SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2000
or
Transition Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Transition Period from ____ to ____
Commission File No. 0-13150
_____________
CONCURRENT COMPUTER CORPORATION
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
4375 River Green Parkway, Duluth, GA 30096
Telephone: (678) 258-4000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of November 6, 2000 was 54,667,259.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Product sales
Real-time systems $ 4,711 $ 6,517
Video-on-demand systems 5,437 1,089
-------- --------
Total product sales 10,148 7,606
Service and other 6,164 8,078
-------- --------
Total 16,312 15,684
Cost of sales:
Real-time and video-on-demand systems 5,561 3,790
Service and other 3,160 4,254
-------- --------
Total 8,721 8,044
-------- --------
Gross margin 7,591 7,640
Operating expenses:
Sales and marketing 4,073 4,527
Research and development 2,631 2,222
General and administrative 2,236 1,629
Relocation and restructuring - 2,367
-------- --------
Total operating expenses 8,940 10,745
-------- --------
Operating loss (1,349) (3,105)
Interest income (expense) - net (9) 10
Other non-recurring income - 761
Other expense - net (55) (67)
-------- --------
Loss before income taxes (1,413) (2,401)
Provision for income taxes 150 150
-------- --------
Net loss $(1,563) $(2,551)
======== ========
Net loss per share
Basic $ (0.03) $ (0.05)
======== ========
Diluted $ (0.03) $ (0.05)
======== ========
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
2000 2000
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,853 $ 10,082
Accounts receivable - net 15,249 12,907
Inventories 5,821 5,621
Prepaid expenses and other current assets 2,610 2,381
-------------- ----------
Total current assets 29,533 30,991
Property, plant and equipment - net 11,082 11,314
Purchased developed computer software 1,725 1,773
Goodwill - net 2,864 2,943
Other long-term assets - net 908 1,019
-------------- ----------
Total assets $ 46,112 $ 48,040
============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 12,030 $ 13,297
Deferred revenue 3,205 2,608
-------------- ----------
Total current liabilities 15,235 15,905
Other long-term liabilities 2,749 2,902
-------------- ----------
Total liabilities 17,984 18,807
-------------- ----------
Stockholders' equity:
Common stock 541 538
Capital in excess of par value 126,607 125,740
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (97,518) (95,955)
Treasury stock (58) (58)
Accumulated other comprehensive loss (1,444) (1,032)
-------------- ----------
Total stockholders' equity 28,128 29,233
-------------- ----------
Total liabilities and stockholders' equity $ 46,112 $ 48,040
============== ==========
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,563) $(2,551)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Accrual of non-cash warrants 195 -
Depreciation, amortization and other 1,244 1,363
Other non-cash expenses 212 129
Changes in operating assets and liabilities:
Accounts receivable (2,397) (1,911)
Inventories (350) (499)
Prepaid expenses and other current assets (229) (606)
Other long-term assets 65 (133)
Accounts payable and accrued expenses (1,267) 1,380
Deferred revenue 597 (990)
Other long-term liabilities (136) 78
-------- --------
Total adjustments to net loss (2,066) (1,189)
-------- --------
Net cash used in operating activities (3,629) (3,740)
INVESTING ACTIVITIES
Net additions to property, plant and equipment (1,131) (1,195)
Proceeds from sale of facility - 1,223
-------- --------
Net cash provided by (used in) investing activities (1,131) 28
FINANCING ACTIVITIES
Net repayment of capital lease obligation (17) -
Proceeds from borrowings under revolving credit facility - 8,402
Repayments of borrowings under revolving credit facility - (8,402)
Proceeds from sale and issuance of common stock 668 1,422
-------- --------
Net cash provided by financing activities 651 1,422
Effect of exchange rates on cash and cash equivalents (120) 230
Decrease in cash and cash equivalents (4,229) (2,060)
Cash and cash equivalents at beginning of period 10,082 6,872
-------- --------
Cash and cash equivalents at end of period $ 5,853 $ 4,812
======== ========
Cash paid during the period for:
Interest $ 124 $ 52
======== ========
Income taxes (net of refunds) $ 155 $ 34
======== ========
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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CONCURRENT COMPUTER CORPORATION
NOTES TO CONDENSED 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 three months ended September 30, 2000 and September 30, 1999 were
53,988,000 and 48,965,000, respectively. Because of the losses for these
periods, the common share equivalents were anti-dilutive and were not considered
in the diluted earnings per share calculations.
