10-Q/A 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q/A (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of --- the Securities Exchange Act of 1934 For the Quarter Ended December 31, 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 February 7, 2001 was 55,050,580. 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 SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 -------- --------- -------- --------- RESTATED RESTATED RESTATED RESTATED (see (see (see (see Note 12) Note 12) Note 12) Note 12) Revenues: Product sales Real-time systems $ 6,738 $ 7,336 $11,449 $ 13,853 Video-on-demand systems 1,832 2,120 7,269 3,209 -------- --------- -------- --------- Total product sales 8,570 9,456 18,718 17,062 Service and other 5,963 7,466 12,127 15,544 -------- --------- -------- --------- Total 14,533 16,922 30,845 32,606 Cost of sales Real-time and video-on-demand systems 4,640 5,043 10,201 8,833 Service and other 3,231 4,126 6,391 8,380 -------- --------- -------- --------- Total 7,871 9,169 16,592 17,213 -------- --------- -------- --------- Gross margin 6,662 7,753 14,253 15,393 Operating expenses: Sales and marketing 4,066 5,723 8,139 10,250 Research and development 2,818 2,409 5,449 4,631 General and administrative 3,775 2,281 6,242 3,910 Cost of purchased in-process research and development - 14,000 - 14,000 Relocation and restructuring - - - 2,367 -------- --------- -------- --------- Total operating expenses 10,659 24,413 19,830 35,158 -------- --------- -------- --------- Operating loss (3,997) (16,660) (5,577) (19,765) Interest income - net 26 73 17 83 Other non-recurring income - - - 761 Other expense - net (37) (38) (92) (105) -------- --------- -------- --------- Loss before income taxes (4,008) (16,625) (5,652) (19,026) Provision for income taxes 150 150 300 300 -------- --------- -------- --------- Net loss $(4,158) $(16,775) $(5,952) $(19,326) ======== ========= ======== ========= Net loss per share Basic $ (0.08) $ (0.33) $ (0.11) $ (0.38) ======== ========= ======== ========= Diluted $ (0.08) $ (0.33) $ (0.11) $ (0.38) ======== ========= ======== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -1-
CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS) DECEMBER 31, JUNE 30, 2000 2000 -------------- ---------- RESTATED RESTATED (see (see Note 12) Note 12) ASSETS Current assets: Cash and cash equivalents $ 6,292 $ 10,082 Accounts receivable - net 15,227 12,907 Inventories 8,305 5,621 Prepaid expenses and other current assets 2,534 2,381 -------------- ---------- Total current assets 32,358 30,991 Property, plant and equipment - net 11,008 11,314 Purchased developed computer software 1,678 1,773 Goodwill - net 11,361 11,981 Other long-term assets - net 841 1,019 -------------- ---------- Total assets $ 57,246 $ 57,078 ============== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 13,617 $ 13,297 Deferred revenue 5,385 2,608 -------------- ---------- Total current liabilities 19,002 15,905 Other long-term liabilities 2,791 2,902 -------------- ---------- Total liabilities 21,793 18,807 Stockholders' equity: Common stock 549 538 Capital in excess of par value 138,962 135,326 Accumulated deficit after eliminating accumulated deficit of $81,826 at December 31, 1991, date of quasi-reorganization (102,523) (96,571) Treasury stock (58) (58) Accumulated other comprehensive loss (1,477) (1,032) -------------- ---------- Total stockholders' equity 35,453 38,271 -------------- ---------- Total liabilities and stockholders' equity $ 57,246 $ 57,078 ============== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -2-
CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) SIX MONTHS ENDED DECEMBER 31, 2000 1999 --------- --------- RESTATED RESTATED (see (see Note 12) Note 12) OPERATING ACTIVITIES Net loss $ (5,952) $(19,326) Adjustments to reconcile net loss to net cash used in operating activities: Write-off of in-process research and development - 14,000 Accrual of non-cash warrants 238 - Depreciation, amortization and other 2,943 2,901 Other non cash expenses 672 647 Changes in operating assets and liabilities (net of effect of business acquired): Accounts receivable (2,613) 186 Inventories (3,058) 8 Prepaid expenses and other current assets (153) (179) Other long-term assets 84 (569) Accounts payable and accrued expenses 320 220 Deferred revenue 2,777 (1,242) Other long-term liabilities (76) 20 --------- --------- Total adjustments to net loss 1,134 15,992 --------- --------- Net cash used in operating activities (4,818) (3,334) INVESTING ACTIVITIES Net additions to property, plant and equipment (1,839) (2,168) Proceeds from sale of facility - 1,223 Other - 76 --------- --------- Net cash used in investing activities (1,839) (869) FINANCING ACTIVITIES Net repayment of capital lease obligation (35) - Proceeds from sale and issuance of common stock 3,334 5,352 --------- --------- Net cash provided by financing activities 3,299 5,352 Effect of exchange rates on cash and cash equivalents (432) (69) --------- --------- Decrease in cash and cash equivalents ( 3,790) 1,080 Cash and cash equivalents at beginning of period 10,082 6,872 --------- --------- Cash and cash equivalents at end of period $ 6,292 $ 7,952 ========= ========= Cash paid during the period for: Interest $ 178 $ 113 ========= ========= Income taxes (net of refunds) $ 284 $ 70 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -3- CONCURRENT COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 accounting principles generally accepted in the United States of America. The foregoing financial information is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. All such adjustments are of a normal recurring nature. While 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 thereto included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The results of interim periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during each year. