was reduced
from $.01 per share to $.001. All common share and per common share amounts have
been adjusted for all periods to
F-41
<PAGE> 108
VIVID TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reflect the re-capitalization. Total authorized shares of the new class of
convertible preferred stock, entitled "Series A Preferred Stock," was 199,387
shares, a par value of $.001 per share, and a provision that called for an
annual dividend of $.61 per share. Shares of the preferred stock were
convertible at any time into an equal number of common shares.
During 1998, the Company issued 199,387 shares of preferred stock at $6.52
per share. The stock was convertible at the option of the holder into common
shares on a one-to-one basis, which was done in connection with the merger
described in Note 12.
OCTOBER 28, 1999 (UNAUDITED)
All outstanding stock was exchanged as of October 28, 1999, in connection
with the merger of the Company.
NOTE 6. OFFICER'S SALARY AND DIVIDENDS
During 1997 the president and then sole stockholder of the Company agreed
to defer his salary because of cash flow considerations. The amount of salary
being deferred was not specified, and there was no accrual for the expense
established at December 31, 1997.
During June 1998 the value of the forgone 1997 salary was set at $90,000,
which was paid to the stockholder as a dividend. Accordingly, 1997 results do
not include any expense for officer's salary.
NOTE 7. OPERATING LEASE COMMITMENTS
The Company leases its facility under a 37-month operating lease that
expires November 30, 2001. The lease provides for monthly lease payments of
$6,917 with annual increases thereto. This payment includes common area
maintenance and taxes. The lease also allows for options to extend the term for
an additional 24 months and to renew for an additional three years beyond that
with annual increases in the monthly lease payment.
The minimum annual rentals required under this non-cancelable lease as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999........................................................ $ 83,199
2000........................................................ 85,544
2001........................................................ 80,432
--------
$249,175
========
</TABLE>
Rent expense was $22,750 for 1997 and $23,331 for 1998 and $69,167
(unaudited) for the ten months ended October 28, 1999.
NOTE 8. RETIREMENT PLAN
The Company adopted a Salary Reduction Simplified Employee Pension Plan
effective December 15, 1996. The plan covers all employees who have completed 1
month of service during the immediately preceding 5 plan years. Employees may
defer a maximum of 15% of their wages up to the indexed limit. The Company
matches deferrals up to 5%. Total retirement plan expense was $0 for 1997 and
$7,673 for 1998.
F-42
<PAGE> 109
VIVID TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. MAJOR CUSTOMERS
Net sales include sales to the following major customers, each of which
accounted for 10% or more of the total net sales of the Company for the year.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------- ----------------------------
AMOUNT AMOUNT
OF ACCOUNTS OF ACCOUNTS
CUSTOMER SALES % RECEIVABLE SALES % RECEIVABLE
-------- -------- ---- ---------- -------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
A........................................................... $ -- -- $ -- $333,000 40.8 $ --
B........................................................... -- -- -- 273,880 33.5 --
C........................................................... 202,895 29.9 46,200 -- -- --
D........................................................... 159,437 23.5 48,886 -- -- --
E........................................................... 80,644 11.9 -- -- -- --
-------- ---- ------- -------- ---- -------
$442,976 65.3 $95,086 $606,880 74.3 $ --
======== ==== ======= ======== ==== =======
</TABLE>
NOTE 10. INCOME TAXES
The Company has a net operating loss carryforward of $229,415 available
under provisions of the Internal Revenue Code to be applied against future
federal taxable income. This carryforward expires December 31, 2018. The income
tax benefit of this carryforward of approximately $100,000 has been fully
reserved since it is not probable that the benefit will be realized in the
foreseeable future.
The Company also has a net operating loss carryforward of $229,415
available to be applied against future Pennsylvania taxable income. This
carryforward expires December 31, 2008.
NOTE 11. STOCK BASED COMPENSATION PLANS
The Company has an equity compensation plan under which it can issue
incentive stock options, nonqualified stock options, and restricted stock to
designated employees, nonemployee members of its board of directors, and key
advisors. Through December 31, 1998, only nonqualified stock options had been
issued under the plan.
The options are granted at prices determined by the Company's board of
directors and are to be not less than the market value of the stock on the date
of grant. The options vest over a four-year period. The options did not result
in compensation cost to the Company.