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:
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
2000 2000
-------------- ---------
Raw materials $ 4,758 $ 4,333
Work-in-process 875 947
Finished goods 188 341
-------------- ---------
$ 5,821 $ 5,621
============== =========
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4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ---------
Accounts payable, trade $ 5,019 $ 4,484
Accrued payroll, vacation and
other employee expenses 4,361 6,292
Other accrued expenses 2,650 2,521
------------- ---------
$ 12,030 $ 13,297
============= =========
5. COMPREHENSIVE INCOME (LOSS)
The Company's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------- ---------
Net loss $ (1,563) $ (2,551)
Other comprehensive income (loss):
Foreign currency translation gain (loss) (412) 412
--------- ---------
Total comprehensive loss $ (1,975) $ (2,139)
========= =========
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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. Shared expenses are
primarily allocated based on either revenues or headcount. There were no
material intersegment sales or transfers. Corporate costs include costs related
to the offices of the Chief Executive Officer, Chief Financial Officer, Investor
Relations and other administrative costs including annual audit and tax fees,
Board of Director fees and similar costs. The following summarizes the
operating income (loss) by segment for the three month periods ended September
30, 2000 and September 30, 1999, respectively:
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THREE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
-------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Product Sales $ 4,711 $ 5,437 $ - $10,148
Service and other 6,164 - - 6,164
---------- -------- ----------- --------
Total 10,875 5,437 - 16,312
Cost of sales
Systems 2,390 3,171 - 5,561
Service and other 3,160 - - 3,160
---------- -------- ----------- --------
Total 5,550 3,171 - 8,721
---------- -------- ----------- --------
Gross margin 5,325 2,266 - 7,591
Operating expenses
Sales and marketing 1,917 1,972 184 4,073
Research and development 829 1,802 - 2,631
General and administrative 269 430 1,537 2,236
---------- -------- ----------- --------
Total operating expenses 3,015 4,204 1,721 8,940
---------- -------- ----------- --------
Operating income (loss) $ 2,310 $(1,938) $ (1,721) $(1,349)
========== ======== =========== ========
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<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
-------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product Sales $ 6,517 $ 1,089 $ - $ 7,606
Service and other 8,078 - - 8,078
---------- -------- ----------- --------
Total 14,595 1,089 - 15,684
Cost of sales
Systems 3,045 745 - 3,790
Service and other 4,254 - - 4,254
---------- -------- ----------- --------
Total 7,299 745 - 8,044
---------- -------- ----------- --------
Gross margin 7,296 344 - 7,640
Operating expenses
Sales and marketing 2,899 1,572 56 4,527
Research and development 1,213 1,009 - 2,222
General and administrative 499 164 966 1,629
Relocation and restructuring 1,208 1,159 - 2,367
---------- -------- ----------- --------
Total operating expenses 5,819 3,904 1,022 10,745
---------- -------- ----------- --------
Operating income (loss) $ 1,477 $(3,560) $ (1,022) $(3,105)
========== ======== =========== ========
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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 VOD Division relocation discussed above, management
decided in the first quarter of fiscal year 2000 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 operating
expense in the condensed consolidated statement of operations for the quarter
ended September 30, 1999. This expense represents workforce reductions of
approximately 38 employees in all areas of the Company.
8. 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.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Upon adoption, all
derivative instruments will be recognized in the balance sheet at fair value,
and changes in the fair values of such instruments must be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 was
effective for the Company on July 1, 2000. As the Company does not have any
hedging and derivative positions, adoption of these pronouncements did not have
a material effect on the Company's financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on
applying generally accepted accounting principles to revenue recognition issues
in financial statements. The Company will adopt SAB 101 as required in the
fourth fiscal quarter of 2001. The Company is currently evaluating the effect
that such adoption might have on its financial position and results of
operations.
In March 2000, the FASB issued Interpretation No. 44 "Accounting of Certain
Transactions involving Stock Compensation - an Interpretation of APB No. 25"
("FIN 44"). FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The Company adopted FIN 44 on
July 1, 2000, and the adoption did not have a material effect on the financial
position or operations of the Company.