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares including potential common shares issuable. Under the treasury stock method, incremental shares representing the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued are included in the computation. The number of shares used in computing basic and diluted net loss per share for the three months ended December 31, 2000 and the six months ended December 31, 2000 was 54,675,000 and 54,332,000, respectively. The number of shares used in computing basic and diluted net loss per share for the three months ended December 31, 1999 and the six months ended December 31, 1999 was 51,560,000 and 50,262,000, respectively. Because of the losses for these periods, the potential common shares issuable were anti-dilutive and were not considered in the diluted earnings per share calculations. 3. Revenue Recognition and Related Matters Video-on-demand and real-time system revenues are recognized based on the guidance in American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition. The Company recognizes revenue from video-on-demand and real-time systems when persuasive evidence of an arrangement exists, the system has been shipped, the fee is fixed or determinable and collectibility of the fee is probable. Under multiple element arrangements, the Company allocates revenue to the various elements based on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is determined based on the price charged when the same element is sold separately. Our products do not require significant customization. In certain instances, the Company's customers require significant customization of both the software and hardware products and, therefore, the revenues are recognized as long term contracts in conformity with Accounting Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts", Statement of Position ("SOP") 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software Revenue Recognition". For long-term contracts, revenue is recognized using the percentage of completion method of accounting based on costs incurred on the project compared to the total costs expected to be incurred through completion. The Company recognizes revenue from customer service plans ratably over the term of each plan, typically one year. Custom engineering and integration services performed by the Real-Time Division are typically completed within 90 days from receipt of an order. Revenues from these services are recognized upon completion and delivery of the software solution to the customer. 4. INVENTORIES Inventories are valued at the lower of cost or market, with cost being determined by using the first-in, first-out ("FIFO") method. The components of inventories are as follows: (DOLLARS IN THOUSANDS) DECEMBER 31, JUNE 30, 2000 2000 ------------- --------- Raw materials $ 6,410 $ 4,333 Work-in-process 1,270 947 Finished goods 625 341 ------------- --------- $ 8,305 $ 5,621 ============= ========= -4- 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses are as follows: (DOLLARS IN THOUSANDS) DECEMBER 31, JUNE 30, 2000 2000 ------------- --------- Accounts payable, trade $ 5,234 $ 4,484 Accrued payroll, vacation and other employee expenses 5,570 6,292 Other accrued expenses 2,813 2,521 ------------- --------- $ 13,617 $ 13,297 ============= ========= 6. COMPREHENSIVE INCOME (LOSS) The Company's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 -------- --------- -------- --------- Net loss $(4,158) $(16,775) $(5,952) $(19,326) Other comprehensive income (loss): Foreign currency translation gain (loss) (33) (305) (445) 107 -------- --------- -------- --------- Total comprehensive loss $(4,191) $(17,080) $(6,397) $(19,219) ======== ========= ======== =========
7. 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 -5- following summarizes the operating income (loss) by segment for the three month periods ended December 31, 2000 and December 31, 1999, respectively:
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 2000 ------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- -------- ----------- -------- Revenues: Product sales $ 6,738 $ 1,832 $ - $ 8,570 Service and other 5,963 - - 5,963 ---------- -------- ----------- -------- Total 12,701 1,832 - 14,533 Cost of sales Systems 3,502 1,138 - 4,640 Service and other 3,231 - - 3,231 ---------- -------- ----------- -------- Total 6,733 1,138 - 7,871 ---------- -------- ----------- -------- Gross margin 5,968 694 - 6,662 Operating expenses Sales and marketing 1,870 2,060 136 4,066 Research and development 844 1,974 - 2,818 General and administrative 505 594 2,676 3,775 ---------- -------- ----------- -------- Total operating expenses 3,219 4,628 2,812 10,659 ---------- -------- ----------- -------- Operating income (loss) $ 2,749 $(3,934) $ (2,812) $(3,997) ========== ======== =========== ========