A summary of the status of the options follows:
<TABLE>
<CAPTION>
SHARES
----------------
YEAR ENDED
DECEMBER 31,
----------------
1997 1998
------ -------
<S> <C> <C>
Outstanding, beginning...................................... -- 93,000
Granted..................................................... 93,000 20,500
Exercised................................................... -- --
Expired..................................................... -- --
Forfeited................................................... -- --
------ -------
Outstanding, ending......................................... 93,000 113,500
====== =======
</TABLE>
All of the options issued through December 31, 1998 had an exercise price
of $1 per share. As of December 31, 1997 and 1998, vested shares totaled 0 and
36,250, respectively; exercisable options totaled 0 and 35,730, respectively.
F-43
<PAGE> 110
VIVID TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. SUBSEQUENT EVENTS
CONVERTIBLE DEBT
On September 8, 1999, the Company borrowed $500,000 and issued a
convertible promissory note that gave the holder the right to convert the note
into shares of the Company's preferred stock. The note was originally due
September 1, 2000, along with accrued interest of 10%.
The number of shares into which the note could be converted was based on a
percentage of the original proceeds plus a percentage based on length of time
the debt was outstanding. The conversion feature was exercisable upon various
events, one of which was the merger of the Company. Pursuant to the merger
described below, the debt was converted, resulting in the holder receiving
34,610 shares of the Company's preferred stock, which was in turn converted into
an equal number of common shares.
MERGER
The Company entered into an agreement and plan of merger with Concurrent
Computer Corporation ("Concurrent") as of October 28, 1999. The combination was
structured to constitute a tax-free reorganization under applicable provisions
of the Internal Revenue Code.
Immediately prior to the merger on October 28, 1999, the holder of the
convertible debt converted the note into 34,610 shares of preferred stock. All
of the then outstanding 233,997 shares of preferred stock were exchanged for an
equal number of shares of common stock. The shareholder then converted 100% of
their share of Vivid into 2,233,689 shares of Concurrent Computer Corporation
common stock. The Company's outstanding and unexercised stock options were
immediately vested and exchanged for options to purchase 376,301 shares of
Concurrent common stock.
F-44
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
issuance and distribution of the securities being registered hereunder, all of
which are being paid by us. Except for the SEC registration fee, all amounts are
estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $
NASD filing fee.............................................
Transfer agents' fees.......................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Miscellaneous...............................................
--------
Total............................................. $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a derivative action), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, bylaws,
disinterested director vote, stockholder vote, agreement or otherwise. Article
XXIII of our amended and restated bylaws provides for indemnification of our
directors, officers, employees and agents for expenses (including attorneys'
fees), judgments or fines of any threatened, pending or completed action, suit
or proceeding.
Article 11 of our restated certificate of incorporation provides that
directors shall not be liable for monetary damages resulting from a breach of
their fiduciary duties, except for liability for any of the following: (1) any
breach of the duty of loyalty to us and our stockholders; (2) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (3) as provided under Section 174 of the Delaware General Corporation
Law (which provides that directors are personally liable for unlawful dividends
or unlawful stock repurchase or redemptions); or (4) any transaction from which
a director personally derived any improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders of Article
11 to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of any of our directors shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended from time to time. Any repeal or modification of
Article 11 shall not increase the personal liability of any of our directors for
any act or occurrence taking place prior to such repeal or modification, or
otherwise adversely affect any right or protection of any of our directors
existing hereunder prior to the time of such repeal or modification. Reference
is also made to Section of the Underwriting Agreement contained in Exhibit 1
hereto, indemnifying our officers and directors against certain liabilities.
We have entered into indemnity agreements with our directors and executive
officers (each, an "Indemnitee" and collectively, the "Indemnitees"). The
indemnity agreements provide a contractual right to
II-1
<PAGE> 112
indemnification to the Indemnitees for certain expenses incurred due to actions,
suits or other proceedings brought against them in their capacity as directors,
officers, employees or agents of us or any of our subsidiaries.
We maintain director and officer liability insurance policies on behalf of
any person who is or was a director or officer of us or our subsidiary companies
providing for insurance against any liability incurred by him or her in any such
capacity or arising out of his or her status as such. The policies contain
various reporting requirements and exclusions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On October 28, 1999, we issued 2,233,699 shares of common stock in
connection with our acquisition of Vivid Technology, Inc. The common stock was
issued in exchange for all of the outstanding shares of the capital stock of
Vivid Technology. The issuance of such shares of common stock was made in
reliance on Rule 506 promulgated under the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <C> <S>
2.2 -- Agreement and Plan of Merger dated as of October 28, 1999
between the Registrant and Vivid Technology, Inc.
(Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
30, 1999).
2.3 -- Registration Rights Agreement, dated as of October 28, 1999
by and among Fred Allegrezza, Gary Lauder, Robert Clasen and
the Registrant. (Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999).