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10. 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:
(Dollars in thousands)
Allocation Life
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
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 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, 1999:
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
Revenues $16,312 $15,938
======== ========
Net loss $(1,563) $(3,031)
======== ========
Basic and diluted net loss per share $ (0.03) $ (0.06)
======== ========
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 the Company's consolidated statements of
operations for the periods indicated.
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THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------ ------
(Unaudited)
<S> <C> <C>
Net sales:
Product sales (% of respective product sales category):
Real-time systems 28.9% 41.6%
Video-on-demand systems 33.3 6.9
------ -------
Total product sales 62.2 48.5
Service and other 37.8 51.5
------ -------
Total 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems 54.8 49.8
Service and other 51.3 52.7
------ -------
Total 53.5 51.3
------ -------
Gross margin 46.5 48.7
Operating expenses:
Sales and marketing 25.0 28.9
Research and development 16.1 14.2
General and administrative 13.7 10.4
Relocation and restructuring - 15.1
------ -------
Total operating expenses 54.8 68.5
------ -------
Operating loss (8.3) (19.8)
Interest income (expense) - net (0.1) 0.1
Other non-recurring income - 4.9
Other income (expense) - net (0.3) (0.4)
------ -------
Loss before income taxes (8.7) (15.3)
Provision for income taxes 0.9 1.0
------ -------
Net loss (9.6)% (16.3)%
====== =======
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS
Product Sales. Total product sales were $10.1 million for the three months
ended September 30, 2000, an increase of $2.5 million or 33.4% from $7.6 million
for the three months ended September 30, 1999. Sales of VOD products increased
to $5.4 million in the three month period ended September 30, 2000 from $1.1
million in the three month period ended September 30, 1999. The increase in VOD
product sales was primarily due to higher sales of video systems to domestic
cable operators, including Time Warner and Cox Communications. The increase was
partially offset by the continued decline in sales of real-time computer
systems.
Service and Other Sales. Service revenues decreased to $6.2 million or
23.7% in the three months ended September 30, 2000 from $8.1 million in the
three months ended September 30, 1999. The decline resulted from customers
switching from proprietary systems to Concurrent's open systems which are less
expensive to maintain, and the cancellation of other proprietary computer
maintenance contracts as the machines are removed from service.
Gross Margin. Gross margin remained unchanged at $7.6 million for the
three months ended September 30, 2000 as compared to the three months ended
September 30, 1999. The gross margin as a percentage of sales decreased to
46.5% in the three month period ended September 30, 2000 from 48.7% in the three
month period ended September 30, 1999, primarily due to the increase in VOD
sales as a percent of total product sales and the lower gross margin being
realized on VOD sales compared to real-time sales. The gross margin on
real-time service revenue increased to 48.7% in the three months ended September
30, 2000 compared to 47.3% in the three months ended September 30, 1999, due to
cost reduction efforts made in previous quarters.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 25.0% for the three months ended September 30, 2000 as
compared to 28.9% for the three months ended September 30, 1999. These expenses
decreased to $4.1 million in the three month period ended September 30, 2000
from $4.5 million in the three month period ended September 30, 1999 primarily
due to the decrease in the Real-Time Division's worldwide sales and marketing
personnel which was partially offset by the increase in the number of worldwide
sales and marketing personnel and related activities in the Company's VOD
Division.
Research and Development. Research and development expenses increased as a
percentage of sales to 16.1% in the three month period ended September 30, 2000
from 14.2% in the three month period ended September 30, 1999. These expenses
increased to $2.6 million in the three month period ended September 30, 2000
from $2.2 million in the three month period ended September 30, 1999 primarily
due to the growth in the VOD Division research and development personnel and the
additional development personnel as a result of the acquisition of Vivid
Technology in October of 1999. These increases were partially offset by
deliberate cost reduction efforts in the Real-Time Division.
General and Administrative. General and administrative expenses increased
to 13.7% of sales in the three month period ended September 30, 2000 from 10.4%
in the three month period ended September 30, 1999. These expenses increased to
$2.2 million in the three month period ended September 30, 2000 from $1.6
million in the three month period ended September 30, 1999 primarily due the
increase in VOD division management and other executive corporate administrative
personnel.