THREE MONTHS ENDED DECEMBER 31, 1999 --------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- --------- ----------- --------- Revenues: Product sales $ 7,336 $ 2,120 $ - $ 9,456 Service and other 7,466 - - 7,466 ---------- --------- ----------- --------- Total 14,802 2,120 - 16,922 Cost of sales Systems 3,350 1,693 - 5,043 Service and other 4,126 - - 4,126 ---------- --------- ----------- --------- Total 7,476 1,693 - 9,169 ---------- --------- ----------- --------- Gross margin 7,326 427 - 7,753 Operating expenses Sales and marketing 3,451 2,201 71 5,723 Research and development 962 1,447 - 2,409 General and administrative 514 588 1,179 2,281 Cost of purchased in-process research and development - 14,000 - 14,000 ---------- --------- ----------- --------- Total operating expenses 4,927 18,236 1,250 24,413 ---------- --------- ----------- --------- Operating income (loss) $ 2,399 $(17,809) $ (1,250) $(16,660) ========== ========= =========== =========
The following summarizes the operating income (loss) by segment for the six month periods ended December 31, 2000 and December 31, 1999, respectively: -6-
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED DECEMBER 31, 2000 ------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- -------- ----------- -------- Revenues: Product sales $ 11,449 $ 7,269 $ - $18,718 Service and other 12,127 - - 12,127 ---------- -------- ----------- -------- Total 23,576 7,269 - 30,845 Cost of sales Systems 5,892 4,309 - 10,201 Service and other 6,391 - - 6,391 ---------- -------- ----------- -------- Total 12,283 4,309 - 16,592 ---------- -------- ----------- -------- Gross margin 11,293 2,960 - 14,253 Operating expenses Sales and marketing 3,787 4,032 320 8,139 Research and development 1,673 3,776 - 5,449 General and administrative 774 1,255 4,213 6,242 ---------- -------- ----------- -------- Total operating expenses 6,234 9,063 4,533 19,830 ---------- -------- ----------- -------- Operating income (loss) $ 5,059 $(6,103) $ (4,533) $(5,577) ========== ======== =========== ========
SIX MONTHS ENDED DECEMBER 31, 1999 --------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- --------- ----------- --------- Revenues: Product sales $ 13,853 $ 3,209 $ - $ 17,062 Service and other 15,544 - - 15,544 ---------- --------- ----------- --------- Total 29,397 3,209 - 32,606 Cost of sales Systems 6,395 2,438 - 8,833 Service and other 8,380 - - 8,380 ---------- --------- ----------- --------- Total 14,775 2,438 - 17,213 ---------- --------- ----------- --------- Gross margin 14,622 771 - 15,393 Operating expenses Sales and marketing 6,350 3,773 127 10,250 Research and development 2,175 2,456 - 4,631 General and administrative 1,013 752 2,145 3,910 Cost of purchased in-process research and development - 14,000 - 14,000 Relocation and restructuring 1,208 1,159 - 2,367 ---------- --------- ----------- --------- Total operating expenses 10,746 22,140 2,272 35,158 ---------- --------- ----------- --------- Operating income (loss) $ 3,876 $(21,369) $ (2,272) $(19,765) ========== ========= =========== =========
-7- 8. 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 six months ended December 31, 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 six months ended December 31, 1999. This expense represents workforce reductions of approximately 38 employees in all areas of the Company. 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 for the six months ended December 31, 1999. 10. 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 adoption of this pronouncement is not expected to have a material impact on the operations of the Company. 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. We 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. -8- 11. ACQUISITION OF VIVID TECHNOLOGY On October 28, 1999, the Company acquired Vivid Technology, Inc. ("Vivid") for total consideration of $29.4 million, consisting of 2,233,689 shares of common stock valued at $24.7 million, $0.5 million of acquisition costs, and 378,983 shares reserved for future issuance upon exercise of stock options with a value of $4.2 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 12,808 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 six months 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 and includes the one-time charge related to the write-off of the purchased IPR&D of $14 million in the three month and six month periods ended December 31, 1999:
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 -------- --------- -------- --------- Revenues $14,533 $ 17,022 $30,845 $ 32,960 ======== ========= ======== ========= Net loss $(4,158) $(17,068) $(5,952) $(20,330) ======== ========= ======== ========= Basic and diluted net loss per share $ (0.08) $ (0.33) $ (0.11) $ (0.39) ======== ========= ======== =========
12. RESTATEMENT Subsequent to the issuance of the Company's financial statements for the quarter ended December 31, 2000, management changed the measurement date used to value the shares issued in conjunction with the Company's acquisition of Vivid Technology in accordance with APB 16: Business Combinations. As a result, the financial statements as of December 31, 2000 and for the three and six month periods ended December 31, 2000 and 1999 have been restated from the amounts previously reported.