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. (Incorporated
by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 1996).
4.1 -- Form of Common Stock Certificate. (Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992).
4.2 -- Rights Agreement dated as of July 31, 1992 between the
Registrant and First National Bank of Boston, as rights
agent. (Incorporated by reference to the Registrant's
Current Report on Form 8-K dated August 20, 1992).
4.3 -- Warrant to purchase shares of common stock of the Registrant
dated August 17, 1998 issued to Scientific-Atlanta, Inc.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1998).
5.1 -- Opinion of King & Spalding relating to the validity of
shares being registered.*
10.1 -- 1991 Restated Stock Option Plan (as amended as of October
30, 1997). (Incorporated by reference the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1997).
10.2 -- Form of Employment Agreement between the Registrant and its
executive officers. (Incorporated by reference to of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991).
10.3 -- Employment Agreement dated as of March 25, 1996 between the
Registrant and E. Courtney Siegel. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996).
</TABLE>
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<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <C> <S>
10.4 -- Amendment to Employment Agreement dated as of January 1,
1999 between the Registrant and E. Courtney Siegel.
(Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1999).
10.5 -- Amended and Restated Employment Agreement dated as of
December 6, 1999 between the Registrant and Daniel S.
Dunleavy. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1999).
10.6 -- Amended and Restated Employment Agreement dated as of
November 15, 1999 between the Registrant and Steve G.
Nussrallah. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1999).
10.7 -- Employment Agreement dated as of October 28, 1999 between
the Registrant and Steven R. Norton. (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 31, 1999).
10.8 -- Form of Incentive Stock Option Agreement between the
Registrant and its executive officers. (Incorporated by
reference to the Registrant's Registration Statement on Form
S-1. (No. 33-45871)).
10.9 -- Form of Non-Qualified Stock Option Agreement between the
Registrant and its executive officers. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997).
10.10 -- Sublicensing Agreement between the Registrant and AT&T
Information Systems. (Incorporated by reference to the
Registrant's Registration Statement on Form S-2 (No.
33-62440)).
10.11 -- Amended and Restated Loan and Security Agreement dated March
1, 1998 between the Registrant and Foothill Capital
Corporation. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998).
16.1 -- Letter regarding change in certifying accountant.
(Incorporated by reference to the Registrant's Current
Report on Form 8-K dated November 4, 1999).
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Bergey Yoder Sweeny Witter & Roland PC.
23.3 -- Consent of King & Spalding (contained in Exhibit 5.1
hereto).*
24 -- Power of Attorney (see signature page hereto).
</TABLE>
---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate
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<PAGE> 114
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions in Item 15 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made in terms
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<PAGE> 115
differing from those set forth on the cover page of the prospectus, a
post-effective amendment will be filed to set forth the terms of such offering.
II-5
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Atlanta, State of Georgia
on June 9, 2000.
CONCURRENT COMPUTER CORPORATION
By: /s/ STEVE G. NUSSRALLAH
------------------------------------
Steve G. Nussrallah
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Concurrent Computer
Corporation do hereby constitute and appoint Steve G. Nussrallah and Steven R.
Norton, and each or either of them, our true and lawful attorneys-in-fact and
agents, to do any and all acts and things in our names and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable said
Corporation to comply with the Securities Act of 1933 and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this registration statement, or any registration statement for this offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, including specifically, but without limitation, power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto; and we do
hereby ratify and confirm all that said attorneys and agents, or any of them,
shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this day of 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEVE G. NUSSRALLAH President, Chief Executive Officer and
----------------------------------------------------- Director
Steve G. Nussrallah
/s/ STEVEN R. NORTON Executive Vice President and Chief Financial
----------------------------------------------------- Officer (principal financial and accounting
Steven R. Norton officer)
/s/ MORTON E. HANDEL Chairman of the Board and Director
-----------------------------------------------------
Morton E. Handel
/s/ MICHAEL A. BRUNNER Director
-----------------------------------------------------
Michael A. Brunner
/s/ BRUCE N. HAWTHORNE Director
-----------------------------------------------------
Bruce N. Hawthorne
/s/ C. SHELTON JAMES Director
-----------------------------------------------------
C. Shelton James
</TABLE>
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<PAGE> 117
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RICHARD P. RIFENBURGH Director
-----------------------------------------------------
Richard P. Rifenburgh
/s/ E. COURTNEY SIEGEL Director
-----------------------------------------------------
E. Courtney Siegel
</TABLE>
II-7