Income Taxes. The Company recorded income tax expense of $150,000 in the
three month period ended September 30, 2000 on a pre-tax loss of $1.4 million
due to the inability to recognize the future tax benefit of the current period
net operating loss.
Net Loss. The company recorded a net loss of $1.6 million or $.03 per
share for the three months ended September 30, 2000 compared to a net loss of
$2.6 million or $.05 per share for the three months ended September 30, 1999.
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<PAGE>
ACQUISITION OF VIVID TECHNOLOGY, INC.
On October 28, 1999, the Company acquired Vivid Technology, Inc., a former
competitor in the video-on-demand industry. Vivid's interactive stand-alone
video-on-demand system ("the Vivid VOD system") was specifically being designed
to integrate with the most popular digital set-top boxes used by General
Instruments, a division of Motorola. The Vivid VOD system was also expected to
be compatible with the digital set-top boxes used by other leading cable
operators such as Philips, Panasonic and Sony. The Vivid 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 VOD system was also being designed to eventually provide VOD service
including pause, rewind, and fast forward VCR-like functions. The Vivid 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 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 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 VOD system to be deployed on a commercial basis:
- The Content Manager, which is used to load movies from studios, did
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 had been implemented using a SQL data base, needed to be ported
to other relational data bases such as Oracle to support high end data
base applications.
- The Resource Manager had been alpha tested; however, an advanced beta
test had 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 had been implemented using a SQL data
base, needed to be ported to other relational data bases such as
Oracle to support high end data base applications.
- The Set Top VOD application needed 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, needed 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 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.
-12-
<PAGE>
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
Company 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, the Company decided to merge the Vivid
VOD system and the Concurrent VOD system into one standard VOD platform. The
Company began shipping the new hardware platform during the quarter ended
September 30, 2000. Initially, the new hardware platform has two software
alternatives, one which is compatible with digital set-top boxes used by General
Instruments, using core software technology developed by and purchased from
Vivid Technology, and the other is compatible with digital set-top boxes used by
Scientific-Atlanta, Inc. Beginning in the first half of calendar 2001, the
Company expects to also merge the software solutions into one standard solution
which will be compatible with either General Instruments or Scientific-Atlanta
set-top boxes.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of the Company is dependent on many factors, including sales
volume, operating profit, debt service and the efficiency of asset use and
turnover. The future liquidity of the Company will be affected by, among other
things:
- The actual versus anticipated decline in sales of real-time
proprietary systems and service maintenance revenue;
- Revenue growth from VOD systems;
- Ongoing cost control actions and expenses, including for example,
research and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- Timing of product shipments which occur primarily during the last
month of the quarter;
- The percentage of sales derived from outside the United States where
there are generally longer accounts receivable collection cycles and
which receivables are not included in the borrowing base of the
revolving credit facility; and
- The number of countries in which the Company operates, which may
require maintenance of minimum cash levels in each country and, in
certain cases, may restrict the repatriation of cash, such as cash
held on deposit to secure office leases.
The Company used cash of $3.6 and $3.7 million in operating activities
during the three month periods ended September 30, 2000 and September 30, 1999,
respectively, primarily due to the losses generated by the Company's VOD
business. On November 3, 2000, the Company entered into a $15 million revolving
credit facility which expires June 30, 2002 and replaces the previous credit
facility which expired on October 31, 2000. Borrowings under the facility are
limited to 85% of eligible accounts receivable and bear interest at between
prime and prime plus .75% or between LIBOR plus 2.25% and LIBOR plus 3.00%
depending on the Company's ratio of Consolidated Funded Debt (as defined in the
credit facility) to EBITDA. The Company has pledged substantially all of its
assets as collateral for the facility. No borrowings were outstanding at
September 30, 2000 or November 9, 2000 under either credit facility. The credit
facility contains financial covenants which limit the ratio of total liabilities
to tangible net worth and which require the Company to achieve on a quarterly
basis minimum EBITDA in each of the Company's operating divisions.
The Company invested $1.1 and $1.2 million in property, plant and equipment
during the three month periods ended September 30, 2000 and September 30, 1999,
respectively. Current year capital expenditures primarily relate to computer
equipment and development equipment for the Company's VOD Division.
The Company received $0.7 million in proceeds from the issuance of common
stock to employees and directors who exercised stock options during the three
month period ended September 30, 2000 compared to $1.4 million during the three
month period ended September 30, 1999.