AS OF DECEMBER 31, 2000 AS PREVIOUSLY REPORTED AS RESTATED ------------- ------------- Goodwill, net $ 2,785 $ 11,361 Capital in excess of par 129,308 138,962 Accumulated deficit (101,445) (102,523)
THREE MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 AS PREVIOUSLY AS PREVIOUSLY REPORTED AS RESTATED REPORTED AS RESTATED ------------- ------------- ------------- ------------- General and administrative expenses $ 3,544 $ 3,775 $ 2,127 $ 2,281 Operating loss (3,766) (3,997) (16,506) (16,660) Loss before income taxes (3,777) (4,008) (16,471) (16,625) Net loss (3,927) (4,158) (16,621) (16,775) Net loss per share basic and diluted $ (0.07) $ (0.08) $ (0.32) $ (0.33)
SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31,2000 DECEMBER 31, 1999 AS PREVIOUSLY AS PREVIOUSLY REPORTED AS RESTATED REPORTED AS RESTATED ------------- ------------- ------------- ------------- General and administrative expenses $ 5,780 $ 6,242 $ 3,756 $ 3,910 Operating loss (5,115) (5,577) (19,611) (19,765) Loss before income taxes (5,190) (5,652) (18,872) (19,026) Net loss (5,490) (5,952) (19,172) (19,326) Net loss per share basic and diluted $ (0.10) $ (0.11) $ (0.38) $ (0.38)
-9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Subsequent to the issuance of the Company's financial statements for the quarter ended December 31, 2000, management changed the measurement date used to value the shares issued in conjunction with the Company's acquisition of Vivid Technology in accordance with APB 16: Business Combinations. As a result, the financial statements as of December 31, 2000 and for the three and six month periods ended December 31, 2000 and 1999 have been restated from the amounts previously reported. The accompanying discussion and analysis gives effect to that restatement. 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.
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, (Unaudited) (Unaudited) 2000 1999 2000 1999 ------- ------- ------- ------- Net sales: Product sales (% of respective product sales category): Real-time systems 46.4% 43.4% 37.1% 42.5% Video-on-demand systems 12.6 12.5 23.6 9.8 ------- ------- ------- ------- Total product sales 59.0 55.9 60.7 52.3 Service and other 41.0 44.1 39.3 47.7 ------- ------- ------- ------- Total 100.0 100.0 100.0 100.0 Cost of sales (% of respective sales category): Real-time and video-on-demand systems 54.1 53.3 54.5 51.8 Service and other 54.2 55.3 52.7 53.9 ------- ------- ------- ------- Total 54.2 54.2 53.8 52.8 ------- ------- ------- ------- Gross margin 45.8 45.8 46.2 47.2 Operating expenses: Sales and marketing 28.0 33.8 26.4 31.4 Research and development 19.4 14.2 17.7 14.2 General and administrative 26.0 13.5 20.2 12.0 Cost of purchased in-process research and - - - - development - 82.7 - 42.9 Relocation and restructuring - - - 7.3 ------- ------- ------- ------- Total operating expenses 73.3 144.3 64.3 107.8 ------- ------- ------- ------- Operating loss (27.5) (98.5) (18.1) (60.6) Interest income - net 0.2 0.4 0.1 0.3 Other non-recurring income - - - 2.3 Other expense - net (0.3) (0.2) (0.3) (0.3) ------- ------- ------- ------- Loss before income taxes (27.6) (98.2) (18.3) (58.4) Provision for income taxes 1.0 0.9 1.0 0.9 ------- ------- ------- ------- Net loss (28.6)% (99.1)% (19.3)% (59.3)% ======= ======= ======= =======
-10- RESULTS OF OPERATIONS THE QUARTER ENDED DECEMBER 31, 2000 COMPARED TO THE QUARTER ENDED DECEMBER 31, 1999 Product Sales. Total product sales were $8.6 million for the three months ended December 31, 2000, a decrease of $.9 million or 9.4% from $9.5 million for the three months ended December 31, 1999. Sales of Real-Time products decreased to $6.7 million in the three month period ended December 31, 2000 from $7.3 million in the three month period ended December 31, 1999, continuing the decline in sales of real-time computer systems. Sales of VOD products decreased to $1.8 million in the three month period ended December 31, 2000 from $2.1 million in the three month period ended December 31, 1999. The decrease is the result of an unexpected delay in an order of VOD products for 3 systems of a single multiple system operator (MSO) for the three months ended December 31, 2000. Service and Other Sales. Service revenues decreased to $6.0 million or 20.1% for the three months ended December 31, 2000 from $7.5 million for the three months ended December 31, 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 decreased 14.1% to $6.7 million for the three months ended December 31, 2000 from $7.8 million for the three months ended December 31, 1999. The gross margin as a percentage of sales remained unchanged at 45.8% in the three month period ended December 31, 2000 as compared to the three month period ended December 31, 1999. The gross margin on real-time service revenue increased to 45.8% for the three