At September 30, 2000, the Company's working capital was $14.3 million, and
the Company did not have any material commitments for capital expenditures. The
Company believes that existing cash balances, the available credit facility and
funds generated by operations will be sufficient to meet the Company's
anticipated working capital and capital expenditure requirements for the next
twelve months.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Concurrent, may constitute "forward-looking
statements" within the meaning of the federal securities laws. When used in
this report, the words "believes," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. Statements
regarding future events and developments and Concurrent's future performance, as
well as its expectations, beliefs, plans, estimates or projections relating to
the future, are forward-looking statements within the meaning of these laws.
All forward-looking statements are subject to certain risks and uncertainties
that could cause actual events to differ materially from those projected. The
risks and uncertainties which could affect the Company's performance or results
include, without limitation:
- changes in product demand;
- economic conditions;
- various inventory risks due to changes in market conditions;
- uncertainties relating to the development and ownership of
intellectual property;
- uncertainties relating to the ability of the Company and other
companies to enforce their intellectual property rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of the VOD segment;
- the concentration of the Company's customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- the highly competitive environment in which the Company operates;
- the entry of new well-capitalized competitors into the Company's
markets and other risks and uncertainties.
These statements are based on current expectations and speak only as of the
date of such statements. Concurrent undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of future events,
new information or otherwise. Additional information concerning these risks and
uncertainties is contained elsewhere in this Form 10-Q.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates. The Company is exposed to the impact of
interest rate changes on its short-term cash investments, which are backed by
U.S. government obligations, and other investments in respect of institutions
with the highest credit ratings, all of which have maturities of 3 months or
less. These short-term investments carry a degree of interest rate risk. The
Company believes that the impact of a 10% increase or decline in interest rates
would not be material to its investment income. The Company conducts business
in the United States and around the world. The most significant foreign
currency transaction exposures relate to the United Kingdom, those Western
European countries that use the Euro as a common currency, Australia and Japan.
The Company does not hedge against fluctuations in exchange rates and believes
that a hypothetical 10% upward or downward fluctuation in foreign currency
exchange rates relative to the United States dollar would not have a material
impact on future earnings, fair values, or cash flows.
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PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Concurrent's Annual Meeting of Stockholders was held on October 26, 2000.
The results of voting were as follows:
- The following persons were elected as directors to serve until the
next annual meeting of stockholders. Michael A. Brunner (46,222,239
votes for, 1,357,300 votes withheld), Morton E. Handel (46,157,569
votes for, 1,421,970 votes withheld), Bruce N. Hawthorne (46,881,160
votes for, 698,379 votes withheld), C. Shelton James (46,820,230 votes
for, 759,309 votes withheld), Steve G. Nussrallah (46,502,867 votes
for, 1,076,672 votes withheld) and Richard P Rifenburgh (46,191,761
votes for, 1,387,778 votes withheld).
- The selection by the Board of Directors of Deloitte and Touche LLP as
the Company's independent auditors for the fiscal year ending June 30,
2001 was ratified (47,429,891 votes for, 85,542 votes against, 64,106
votes abstained).
- The amendment of the Company's 1991 Restated Stock Option Plan was
approved (30,049,091 votes for, 17,421,287 votes against, 109,161
votes abstained).
ITEM 5. OTHER INFORMATION.
RISK FACTORS
Set forth below are certain risks relating to our business and the industry in
which we compete. If any of the following risks actually occurs, our business,
financial condition and results of operations could be materially and adversely
affected.
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 $95.8 million for the
fiscal year ended June 30, 1996 to $56.1 million for the fiscal year ended June
30, 2000. For the three months ended September 30, 2000, our real-time net
sales were $10.9 million compared to $14.6 million for the three months ended
September 30, 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
fiscal year ended June 30, 2000 was 46.6%, compared to our gross margin of 50.5%
during fiscal year 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.
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WE HAVE INCURRED LOSSES AND MAY INCUR LOSSES IN THE FUTURE.