months ended December 31, 2000 compared to 44.7% for the three months ended December 31, 1999, due to cost reduction efforts made in previous quarters. Sales and Marketing. Sales and marketing expenses decreased as a percentage of sales to 28.0% for the three months ended December 31, 2000 as compared to 33.8% for the three months ended December 31, 1999. These expenses decreased to $4.1 million in the three month period ended December 31, 2000 from $5.7 million in the three month period ended December 31, 1999 primarily due to the decrease in the Real-Time Division's worldwide sales and marketing personnel. Research and Development. Research and development expenses increased as a percentage of sales to 19.4% in the three month period ended December 31, 2000 from 14.2% in the three month period ended December 31, 1999. These expenses increased to $2.8 million in the three month period ended December 31, 2000 from $2.4 million in the three month period ended December 31, 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 in October of 1999. These increases were partially offset by cost reduction efforts in the Real-Time Division. General and Administrative. General and administrative expenses increased to 26.0% of sales in the three month period ended December 31, 2000 from 13.5% in the three month period ended December 31, 1999. These expenses increased to $3.8 million in the three month period ended December 31, 2000 from $2.3 million in the three month period ended December 31, 1999 primarily due to a $1.2 million severance charge recorded in the three month period ended December 31, 2000 related to the resignation of the Company's Chief Executive Officer in October, 2000. Other. Included in operating expenses in the three month period ended December 31, 1999 is a $14.0 million non-cash charge for the write-off of in-process research and development in connection with the acquisition of Vivid. Income Taxes. The Company recorded income tax expense of $150,000 in each of the three month periods ended December 31, 2000 and December 31, 1999 on pre-tax losses of $4.0 million and $16.6 million, respectively, due to the inability to recognize the future tax benefit of the respective period's net operating loss. -11- Net Loss. The Company recorded a net loss of $4.2 million or $.08 per share for the three months ended December 31, 2000 compared to a net loss of $16.8 million or $.33 per share for the three months ended December 31, 1999. THE SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 1999 Product Sales. Total product sales were $18.7 million for the six months ended December 31, 2000, an increase of $1.6 million or 9.7% from $17.1 million for the six months ended December 31, 1999. Sales of VOD products increased to $7.3 million in the six month period ended December 31, 2000 from $3.2 million in the six month period ended December 31, 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. Sales of Real-Time products decreased to $11.4 million in the six month period ended December 31, 2000 from $13.9 million in the six month period ended December 31, 1999 continuing the decline in sales of real-time computer systems resulting from the move by our customers to less expensive off the shelf systems from the legacy proprietary systems sold by Concurrent. Service and Other Sales. Service revenues decreased to $12.1 million or 22.0% for the six months ended December 31, 2000 from $15.5 million for the six months ended December 31, 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 decreased 7.4% to $14.3 million for the six months ended December 31, 2000 from $15.4 million for the six months ended December 31, 1999. The gross margin as a percentage of sales decreased to 46.2% in the six month period ended December 31, 2000 from 47.2% in the six month period ended December 31, 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 47.3% for the six months ended December 31, 2000 compared to 46.1% for the six months ended December 31, 1999, due to cost reduction efforts made in previous quarters. Sales and Marketing. Sales and marketing expenses decreased as a percentage of sales to 26.4% for the six months ended December 31, 2000 as compared to 31.4% for the six months ended December 31, 1999. These expenses decreased to $8.1 million in the six month period ended December 31, 2000 from $10.3 million in the six month period ended December 31, 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 17.7% in the six month period ended December 31, 2000 from 14.2% in the six month period ended December 31, 1999. These expenses increased to $5.4 million in the six month period ended December 31, 2000 from $4.6 million in the six month period ended December 31, 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 in October of 1999. These increases were partially offset by cost reduction efforts in the Real-Time Division. General and Administrative. General and administrative expenses increased to 20.2% of sales in the six month period ended December 31, 2000 from 12.0% in the six month period ended December 31, 1999. These expenses increased to $6.2 million in the six month period ended December 31, 2000 from $3.9 million in the six month period ended December 31, 1999 primarily due to a $1.2 million severance charge recorded in the six month period ended December 31, 2000 related to the resignation of the Company's Chief Executive Officer in October, 2000 as well as the increase in VOD division management and other executive corporate administrative personnel. -12- Other. Included in operating expenses in the six month period ended December 31, 1999 is a $14.0 million non-cash charge for the write-off of in-process research and development in connection with the acquisition of Vivid 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 VOD Division offices to Duluth, Georgia. Income Taxes. The Company recorded income tax expense of $300,000 in each of the six month periods ended December 31, 2000 and December 31, 1999 on pre-tax losses of $5.7 million and $19.0 million, respectively, due to the inability to recognize the future tax benefit of the respective period's net operating loss. Net Loss. The company recorded a net loss of $6.0 million or $.11 per share for the six months ended December 31, 2000 compared to a net loss of $19.3 million or $.38 per share for the six months ended December 31, 1999. 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. -13- 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. 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 at the end of 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, and one which 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 both General Instruments and Scientific-Atlanta set-top boxes. -14- 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 $4.8 million and $3.3 million in operating activities during the six month periods ended December 31, 2000 and December 31, 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 with Wachovia Bank 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 January 31, 2001 or December 31, 2000 under the credit facility. The amount of cash available to borrow under the credit facility was approximately $3.4 million and $4.8 million at January 31, 2001 and December 31, 2000, respectively. 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 was in violation of its EBITDA covenant for the quarter ended December 31, 2000. However, the bank has waived compliance with the EBITDA covenant for the quarter ended December 31, 2000. The Company invested $1.8 and $2.2 million in property, plant and equipment during the six month periods ended December 31, 2000 and December 31, 1999, respectively. Current year capital expenditures primarily relate to computer equipment and development equipment for the Company's VOD Division. The Company received $3.3 million in proceeds from the issuance of common stock to employees and directors who exercised stock options during the six month period ended December 31, 2000 compared to $5.4 million during the six month period ended December 31, 1999. At December 31, 2000, the Company's working capital was $13.4 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. -15- CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made in this report, and other written or oral statements made by or on behalf of Concurrent or its representatives, may constitute "forward-looking statements" within the meaning of the federal securities laws. When used in this report, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Statements regarding future events and developments and Concurrent's future performance, as well as its expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. The risks and uncertainties which could affect 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. Other important risk factors are discussed in Item 5 of Concurrent's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, which information is hereby incorporated by reference in this Form 10-Q. 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. -16- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 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. -17- PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: (11) Statement on computation of per share earnings (b) Reports on Form 8-K. None. -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the quarterly report for the quarter ended December 31, 2000 to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 16, 2001 CONCURRENT COMPUTER CORPORATION By: /s/ Steven R. Norton ------------------------- Steven R. Norton Chief Financial Officer (Principal Financial and Accounting Officer) -19-