We incurred net losses of $23.1 million in the fiscal year ended June 30,
2000 and $1.6 million in the three months ended September 30, 2000. On a pro
forma basis after giving effect to the acquisition of Vivid Technology, we
incurred net losses of $23.8 million in the fiscal year ended June 30, 2000 and
$1.6 million in the three month period ended September 30, 2000. Our actual net
loss of $23.1 million and our pro forma net loss of $23.8 million for the fiscal
year ended June 30, 2000 includes a $14.0 million non-cash charge related to the
write-off of research and development acquired in the Vivid Technology
acquisition. As of September 30, 2000 we had an accumulated deficit of
approximately $97.5 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 multiple system operators
("MSOs"), must successfully market VOD to their subscribers. Although we have
shipped and installed our VOD system to four MSOs to date, only two system
operators have 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 fiscal year ended June
30, 2000, Time Warner Cable accounted for 47.2% of such revenue. For the three
months ended September 30, 2000, Time Warner Cable and Cox Communications
accounted for 26.1% and 45.8% of such revenues, respectively. 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.
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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. 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;
- 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 Corporation and Diva
Systems Corporation; 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;
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- 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 that would adversely affect our
business, financial condition and results of operations. Many of our current and
potential future competitors have longer operating histories, significantly
greater financial, technical, 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.
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 growth in 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 recently completed the development of
our MediaHawk Model 2000 VOD system. Although we have shipped and installed the
new system in a commercial VOD deployment with an MSO during the first quarter
ended September 30, 2000, we may experience unexpected problems. 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.
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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 new MediaHawk Model 2000 VOD system was designed and developed to be
compatible with both General Instruments and Scientific Atlanta head-end
equipment and set-top boxes. The new server was only recently shipped and
installed in a commercial VOD deployment to a limited number of subscribers. As
a result, the ability of our new VOD system to support a substantial number of
viewers is unproven. If the new VOD system does not efficiently scale to support
a substantial number of viewers while maintaining a high level of performance,
demand for the new product and related services and our ability to sell
additional products to our existing customers will be significantly reduced. As
a result, our operating results could suffer and our financial condition could
be harmed.
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, 2000 and the 3
months ended September 30, 2000 five customers accounted for approximately 34%
and 29% of our total real-time revenue, respectively.
We derive a significant portion of our revenues from the supply of systems
under government contracts. For the fiscal year ended June 30, 2000 and the 3
months ended September 30, 2000, we recorded $18.5 million and $3.5 million,
respectively, in sales to agencies of the U.S. Government. These amounts
represent approximately 33% of our total sales in both 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.
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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 significant 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
- 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.
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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 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 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 Instruments, 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
- 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 40%, 34% and 28% of our
revenue in fiscal years 1999 and 2000 and the three months ended September 30,
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;
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- 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.
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;
- 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.
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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 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.
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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 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 that satisfy customer needs or achieve market acceptance. In addition,
services, products or technologies developed by others may render one or more of
our products or technologies uncompetitive, unmarketable or obsolete. Future
technological advances in the real-time, television and video industries may
result in the availability of new products and services that could compete with
our solutions or reduce the cost of existing products or services. Our future
success will depend on our ability to continue to enhance our existing products,
including development of new applications for our technology, and to develop and
introduce new products to meet and adapt to changing customer requirements and
emerging technologies. Further, announcements of currently planned or other new
product offerings by our competitors may cause customers to defer purchase
decisions or to fail to purchase our existing solutions. Our failure to respond
to rapidly changing technologies could adversely affect our business, financial
condition and results of operations.
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.
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.
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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.
OTHER RISKS
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of Delaware law and our restated certificate of incorporation,
amended and restated bylaws, and rights plan could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders.
We are subject to certain Delaware anti-takeover laws regulating corporate
takeovers. These anti-takeover laws prevent a Delaware corporation from engaging
in a business combination involving a merger or sale of more than 10% of 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.
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:
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- 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.
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.
Our common stock is traded on The Nasdaq National Market. For the fiscal
year ended June 30, 2000, the high and low closing prices, as reported on The
Nasdaq National Market, were $27.25 and $5.38 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;
- 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.
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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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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(10.1) Loan and Security Agreement Between Concurrent Computer
Corporation and Wachovia Bank, N.A. Dated November 3, 2000
(11) Statement on computation of per share earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended September
30, 2000 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: November 9, 2000 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
-------------------------
Steven R. Norton
Chief Financial Officer
(Principal Financial and Accounting Officer)
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